As tariff policy in the U.S. continues to rapidly evolve, UC Berkeley faculty weighed in on how these changes could impact trade, the economy, employment and international relations.
At a recent panel discussion titled “The New Tariff Regime: How the Trump Administration Is Upending the Global Trade Order,” Economics Chair and Professor Andrés Rodriguez-Clare, Economics and Political Science Professor Barry Eichengreen and Berkeley Haas Professor Matilde Bombardini spoke about the impact of the Administration’s tariff policies.
The panelists provided a historical context of how the U.S. has used tariffs, before outlining the potential global consequences of inciting a trade war by imposing tariffs on other countries. These consequences could range from strained international relations to disruptions in global supply chains, they explained.
“Often the results of a trade war are that all countries lose,” Rodriguez-Clare said.
Eichengreen added that while the initial assumption was that the U.S. would win the trade war and no countries would want to retaliate, that’s not necessarily the case.
“Nobody had yet recognized that we would be less able to substitute certain sources of supply,” Eichengreen said.
For example, in the ongoing trade war between the U.S. and China, Rodriguez-Clare explained that China has retaliated by imposing restrictions on its rare earth exports, knowing that it has 90% or more of the world’s supply of these goods. The U.S. could then have trouble finding substitutes for these rare goods.
“So, if you’re the only supplier, and you’re selling something that is critical to supply chains in our country, then that makes it less likely that the U.S. wins [the trade war],” Rodriguez-Clare said.
The panelists also discussed employment, noting there could be a rise in manufacturing employment driven by increased demand for American-made goods following higher tariffs on imported tools and metals like steel and aluminum. However, since the U.S. is near full-employment, they predicted this would mean a decrease in agricultural and service employment as people move across sectors.
However, they questioned whether people would want these newly-created manufacturing jobs, as they may not come with higher pay and be temporary or contract-based. They also noted that many workers are generally hesitant to join the labor market in its current state.
When it comes to the tariffs’ effect on prices — which many Americans are concerned about — the panel presented data showing that President Trump’s 2018 tariffs had no measurable effect on foreign export prices (the prices at which goods are sold to the U.S. by other countries). Instead, the full effect was on domestic prices — the prices goods are sold at in the U.S. The data, they said, suggested that higher tariffs mean that American consumers will pay more for certain goods.
“People often ask, ‘Who is paying for the tariffs?’ In this particular case, it’s us paying for them,” Bombardini said. “That doesn’t mean that it’s always us paying for them. In principle, it could’ve been the foreign country paying for them, but according to this data, that’s not the case.”
This event was led by Berkeley Haas Professor Matilde Bombardini and co-sponsored by the UC Berkeley Social Science Matrix, the Haas School of Business and the Clausen Center for International Business & Policy.