Fisher Investments executive chairman Ken Fisher discusses the impact of sweeping tariffs in the United States on Kudlow.
A new report by Goldman Sachs examining how President Donald Trump’s tariffs will impact the labor market found that while it may spur a rise in manufacturing employment, job losses in other industries impacted by tariffs would lead to a net negative impact on employment across the economy.
Goldman Sachs economists led by Jan Hatzius reviewed historical and academic studies about the impact of tariffs on the labor market in industries protected by the tariffs and downstream industries that relied on tariff imports.
“Some studies have found examples that tariffs may be effective when applied to nascent industries, products with a particularly high demand elasticity, or products with less scope for cost impacts on downstream industries,” the economists said. “However, the broad-based tariffs delivered by the Trump administration are not targeted towards these types of industries and products.”
The report noted that the Trump administration’s plans to raise the effective U.S. tariff rate by 15 percentage points (pp) and that academic studies they reviewed generally suggest a 10pp increase in tariff rates boosts employment in protected industries by 0.2%-0.4%, but that a 1pp rise in tariff-driven costs lower employment by 0.3%-0.6%.
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Goldman’s analysis found an overall net negative impact on the labor force, though manufacturing could see a boost. (Photographer: Emily Elconin/Bloomberg via Getty Images / Getty Images)
“These historical elasticities imply that protection from Trump’s tariffs will raise manufacturing employment by a bit less than 100k (with estimates ranging from 0-240k), but higher input costs will create an almost 500k drag on employment (with estimates ranging from 0-1mn),” the economists wrote.
“The broader statistical evidence points to negative net employment effects,” they explained. “Scaling these estimates to the U.S. economy imply a boost of just under 100k to manufacturing employment from tariff protection but a roughly 500k drag on downstream employment from input cost pressures.”
On balance, that estimate suggests employment in the U.S. economy would reduce overall employment by 400,000 jobs even after accounting for increased employment in protected manufacturing industries.
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Tariffs are taxes on imports that are paid by importers, who typically pass the higher costs on to consumers through higher prices. (REUTERS/Mike Blake / Reuters Photos)
The analysis cited three examples of circumstances in which tariffs helped grow domestic manufacturing and downstream industries. Those include targeted tariffs aimed at protecting emerging industries, such as the 1890 McKinley tariff’s impact on U.S. tinplate manufacturing, and South Korea’s process of industrialization.
Another example includes boosting domestic manufacturing of goods with a high import demand elasticity, such as the U.S. tariff on European pickup trucks from the 1960s which severely limited imports to support light truck manufacturing. Tariffs on products that aren’t intermediate goods and don’t impact downstream manufacturers may also boost domestic employment, such as the 1983 tariffs on Japanese motorcycles imposed to help Harley-Davidson.
However, the Goldman economists emphasized that Trump’s tariffs are broader and aren’t being implemented in ways that aren’t focused on infant industries, goods with high elasticity of demand or final products. That leaves the statistical analysis showing that while the tariff plans may help employment in manufacturing, it will likely be a net drag on overall U.S. employment.
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President Trump issued a 90-day pause on his “reciprocal” tariffs and imposed a 10% baseline tariff on U.S. trading partners. (Chip Somodevilla/Getty Images / Getty Images)
“The range of estimates – particularly around the employment effects of higher input costs – is admittedly large and it is hard to have confidence on the net impact, especially given a lack of historical tariff increases of the magnitude and breadth implemented by President Trump,” the economists said.
“But these estimates mostly point to a net negative impact from trade protection on employment, even before accounting for the employment drags from the growth slowdown we expect under our baseline outlook,” they added.
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Goldman Sachs’ most recent baseline forecast, which was updated after Trump announced a pause on his “reciprocal” tariff plans, forecasts a 45% probability of a recession and year-over-year GDP growth of 0.5% for 2025 with core PCE inflation peaking at 3.5%.
