Permanent Tariffs on China Could Create Up To 1 Million US Jobs in Five Years

Stanley Black & Decker CEO Jim Loree announced in May that Stanley would move production of Craftsman wrenches from China to Texas next year, investing $90M to build a plant employing 500, manufacturing 60 million parts a year at similar costs to China with advanced forging machinery. "We're pushing very hard to manufacture where we sell," Loree told the WSJ.

New CPA Study Shows Permanent, Across-The-Board Tariff on China Would Lead to Economic Growth & Up To 1 Million Additional Jobs

Two months ago we published a study describing the results of our economic modeling of the effects of a permanent, across-the-board 25 percent tariff on all US imports from China. We found that after five years, the tariff would lead to an increase in US GDP of $125 billion and the creation of an additional 721,000 US jobs. The tariff would stimulate the US economy through two channels: first, the relocation of US-bound production from China to other nations would lead to a reduction in the average cost of imports because many alternative production locations, such as those in Southeast Asia, today have lower costs of production than China; and secondly, because a portion of the production in China relocated to the US, would directly stimulate the US economy. 

We now add several refinements to the model. Specifically, we introduce the effects of Chinese retaliation with tariffs on US exports to China; we add the effects of the US Department of Agriculture’s (USDA) programs to support farmers and food processors negatively affected by Chinese retaliation; and, we add the impact of the US government spending the revenue generated by the China tariffs. We find that Chinese retaliation reduces the benefit to the US economy by 14 percent, but the net benefit remains large. The USDA programs provide relief to the agricultural industry and restorethe net benefit to almost the same level as before the retaliation. Finally, we look at the impact of the government reinvesting the tariff revenue in the US economy by boosting government spending. The tariff revenue totals $547 billion over five years. If those funds are reinjected back into the economy each year, this additional stimulus to growth results in a $167 billion boost to GDP and 1.05 million additional jobs in 2024.

The results of the Coalition for a Prosperous America (CPA) model show that tariffs will have a sustained, positive impact on the US economy, including jobs, output, and investment. Our results differ markedly from other economic modeling efforts regarding tariffs (see, for example, this study), which found negative impacts. The differences result primarily from different assumptions about how businesses and consumers react to tariffs. Other models reflect a pro-free-trade bias and assume that (a) no production returns to the US as a result of tariffs (b) prices of US imports always rise when imports move from China to third countries and (c) US consumers react very negatively to higher prices, leading to reduced sales and output in the US economy. A close study of the available empirical evidence shows these assumptions are unwarranted. Tariffs will always induce many effects in the US and global economy, some negative and some positive. A realistic, balanced view of these effects shows that tariffs imposed on a nation with whom the US has a huge bilateral trade deficit will, unsurprisingly, produce positive effects as the domestic US economy responds to the stimulus of demand redirected to home production.