• 15 hours Renters Are Striking As COVID Reshapes Real Estate
  • 23 hours Nothing Can Stop The Tesla Boom
  • 2 days 9 Ways The Lockdown Is Playing Out Around The World
  • 2 days WeWork Sues SoftBank For Withdrawing $3 Billion Insider Payoff
  • 3 days Solving Transportation’s Biggest Problem
  • 3 days Big Banks Could Win Big On Fed Small Business Bailout
  • 3 days Trump Increases Pressure On Venezuela
  • 3 days Researchers Create Organic Battery
  • 4 days Gold Is Still A Safe Haven, But Not Very Alluring
  • 4 days China Is Buying Up Billions Of Barrels Of Cheap Crude Oil
  • 5 days Are Gold Stocks Going To Bounce Back?
  • 5 days The Politics Of A Pandemic
  • 6 days What Does CHina’s EV Slowdown Mean For The Battery Metals Sector?
  • 7 days COVID Report Cards Will Brand Businesses Forever
  • 7 days Trump Tweet Sends Oil Soaring 25%
  • 8 days Why The Coronavirus Economic Crash Is Worse Than You Think
  • 8 days Is A Global Currency Necessary?
  • 9 days America Has Shed 500,000 Millionaires Since The Coronavirus Lockdown Began
  • 9 days Trump Wants Another $2 Trillion Economic Intervention
  • 10 days The Surprising Businesses Deemed “Essential” During The Coronavirus Lockdown
How COVID-19 Could Spark The Next 'Arab Spring'

How COVID-19 Could Spark The Next 'Arab Spring'

The coronavirus is already wreaking…

Nothing Like A Pandemic For A Spur Of Creative Capitalism

Nothing Like A Pandemic For A Spur Of Creative Capitalism

The market has officially entered…

Don’t Worry About China’s Factory Slowdown

Don’t Worry About China’s Factory Slowdown

Satellite imagery shows that pollution…

Frank Holmes

Frank Holmes

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing…

Contact Author

  1. Home
  2. Markets
  3. Economy

Tariffs Are Causing A Slowdown In U.S. Manufacturing

Manufacturing

The U.S. manufacturing sector contracted for the fifth straight month in December, with the monthly reading from the Institute for Supply Management (ISM) hitting its weakest point in more than 10 years. The purchasing manager’s index (PMI) fell to 47.2, a level we haven’t seen since June 2009, as global trade tensions continued to take a toll on the country’s manufacturers.

(Click to enlarge)

The news comes as two new papers indicate that U.S. tariffs on imported goods, particularly those originating in China, have had more of an impact on manufacturing and industrial output than initially believed.

Tariffs Have Contributed Toward a Manufacturing Slowdown

In one paper, Federal Reserve economists Aaron Flaaen and Justin Pierce show that the tariffs have not achieved their desired effect—that is, to protect against “what were deemed to be the unfair trade practices of trading partners”—but instead are “associated with relative reductions in manufacturing employment and relative increases in producer prices.”

Take a look below. Both industrial production and manufacturing employment were growing at a healthy clip throughout 2017 and most of 2018, despite the first wave of tariffs being imposed on solar panels and dishwashers in January of that year. Since the end of 2018, though, manufacturing has stalled as U.S.-imposed tariffs and retaliatory tariffs from its trading partners have hampered growth.

According to Flaaen and Pierce, the additional taxes “have not boosted manufacturing employment or output, even as they increased producer prices.”

(Click to enlarge)

American Firms and Consumers on the Hook

In another paper, released by the National Bureau of Economic Research (NBER), economists Mary Amiti, Stephen Redding and David Weinstein write that “U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers,” despite policymakers’ insistence that they are not. Related: Why Smart Money Is Looking To Short Aramco

“Quite surprisingly,” they say, “we have found that in most sectors, these U.S. tariffs have been completely passed on to U.S. firms and consumers.”

They add that the taxes, the first of which were imposed in early 2018, are “only now having their full impact on U.S. import volumes.”

Interestingly, the U.S. trade deficit with the rest of the world recently narrowed to its lowest point in President Donald Trump’s three-year administration, according to the Census Bureau. In the first 11 months of 2019, the deficit decreased 0.7 percent, or $3.9 billion, from the same period a year earlier. In my mind, this raises some doubt about the economists’ findings.

Looking Forward to the “Phase One” Trade Deal

One week from today, President Trump is scheduled to sign the “phase one” of the highly-anticipated trade deal with China, which should relieve some of the pressure that manufacturers have been under for over a year now. My hope is that both sides can commit to the agreement, so that additional resolutions can be made and trade conditions can recover.

By Frank Holmes 

More Top Reads From Safehaven.com:

Back to homepage

Leave a comment

Leave a comment