The July trade data released on Friday by the Commerce Department provides evidence that the tariffs implemented by the Trump administration on Chinese imports are working. The purpose of the tariffs, of course, is to shift manufacturing away from China and back to the U.S. to bolster the U.S. economy and manufacturing employment and break America’s dependence on massive budget deficits to counteract the damage done by trade deficits.
You won’t find much evidence of it in the headline number – the overall trade deficit – which shrunk marginally in July to $54 billion, a figure actually slightly worse than a year ago – $53.4 billion in July, 2018. You have to look deeper at what’s happening with manufactured goods – not just “goods” in general, which the Commerce Department tracks and which includes trade in resources like oil and and farm products that have little impact on job creation. The trade deficit in manufactured goods has been deteriorating rapidly for many years, interrupted only by the “Great Recession” in 2008/2009. From January, 2010 to December of 2018, the deficit in manufactured goods nearly tripled, from $28.6 billion to $76.5 billion. However, in the past twelve months, the deficit in manufactured goods has risen by only $0.3 billion – an actual decline when adjusted for inflation – and has actually fallen by $6.4 billion since the record of $76.5 billion set in December.
The impact on trade with China has been dramatic. Through 2018, the deficit with China had been rising at a rate of about 10% per year, from $56.9 billion in 1998 to $419.5 billion in 2018. In 2019, however, the deficit has fallen by 12% and the rate of decline is accelerating, though it ticked up slightly in July, likely the result of importers stockpiling goods in anticipation of the next round of tariffs.
The effect on manufacturing employment in the U.S. has been much less dramatic, though there has been some effect. Manufacturing employment gains have been slow in 2019 after a strong 2018, but that may be about to change. The Labor Department reported on Friday that, while the average work week in the U.S. rose a tenth of an hour to 34.4 hours, the manufacturing work week rose by 0.2 hours to 40.6 hours. That bodes well for an overdue jump in manufacturing employment as employers look to cut overtime costs. Also, although the headline number of Friday’s employment report – 130,000 jobs added in August (according the establishment survey portion of the report) – was below expectations for a gain of about 158,000 – what went unreported was that employment in the U.S. (as measured by the household survey portion of the report) rose by nearly 600,000!
And there’s this: https://www.reuters.com/article/us-usa-economy-women/tight-u-s-labor-market-shrinks-gender-and-race-gaps-to-record-lows-idUSKCN1VR2JC. In August, the gap in the labor force participation rate between men and women fell to an all-time record low and black unemployment also fell to an all-time record low.
Still, job gains in manufacturing at this point could be and should be much better. What’s holding it back is Trump’s failure to expand his tariff policy beyond China, enabling companies to shift production from China to secondary suppliers in other countries – especially Mexico – where the trade deficit has jumped 24%. Mexican workers have been the biggest beneficiaries of the tariffs on China, not Americans.
Trump can’t really claim that he’s “Made American Great Again” until manufacturing jobs come back to the U.S. in a much bigger way. That can’t happen until he applies tariffs beyond China to include Mexico and imported autos from Europe, Japan and South Korea. The results with China prove that they work. Why is he holding back?