“Trump is bringing jobs back to the US with Tariffs,” said James Benson Jr., a retired Michigan autoworker, whom Trump paraded out to the media on April 2 to support his so-called ‘Liberation Day’ announcement.
As the token working-class supporter, used for a visual image in a press conference, Mr. Benson is unfortunately misinformed in his understanding of trade deficits; in actuality, it is the US trade deficit that has kept low-income and working-class Americans, such as autoworkers, from falling even further behind.
In further support of their tariff policies, the Office of the United States Trade Representative, which is an Executive Office of the President, released an overly complex statement on their Reciprocal Tariff announcement that:
“The failure of trade deficits to balance has many causes, with tariff and non-tariff economic fundamentals as major contributors. Regulatory barriers to American products, environmental reviews, differences in consumption tax rates, compliance hurdles and costs, currency manipulation, and undervaluation all serve to deter American goods and keep trade balances distorted. As a result, U.S. consumer demand has been siphoned out of the U.S. economy into the global economy, leading to the closure of more than 90,000 American factories since 1997, and a decline in our manufacturing workforce of more than 6.6 million jobs, more than a third from its peak.”
While Mr. Benson clearly is passionate in his support for the President, and the Office of the United States Trade Representative is trying to justify their policies, the reality is that much research has shown that trade deficits actually do not impact employment at the rate that President Trump laments, nor do trade deficits hurt working class citizens.
Derek Scissors, a Senior Fellow with the American Enterprise Institute, who has studied the issue in depth, writes, “if trade deficits have caused job loss for decades, millions of jobs on some counts, we should see a clear and sustained relationship between trade and unemployment. We don’t. It’s never clear, much less clear for a long time.” Furthermore, Scissors examined the period from 1960 to 2014 and if anything found that “if there is a relation, it might be that trade deficits are associated with higher employment.”
So, are trade deficits necessarily bad for working-class Americans, as Trump purports?
The answer is no.
Trade deficits are primarily driven by consumer demand. Guided by a historically strong US dollar – the world’s reserve currency – which enables the US consumer to spend at an advantage over their global neighbors, the US economy is essentially a consumption-driven economy. Americans want inexpensive goods – including food – to support a better life for their families.
US consumers buy cheap foreign goods – mainly from China – which in turn sends US dollars to China, who then turns around and buys US Bonds – which ultimately spurs lower interest rates and funds the US Government and their ever-ballooning debt. An ever-cyclical exchange that benefits both countries.
Furthermore, in a time when income inequality continues to grow – the gap between America’s wealthiest and its poorest continues to widen steadily year after year, with the wealth index gap ever-widening since 1960.
While Wall Street likes to point to the consumer confidence index as a gauge of the American consumer’s robustness, the data is inherently skewed by the rate at which the wealthy spend.
The impact of Trump’s tariffs will raise consumer prices. We are already seeing the effects. What will this mean for the working class? How will they continue to afford essential goods and services?
Even if Trump was correct in his assessment that the tariffs will bring jobs back to the US – which he is not – the reality is that factories take years to build which means any theoretical new positions won’t actually be available to US workers for many years to come, so what will they do in the interim?
The reality is that Trump’s new trade war will hurt the working class more than anyone.