Tracking Wisconsin Manufacturing: Did Tariffs Help? – Beragampengetahuan

In a recent Milwaukee Journal Sentinel article (via Pulitzer) Rick Barrett notes “Manufacturing is coming home” to Wisconsin. Does the data support this?

The April 2021 [anti-dumping] ruling from the U.S. International Trade Commission became a seminal moment in a business trend called “reshoring,” which is the return of work from overseas to a company’s home country. The reasons could include trade wars and tariffs.

Reshoring could be occurring, and manufacturing could be booming. At the national level, this appears to be the case, as discussed in this post.

For Wisconsin, the data is more ambiguous. And in any case, I’d be wary of attributing whatever bounce-back there is to tariffs.  First, the data, normalized to 2018M06, just before the implementation of  Section 301 (market access/China) tariffs.

Figure 1: Manufacturing hours worked (blue), manufacturing employment (tan), and real value added in manufacturing (green), all in logs, 2018M06=0. Hours worked calculated by multiplying employment by average weekly hours. Value added in 2017$ spliced to value added in 2012$ using 2018 ratio. NBER defined peak-to-trough recession dates shaded gray. Red dashed line at 2018M03, notification of Section 232 and Section 301 actions. Green dashed line at passage of Inflation Reduction Act.  Source: BLS, BEA, NBER, and author’s calculations.

Note that employment and value added were rising before the imposition of tariffs in the Trump administration. Similarly, all series were rising before the 2021 antidumping action mentioned in the article. Value added peaked in Q4, the same month when the Stoughton plant expanded capacity, which might be coincidental timing. Since then, value added has declined. (Value added is calculated based on factor payments in Wisconsin, but price cost margins and taxes at the national (sectoral) level — hence, its a little problematic to infer too much from movements in this series. There is no “manufacturing production” index at the state level as a counterpart to the national level series calculated by the Fed).

In general, it’s hard to associate heightened manufacturing activity in Wisconsin with specific trade policies. As the article notes, it could be onshoring due to supply chain concerns that obscures — or even drives — trends in manufacturing (I myself would think the dollar’s value and domestic macro influences might as important).

How about Wisconsin exports (keeping in mind that there the statistics do not capture all the value added coming from Wisconsin)?

Figure 2: Manufactured commodity exports from Wisconsin, bn1999$, seasonally adjusted by author using X-13, at annual rates (blue). Nominal exports divided by manufactured goods export price index. NBER defined peak-to-trough recession dates shaded gray. Source: BEA, BLS, NBER, and author’s calculations.

Wisconsin’s manufactured exports (as reported) are indeed about 10% higher than pre-pandemic. But after the imposition of tariffs, exports actually fell for a while — possibly due to retaliation by other countries against the Trump imposed tariffs.

One caveat about thinking about how tariffs would cause higher employment is to realize that while tariffs on some goods (say steel) might cause higher employment in the steel industry, the resulting higher cost of steel — both domestically produced and foreign produced — will raise costs of production in downstream industries (think washing machines, cars), tending to reduce employment there. This is true even if there is no retaliation by our trade partners.

As an aside, thinking about steel tariffs, we don’t make raw steel in Wisconsin, but we do (or did) make some vehicles (MRAPs e.g.).

That reasoning (based on empirical estimates) is why Cox and Russ concluded the net impact of the Trump tariffs was to reduce overall employment.

In the above, I have not provided a comprehensive answer regarding whether employment and output is higher because of tariffs. In order to do so, one would have to use an input-output model to track how tariffs have raised costs of inputs into Wisconsin’s production (of manufactured goods, etc.), and factor out other things like domestic demand, exchange rate fluctuations, and economic growth in the rest-of-the-world. One would likely want to know how much exports declined due to trade retaliation spurred by our tariff actions.