77: Happy Tariffversary

Episode Summary

Executive Summary: This episode reviews two major studies on Trump’s 2018 steel and aluminum tariffs to answer who ultimately paid. Both teams find the burden fell largely on U.S. importers, consumers, and firms rather than foreign exporters. The tariffs raised prices, disrupted supply chains, and produced uneven regional effects, with some protected steel areas benefiting while many agriculture- and manufacturing-heavy counties lost purchasing power.

Main Topics: Who paid the steel and aluminum tariffs? (Priority: 5/5): The episode centers on tariff incidence: whether foreign exporters lowered prices or U.S. buyers absorbed the cost. Both studies conclude pass-through was largely onto American consumers and importing firms. Results from the Amiti-Redding-Weinstein study (Priority: 5/5): This paper finds full tariff pass-through in steel and aluminum, little foreign price reduction, higher U.S. producer prices, and sizable trade and welfare losses. Results from the Goldberg-Khandelwal et al. study (Priority: 5/5): Using a different methodology, this paper finds similar aggregate effects but emphasizes county-level exposure, retaliation, and political geography. Distributional effects across U.S. regions (Priority: 4/5): Tariffs helped some Rust Belt steel regions but harmed many other places through higher input costs, higher consumer prices, and foreign retaliation, especially in agricultural counties. Political strategy and retaliation (Priority: 4/5): The discussion explores whether tariffs were aimed at swing counties and how foreign retaliation targeted heavily Republican, agriculture-dependent areas. Short-run versus long-run impacts (Priority: 3/5): Both studies are framed as short-run evidence; the hosts stress that longer-term adjustments could change the incidence and welfare effects.

Key Arguments: Tariffs are taxes, so the key question is who bears the burden: exporters, importers, or consumers. In the first study, foreign steel and aluminum exporters did not cut prices; U.S. purchasers paid the full tariff cost. Tariffs reduced imports in targeted sectors and disrupted supply chains, forcing firms to seek new suppliers and sometimes lower-quality inputs. Higher input costs raised U.S. producer prices, and firms with more market power also increased markups. The direct beneficiaries were concentrated steel-producing areas, but the broader U.S. economy faced welfare losses. The second study finds that politically competitive counties received more tariff protection, suggesting strategic targeting. Foreign retaliation fell disproportionately on heavily Republican, agriculture-heavy counties, producing different regional winners and losers. Even if aggregate losses were relatively small, the distributional consequences across workers, firms, and counties were substantial.

Data Points: Steel import coverage: About one-third of U.S. steel imports - Initial tariffs imposed on March 23, 2018 Aluminum import coverage: About 45% of U.S. aluminum imports - Initial tariffs imposed on March 23, 2018 Trade restrictions expanded: Rest of metals covered on June 1, 2018 - Later phase of the steel and aluminum tariffs US imports in targeted sectors: Down by about $136 billion - Relative to untargeted sectors in the first study Share of US merchandise imports: About 5% - Size of the targeted-sector import decline relative to total merchandise imports Producer price increase: About 1.1% - Estimated rise in U.S. producer prices from the tariffs Monthly losses: About $1.4 billion per month - Losses rising by the last months of the period analyzed by Team David Potential manufacturing jobs restored: Around 35,000 jobs - Best-case scenario estimated by Team David Cost per job saved: About $200,000 per job - Estimated by Team David for tariff protection Typical steel worker annual pay: Just over $50,000 - Used to compare job-saving costs with direct compensation Alternative direct payment comparison: About $140,000 saved per job - If workers were paid their salaries instead of protected by tariffs Overall trade war loss: $7.8 billion - Estimated by Team Amit as the aggregate impact GDP impact: 0.04% of GDP - Team Amit's estimate of the aggregate loss Politically competitive counties: Roughly 40% to 60% Republican vote share - Counties receiving highest protection in Team Amit's study

Pivotal Quotes: "the American consumers or the firms that import... are bearing the full cost of the tariffs" — David Weinstein: Explaining the main finding of his team’s study on tariff incidence "US imports in targeted sectors fell by about $136 billion relative to untargeted sectors" — David Weinstein: Describing the trade-disruption effect of the tariffs "the overall impact of the trade war we find to be at $7.8 billion, which appears small to many" — Amit Khandelwal: Summarizing the aggregate loss estimate from the second study

Implications: The episode suggests tariffs may protect a narrow set of producers while imposing broader costs on consumers, supply chains, and politically important regions. Future trade policy should weigh visible job protection against large hidden losses and uneven regional harm.