After Mr. Trump’s regulatory and tax relief boosted real economic growth from 1.8% in 2016 to a 13-year high of 3% in 2018, tariffs stunted growth. That was as the Congressional Budget Office predicted, with growth slowing to 2.6% in 2019, the first full year of the tariffs. Employment in manufacturing continued falling as a percentage of total employment at the same rate as the previous decade. Before the tariffs were imposed, manufacturing jobs were 8.5% of total employment. The figure fell to 8.4% by the end of 2019 and 8.1% today. Manufacturing output, after rising 2.5% during the first three quarters of 2018, fell when the tariffs fully kicked in. By the end of 2019, the inflation-adjusted value of manufacturing output was 6.2% lower than when the tariffs were imposed.
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An across-the-board tariff would stimulate U.S. production of goods that we now import more cheaply. To produce these goods at home, American workers and capital would be drawn away from producing other goods and services that we produce more efficiently. Productivity, wages and the return on capital would fall as we produce things at home that we could buy more cheaply abroad. This would simultaneously reduce production in industries for which our labor productivity and capital returns are higher. Moreover, because half of our imports are component parts used by U.S. producers, tariffs would further increase our production costs and reduce our competitiveness at home and abroad.
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