117. Trump's Import Tariffs Have Hurt US Exports

Episode Summary

Executive Summary: The episode examines research showing that Trump-era import tariffs did not just raise costs for U.S. firms—they also slowed those same firms’ export growth. Using linked Census firm-trade data, Kyle Handley and coauthors find that companies deeply embedded in supply chains and hit by tariffs saw weaker export performance, suggesting tariffs on intermediate inputs can disrupt production, reduce competitiveness, and potentially worsen the trade deficit.

Main Topics: Tariffs as a supply-chain shock (Priority: 5/5): The discussion centers on how import tariffs on intermediate inputs disrupted firms’ supply chains, creating costs and adjustments that spilled over into export performance. Linking importers and exporters in firm-level data (Priority: 5/5): Handley explains how linked Census trade transactions data allow researchers to connect firms’ import and export patterns and measure tariff exposure using pre-war 2016 trade behavior. Magnitude of exposure across firms and employment (Priority: 4/5): The episode emphasizes that a relatively small number of large firms account for a very large share of exports, meaning tariff exposure is economically significant even if not widespread across all firms. Evidence that tariffs reduced export growth (Priority: 5/5): The paper finds that more tariff-exposed products experienced slower export growth over late 2018 to mid-2019, even after accounting for other shocks such as exchange rates and sector trends. Channels: cost, uncertainty, and supplier switching (Priority: 4/5): The conversation explores why export growth fell: direct tariff costs, policy uncertainty, and the expense of changing suppliers or production locations. Policy implications for trade deficits (Priority: 4/5): The episode concludes that tariffs aimed at shrinking the trade deficit may backfire if they also reduce exports, especially when applied to imported intermediate inputs.

Key Arguments: Firms that import and export are often the same large, highly productive firms, so import tariffs can directly affect export performance. Using 2016 trade patterns as a proxy is reasonable because supply chains are sticky and firms tend to import the same products year after year. The most informative exposure measure is not simply whether a firm pays any tariff, but whether the tariffed inputs are tightly connected to its export supply chain. More tariff-exposed products saw about 2% lower export growth from Q4 2018 to Q3 2019, which is sizable relative to prior quarterly export growth. The impact is unlikely to be driven by exchange rates or broad sector shocks because the analysis compares detailed product categories and controls for other factors. Cost alone does not explain the full effect; uncertainty and costly supplier changes likely also dampened export growth. If tariffs are imposed on intermediate inputs, they can undermine the administration’s stated goal of reducing the trade deficit by suppressing exports as well as imports.

Data Points: U.S. exports accounted for by affected firms: 84% - Based on 2016 firm patterns, firms hit by tariffs were responsible for the vast majority of U.S. exports. Share of U.S. exporters paying a tariff: About one-third - Roughly a third of exporters were also importing tariffed goods. Tariff cost per worker (whole economy): About $900 per worker - Implied duties at affected firms if input bundles had not changed. Tariff cost per worker (manufacturing): About $1,600 per worker - Higher implied burden in manufacturing firms. Tariffs as share of payrolls: About 1% to 2% - The episode frames tariff costs as a meaningful portion of payrolls. U.S. export share affected by retaliation: 8% - Portion of U.S. exports directly hit by foreign retaliation. Exporting firms affected by retaliation: 20% - Share of all exporting firms exposed to retaliation based on 2016 patterns. Employment affected by retaliation: 23% of non-farm private sector employment - Employment at firms exposed to retaliatory tariffs. Firms that both import and export: Around 80,000+ firms - Out of roughly 300,000 importers and 300,000 exporters, about 80,000 do both. Importing firms: Around 300,000 - Approximate number of importers in the data. Exporting firms: Around 300,000 - Approximate number of exporters in the data. Average export growth decline: 2% lower - More supply-chain-exposed products had lower export growth from Q4 2018 to Q3 2019. Pre-war quarterly export growth: 4% to 8% - Export growth before the trade war, used as a benchmark for significance. Effect if tariffs were not tightly linked to supply chains: About 60% lower decline - The estimated export slowdown would be much smaller if tariffs were less connected to firm supply chains.

Pivotal Quotes: "Rising Import Tariffs, Falling Export Growth, When Modern Supply Chains Meet Old Style Protectionism." — Kyle Handley / episode reference: Title of the research discussed, summarizing the paper’s central claim. "the companies that are importing are also the ones that are exporting" — Chad Baune: Framing the core mechanism behind why import tariffs can affect exports. "you might reduce the trade deficit on the import side, but if you crimp export growth as well, then that is going to make the trade deficit bigger" — Kyle Handley: Final takeaway on why tariffs may be counterproductive to stated policy goals.

Implications: Tariffs on imported inputs can hurt the very firms that drive U.S. exports, raising costs, creating uncertainty, and slowing growth. For policymakers, this suggests import tariffs may weaken competitiveness and potentially widen, not shrink, the trade deficit.