This is the first in a regular feature, “Professor of the Week,” highlighting the research of leading faculty members at Poets & Quants’ top-rated business schools.
The tariffs on imported goods imposed by President Donald J. Trump, whose stated goal was to protect the jobs of blue-collar American workers, didn’t have much impact on the U.S. economy but have hurt another group of his core supporters—people in rural areas.
That is one of several key findings in a new study by Professor Amit K. Khandelwal of the Columbia Business School and three other scholars, which has gotten broad coverage from media outlets like Time and Reuters.
‘THE RETURN TO PROTECTIONISM’
In March 2018, President Trump imposed tariffs on imported steel and aluminum, including imports from China. The president has since increased the amount of those tariffs and extended them to other items and countries, such as Mexico, Canada, and the European Union, provoking in-kind retaliation. For months, the U.S. and China have been negotiating to end the trade war.
Now, more than a year later, the new study by Khandelwal, the Jerome A. Chazen Professor of Global Business at Columbia, and three other scholars—UCLA Anderson’s Pablo D. Fajgelbaum, Pinelopi K. Goldberg (now on leave from Yale University as Chief Economist of World Bank Group), and Patrick J. Kennedy, a PhD candidate at UC Berkeley—actually calculated the damage and showed where the trade war has had the biggest impact.
Their working paper, “The Return to Protectionism,” whose latest draft was published in March by the National Bureau of Economic Research, called the measures “the most comprehensive protectionist trade policies implemented by the U.S. since the 1930 Smoot-Hawley Act and the 1971 ‘Nixon shock.’” Altogether, Khandelwal and his colleagues found, the U.S. raised tariffs to 17.6% from 2.6% on 12,007 imported products worth $303 billion as of 2017. Targeted countries responded by raising tariffs to 23% (from 6.6%) on 2,931 U.S. exports worth $96 billion.
TRADE WAR HAS COST COMPANIES & CONSUMERS NEARLY $69 BILLION
But the researchers concluded that the macro impact on the U.S. economy through November 2018 has been minimal: U.S. producers and consumers have lost $68.8 billion from the trade war, or 0.37% of GDP. But as customers switch to domestically produced goods, there are offsetting gains to the U.S. economy, so the total damage from the trade war has been only $7.8 billion a year, a mere 0.04% of GDP. “We find substantial redistribution from buyers of foreign goods to U.S. producers and the government, but a small net loss for the U.S economy as a whole,” they write.
The trade war’s impact isn’t evenly distributed, nor was it intended to be, Khandelwal and his colleagues discovered. “These U.S. import tariffs favored workers in tradeable sectors living in electorally competitive counties,” they write. In fact, their data suggested that “counties with a 40-60% Republican vote share received more protection than heavily Republican or Democratic counties.” It appears, in other words, as if the tariffs were targeted at the “swing” districts that gave President Trump a narrow Electoral College victory in the 2016 election.
But when U.S. trading partners retaliated, they targeted agricultural goods (such as corn, soybean, apples, and pork products) produced in heavily Republican districts. “The counties hit hardest by the war are those concentrated in the Midwestern Plains,” the authors write. “Workers in very Republican counties bore the brunt of the costs of the trade war, in part because retaliations disproportionately targeted agricultural sectors.”
MIDWEST & MOUNTAIN WEST BORE MOST OF THE RETALIATION
“The Great Lakes region of the Midwest and the industrial areas of the Northeast received higher tariff protection, while rural regions of the Midwestern plains and Mountain West received higher tariff retaliation,” the authors conclude.
The political impact of the trade war is beyond the scope of this study, but the rest of the world is well within Khandelwal’s purview. Until recently, he was the director of the Jerome A. Chazen Institute for Global Business, which was endowed by Chazen, a co-founder of fashion company Liz Claiborne, in 1990 with a gift of $10 million. At the time it was the largest contribution in the Columbia Business School’s history.
Khandelwal, 38, who got his BA in mathematics from Northwestern and did all his graduate work in economics through his Ph.D. at Yale, has been teaching at Columbia since 2007. He specializes in economic development and emerging markets, including a Global Immersion class, “Doing Business in Myanmar.” This course, the catalog says, “will provide analytical and case-based perspectives on Myanmar’s economic potential.” It meets for half a term at Columbia and includes a one-week trip to meet business executives and leaders of nongovernmental organizations (NGOs) and multilateral agencies in Myanmar.