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Trump Tariffs May Lead to Job Cuts, Shutdowns, Fed Study Says

Steve Matthews
The remnants of buildings stand on the grounds of the former U.S. Steel McDonald Works steel mill near Youngstown in Campbell, Ohio, U.S., on Tuesday, Dec. 1, 2016. The conventional wisdom among election observers and establishment politicians is that widespread anger at being left behind by globalization compelled Britons to forsake the European Union and Americans to vote for Donald Trump.

A Federal Reserve Bank of St. Louis economist warned that President Donald Trump’s tariffs on Chinese goods may backfire, causing job cuts and plant shutdowns.

Higher tariffs have affected mostly intermediate goods from China -- supplies used by U.S. manufacturers in producing final products -- so they have the effect of raising costs and resulting in higher prices, economist Fernando Leibovici wrote in an On The Economy Blog published on the bank’s website Thursday. That will hurt their competitiveness compared with the rest of the world, he said.

“This evidence suggests that raising tariffs on intermediate inputs may have a significant negative impact on U.S. manufacturers,” Leibovici wrote.

The blog echoes the view of the economist’s boss, St. Louis Fed President James Bullard, who last month said he was hearing “full-throated angst” from regional companies about the tariffs. Bullard said “all aspects of the economy are affected, but agriculture is certainly” being hit hard.

About 22 percent of “intermediate inputs” used by U.S. manufacturers are sourced from abroad, according to Leibovici.

“By raising the price of intermediates, the recent tariff hike may force U.S. manufacturers to raise prices, thus hurting consumers and leading to cuts in production,” Leibovici wrote. “Moreover, some firms might not be able to compete in this alternative environment and might have to shut down.”

Trump has announced tariffs on steel and aluminum and this week the administration said it would impose a new round of 10 percent tariffs on $200 billion of Chinese goods as part of a dispute over alleged Chinese theft of U.S. intellectual property.

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