Manufacturing in the United States shrinks in April

San José, CA – Two U.S. economic reports showed that the manufacturing sector shrank in April, despite (or more likely because of) Trump’s trade war – one that is meant to increase manufacturing in the United States.

The first report was the Institute of Supply Management’s Manufacturing Purchasing Managers’ Index (or PMI) that came out on April 30. This report came in at 48.7%, which meant there was an overall contraction in the U.S. manufacturing industries. For the second month in a row now, the Manufacturing PMI was below 50, and in contraction territory.

The second report was the Department of Labor’s employment report on April that came out May 2. Here the survey of businesses reported a net loss of 1000 manufacturing jobs in April. The biggest losses were in computer and motor vehicle and parts manufacturing, both of which are heavily exposed to trade. The biggest gainer was in food manufacturing, which tends to have a more domestic supply chain.

One reason for the declines is that Trump’s trade war, which began on February 1 with the first tariffs on Canada, China and Mexico, took an “Everything everywhere all at once” approach. Trump then upped the tariff on Chinese imports to 145%, on top of previous tariffs. So, for example, the tariff on Chinese electric vehicles went from 100% to 245%.

Trump also declared tariffs on the whole world based on the countries’ trade surplus with the United States. While Trump suspended this a week later, 10% tariffs remained on every country (except for China, where super-high tariffs remained).

By placing tariffs on steel and aluminum, as well as other imported raw materials and parts that are all used in production, it makes manufacturing more expensive here in the United States. Studies of Trump’s tariffs on steel and aluminum during his first term found that while there were small gains in jobs in those industries, there were much larger job losses in industries that use steel and/or aluminum for production.

Another reason is that Trump doesn’t take into account that other countries can retaliate against his trade war. When Trump said, “trade wars are good and easy to win,” he might have been thinking of the Heard and McDonald Islands, which don’t have any humans living there, but got 10% tariffs anyway. China has the second largest, or even largest, economy depending on how one measures it, and China has placed a 114.73% tariffs on U.S. soybeans as part of a more general 125% tariff on U.S. goods in retaliation for Trump’s 145% tariff on Chinese goods. This virtually shuts down the purchases of U.S. soybeans, which China can afford to do by buying soybeans from other countries such as Brazil. While U.S. farmers try to hold on, they are not buying tractors, and John Deere is laying off 119 workers at its plant in Iowa, citing a weak market for their farm equipment.

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