May 15, 2019 –
Tariffs on China would actually help skyrocket the U.S. economy, say two economists.
A 25 percent tariff on all imports from China would create 1.36 million jobs in five years, according to an economic study by the Coalition for a Prosperous America (CPA).
The CPA economists – Jeff Ferry and Steven L. Byers, Ph.D. – analyzed the theoretical impact on the U.S. economy of a permanent 25 percent tariff on imports from China from 2020 to 2024.
“Our model demonstrates that across-the-board U.S. tariffs on Chinese imports stimulate the U.S. economy, increase U.S. production and jobs, and lead to a reduction in U.S. import costs over time,” says CPA Chief Economist Jeff Ferry.
“This result is consistent with U.S. experience in 2018 and early 2019, when tariffs in steel, aluminum, and other industries led to job creation in those sectors. The modeling results provide additional evidence that decoupling the U.S. economy from China and its predatory trade and subsidy practices will make the U.S. economy stronger, with more production, investment, and jobs,” he explains.
The authors conclude that the nation’s GDP would grow an additional .2 percent in that period by adding $232 billion in growth.
How tariffs help
Firstly, their economic model indicates strong economic growth would come from production jobs returning to the U.S. from China. The nation would benefit by an additional $1 billion in 2020 and would explode to $69 billion in 2024.
Secondly, production moving from China to lower-cost third world countries would lower the costs of imports. This means consumption and production would create even more growth.
The study covers 156 industrial sectors.
As for lower-cost third world countries, the economists surveyed results from 34 countries. Nine of the countries, such as Thailand, Indonesia and Turkey, have a lower manufacturing cost-competitiveness index than China.
Actually, production jobs already started exiting China for such countries even before President Trump increased tariffs.
The study shows $3.23 billion in production would leave China in 2020. In 2024, $297.4 billion would leave.
Reduction in costs
As for import prices for goods produced in the lower-cost third world countries, the average cost of imports would decrease by 4.6 percent after five years.
In considering inflation, the economists admit it increases but never more than two-tenths of a percentage point.
“This is because competing forces are at work,” assert the authors.
“On the one hand, Chinese imports become more expensive due to the tariff,” they add. “On the other hand, production moving to other countries tends to reduce the average cost of imports.”
They cite research by the well-known Boston Consulting Group.
It “shows lower production costs in many non-China locations, which is supported by anecdotal evidence from numerous manufacturers, including comments from public companies as well as private information received by CPA from its members,” write the authors.
They assert there’ll be an increase of 365,363 new manufacturing jobs, which comprise 27 percent of the new jobs.
While acknowledging production costs in the U.S. are higher, the economists maintain reshoring manufacturing jobs to the U.S. from China would provide more economic benefits:
- Transportation costs would be lower
- More logistical flexibility
- Closer connectedness to consumer markets, distributors and senior management
- Insulates companies against the uncertainty of potential future trade tensions
The study forecasts imports from China would plummet 71 percent by 2024 to $154 billion.
“Production and employment will increase GDP due to the shift of some manufacturing industry back to the U.S.,” write the authors.
“Further economic gains will result from accelerating production shifts to lower-cost, non-China countries,” they add.
“The boost to U.S. national security is significant, though outside the scope of this purely economic model,” they assert. “Decoupling from China reduces our dependence on an unfriendly nation which is a military, industrial, and geopolitical rival,” they conclude.
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“We prefer paychecks to welfare checks for the American people and a robust middle class with rising wages.”