White House Analysis Finds Tariffs Will Hurt Growth, as Officials Insist Otherwise
Posted June 7, 2018 8:57 p.m. EDT
Updated June 7, 2018 9:00 p.m. EDT
WASHINGTON — A White House economic analysis of President Donald Trump’s trade agenda has concluded that Trump’s tariffs will hurt economic growth in the United States, according to several people familiar with the research.
The findings from the White House Council of Economic Advisers have been circulated only internally and not publicly released, as is often the case with the council’s work, making the exact economic projections unknown. But the determination comes as top White House officials continue to insist publicly that Trump’s trade approach will be “massively good for the U.S. economy.”
The chairman of the Council of Economic Advisers, Kevin Hassett, an economist who came to the administration from the American Enterprise Institute, a conservative think tank, dodged questions at a White House briefing on Tuesday about whether tariffs would hurt an economy that has accelerated during Trump’s tenure. Asked whether the administration’s economists had modeled the effect that a trade war with China would have on the U.S. economy, Hassett said Trump was a great negotiator who would persuade other countries to open their markets to American products.
“If you model a future where everybody else reduces their trade barriers to ours, then that’s massively good for the global economy and massively good for the U.S. economy,” Hassett said.
But the immediate effect of the administration’s trade agenda has been the opposite, as other nations retaliate against the United States with their own tariffs.
The administration has hit Canada, Mexico, Japan and the European Union with steel and aluminum tariffs and threatened tariffs on a range of Chinese goods. In return, many of those countries have either imposed or threatened reciprocal tariffs on everything from steel to pork to orange juice, a move that economists say will depress economic growth.
Chris Rogers, research director for Panjiva, part of S&P Global Market Intelligence, said Mexico’s recently enacted tariffs would hit the U.S. agricultural sector hardest.
“Unsurprisingly, the American suppliers hit most by the restrictions on consumer products shipments are the meat producers Swift Pork (JBS) and Tyson,” Rogers wrote. “The largest non-pork category was processed foods, which includes sweeteners and chewing gum, among others. That has left Wrigley and Costco (including its own-brand products) similarly exposed to the new duties.”
Republican lawmakers and many economists have been warning that the administration’s trade approach will undercut economic growth and partially offset any boost from the $1.5 trillion tax cut that Congress passed and Trump signed last year.
On Wednesday, Rep. Jeb Hensarling, R-Texas and the chairman of the House Financial Services Committee, criticized the Trump administration for throwing “a huge wet blanket of uncertainty on an economy that otherwise they were responsible for making red hot.”
Pursuing a trade approach that actually dampens economic growth would be a significant self-inflicted wound for the Trump administration, which has made achieving sustainable 3 percent economic growth a top priority. Trump has said his tax cut plan, along with his effort to roll back regulations, will provide “rocket fuel” to the economy.
Wall Street research firms have warned that those tariffs, and the retaliatory tariffs that trading partners have threatened in response, will slow growth in the United States. Researchers at Goldman Sachs said this month that the latest round of tariff escalations could reduce economic growth by as much as 0.15 percentage points this year.
Asked about the Council of Economic Advisers analysis, a White House spokeswoman, Lindsay Walters, said in an email on Wednesday that “we don’t comment on internal, deliberative documents.”
In her email, Walters pointed to a report issued on Wednesday by the Organization for Economic Cooperation and Development, which includes an economic model predicting positive outcomes if nations around the world reduce tariff levels. Such reductions, Walters said, are “what the president’s trade reform agenda is focused on: getting the rest of the world to lower their tariffs and get American exports on a level playing field.”
So far, that has not come to pass. At an event unveiling the organization’s report in Washington, its secretary-general, Angel Gurría, warned against tariff escalation. “We regret the proliferation of tariffs announced in the last couple of days,” Gurría said. “We believe they are a threat to the global recovery.”
Other Trump administration officials have also expressed confidence that the White House’s trade policies will not undermine the president’s broader economic agenda.
Wilbur Ross, the commerce secretary, told CNBC on Thursday that the tariffs would probably shave a fraction of a percentage point off the rate of economic growth. He said he expected the rise in gross domestic product to top 3 percent for 2018.
In March, Steven Mnuchin, the Treasury secretary, said he did not think that tariffs would weaken economic forecasts.
“We’re comfortable that we’re going to manage through this so that it is not detrimental to our growth projections,” Mnuchin said. The Trump administration has faced criticism from outside economists for its optimistic projections that show the U.S. economy growing at an average of 3 percent a year for the next decade. Administration officials have publicly tried to discredit nonpartisan reports from organizations such as the Congressional Budget Office that have forecast slower growth over the course of the decade.
The Treasury Department came under fire last year for producing a thin, three-page analysis of the effects of the Republican tax plan on the economy, and Mnuchin has been criticized for insisting that the Trump tax cuts will be self-financing. Most analyses have concluded that the cuts will add more than $1 trillion to the national debt.
On Wednesday, the director of Trump’s National Economic Council, Larry Kudlow, told reporters at the White House briefing that Trump’s trade policies, along with tax cuts and deregulation, were lifting growth, calling the president “the strongest trade reformer of the past 20 years.”
“The world trading system is a mess,” Kudlow said. “It is broken down. Insofar as fairness and reciprocity and, ultimately, free trade, I think this is contributing to our economic growth and our confidence.” The internal findings from the Council of Economic Advisers echo the widely shared view by most economists that tariffs hurt economic growth.
In a March survey of an expert panel of academic economists assembled by the University of Chicago’s Booth School of Business, no economist agreed with the statement, “Imposing new U.S. tariffs on steel and aluminum will improve Americans’ welfare.”
This week, the World Bank said in its Global Economic Prospects Report that if tariff threats led to trade wars, the consequences could be “devastating.” It pointed to intensifying protectionism around the world as a risk to economic growth.
And last year, a group of former Council of Economic Advisers chairmen from both political parties wrote a letter to Trump urging him not to move ahead with steel tariffs, warning that “tariffs would raise costs for manufacturers, reduce employment in manufacturing, and increase prices for consumers.”
Veterans of previous councils said that sometimes the office initiates its own analyses, and sometimes other senior White House officials request an analysis for policy development purposes. But much of the research is held closely for internal consumption, and the administration is unlikely to publicly release a report that contradicts the president’s policy approach.
“The West Wing folks alone determined whether the results of CEA research entered into the public domain, and if so, how and when,” said Harvey Rosen, a Princeton economist and former chairman of President George W. Bush’s Council of Economic Advisers.