Economists say JD Vance is wrong about benefits of tariffs outweighing negatives

With former President Donald Trump proposing aggressive tariffs on foreign goods — including a 10% tariff on all nondomestic goods sold in the U.S. — his 2024 presidential running mate, Ohio Sen. JD Vance, R-Ohio, defended their benefits on NBC’s "Meet the Press." 

"I think economists really disagree about the effects of tariffs," Vance told host Kristen Welker Aug. 25. He said some economists say tariffs raise costs for consumers. "But what other people say, and I think the record supports this other view, is that it causes this dynamic effect where more jobs come into the country. Anything that you lose on the tariff from the perspective of the consumer, you gain in higher wages, so you're ultimately much better off."

When contacted for comment, a Republican National Committee spokesperson cited a study by Coalition for a Prosperous America, a group of manufacturers and labor unions that generally supports higher tariffs. The study says a 10% tariff "would stimulate domestic production and raise economic growth to produce a 5.7% increase in real income for the average American household."

Most economists disagree with this idea. Our previous review of academic studies of real-world tariffs concluded that consumers ultimately shoulder most of the burden in higher prices for goods, and the burden outweighs tariffs’ economic benefits.

"In any profession that includes more than 20,000 members, there will be disagreement, and I’m sure Sen. Vance can recruit some adherents to his views," said Gary Burtless, an economist with the Brookings Institution, a think tank. But, Burtless said, "the great majority of economists favor freer trade policies," which means fewer tariffs. 

The idea behind imposing tariffs is to make American companies more competitive with their foreign counterparts, by increasing prices on imported goods and therefore making domestic goods more attractive to consumers. As American companies prosper, the thinking goes, they can hire more workers and increase employees’ pay. Those workers, in turn, would have more money to spend, spreading those dollars around the economy more broadly.

Economists have told us, however, that real-world examples of tariffs working as intended are rare. Consumers in the tariff-levying country are on the losing end of the deals, by having to pay higher prices, they said.

When the tariff levied is small, an importer may choose to keep its prices stable rather than pass the tariff cost along to the consumer. But that is not a certainty.

"Tariffs artificially raise the cost of doing business, which depresses overall economic production in the form of lower gross domestic product, artificially higher prices, and fewer goods sold," Boise State University political scientist Ross Burkhart, who studies trade policy, told PolitiFact. "For the consumer, this means a reduction in purchasing power."

Tariffs also mean that producers pay more as prices rise for materials used to make products domestically. 

"There are far more jobs in industries that use steel as an input than there are steelmaker jobs," Daniel Mitchell, an independent libertarian economist, told PolitiFact. And higher input costs are also likely to be passed on to consumers, economists said.

Meanwhile, U.S. producers can expect to face retaliatory tariffs, which can also raise prices for U.S. consumers. And a decline in international competition hurts consumers by enabling the remaining producers to raise prices.

There is also evidence that because lower-income Americans tend to spend a larger portion of their income on goods, they feel the pinch from tariffs more so than affluent Americans.

"Economists will disagree about the exact amount of harm this inflicts on consumers and the U.S. economy more generally," Burtless said. "But most of us probably agree there will be at least some reduction in our standard of living, at least eventually."

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stated on October 27, 2024 in Social media posts

Photo shows people lined up outside Madison Square Garden before an Oct. 27 rally by former President Donald Trump.

Douglas Holtz-Eakin, president of the American Action Forum, a center-right group, called tariffs an "unambiguous negative for consumers," and said "there is vast empirical literature to buttress this conclusion." 

Studies of past tariff impacts on consumers, jobs and wages include: 

• The Tax Foundation, a center-right group, found in a 2024 study that tariffs on thousands of products — enacted under Trump and continued under President Joe Biden — reduced employment by 142,000 full-time equivalent jobs, while also shaving 0.2% off gross domestic product. (GDP is the market value of all the goods and services a country produces.)

• A 2024 paper published by researchers from Cornell, Yale, Duke and New York universities found that tariffs on imported solar panels were depressing employment and wages. Lifting the tariffs, the authors concluded, would have increased domestic employment and wages on net.

• A 2020 UCLA study calculated consumer losses of $51 billion from Trump tariffs through 2019, which was greater than gains to producers and the federal Treasury from tariff payments.

• A 2019 study for the National Bureau of Economic Research found that the costs of Trump’s tariff fell entirely on domestic consumers, with a $1.4 billion-per-month reduction in U.S. inflation-adjusted income by the end of 2018.

"Tariffs generally hurt consumers by raising prices and distorting the market," Tara Sinclair, a George Washington University economist said. "They may help specific areas and industries, and they may look like a small per-person cost, but they're generally very high cost on a per-job saved or created basis."

Sinclair and other economists acknowledged that tariffs can make sense in limited cases, such as for national security reasons. There’s also a case to be made for protecting domestic producers that face sudden overseas competition, said Dean Baker, co-founder of the liberal Center for Economic and Policy Research.

But even in those scenarios, it requires "carefully thinking through which sectors are being protected, rather than blanket protection," Baker said.

There is little disagreement on this question among credentialed economists, according to surveys.

In 1990, 2000, 2011 and 2021, researchers surveyed members of the American Economic Association, a professional group for economists, to gauge consensus among the group’s members on a range of economic propositions. One proposition asked whether "tariffs and import quotas usually reduce general economic welfare."

In each of the surveys spanning three decades, 94% to 95% of economists surveyed agreed that tariffs reduced general economic welfare.

Vance said, "Anything that you lose on the tariff from the perspective of the consumer, you gain in higher wages, so you're ultimately much better off."

The majority of economists believe the negative impacts from tariffs, including higher costs, consistently outweigh the benefits for consumers. Academic and think tank studies on tariffs’ effects bolster the economists’ views.

We rate the statement False.