With the Trump Administration’s “major” reciprocal tariffs scheduled to be announced — and possibly take effect— on April 2, the focus is increasingly on the possible production and employment impacts of tariffs. The Administration itself has warned that there will be an “adjustment” period for the economy, and it is the nature of those adjustments, as perhaps illuminated by past tariff actions, that has generated considerable interest and speculation. Economic models can be useful in ascertaining some of the broad price and production effects but also can be extremely misleading. For example, during the Asian currency crisis of 1997, models pointed to the loss of export markets to US firms when the far greater issue was the loss of domestic markets to suddenly, radically cheaper foreign competition. More fundamentally, economic models do not well-capture disruptions in the critically important wholesale distribution network that can sharply influence the ability of buyers to obtain their necessary goods at any price. Buyers of steel, aluminum, and fabricated products are already reporting considerable business disruption due to the tariffs imposed last month.
Figure 1 Federal Government Employees
At the same time that foreign trade dominates the headlines, the exceedingly “in-your-backyard” issue of employment stability is also coming to the fore as federal worker and federal spending cuts take effect. In the aggregate, the employment reductions appear highly manageable in economic terms. At the local level, the reductions are potentially devastating. Much attention has been placed on the greater Washington, DC area in this regard, but the problem is really largest for smaller, less economically diversified communities. The US labor force traditionally has demonstrated remarkable flexibility and mobility, especially in comparison to areas like Europe with more rigid labor rules. However, as the US labor force has aged, it appears that the willingness to move for a job has been somewhat diminished. With lower job quit rates and greater overall economic uncertainty, the labor market adjustments to these actions may take somewhat longer than anticipated.
Weekly Commentary
Economic Commentary – March 24, 2025
With the Trump Administration’s “major” reciprocal tariffs scheduled to be announced — and possibly take effect— on April 2, the focus is increasingly on the possible production and employment impacts of tariffs. The Administration itself has warned that there will be an “adjustment” period for the economy, and it is the nature of those adjustments, as perhaps illuminated by past tariff actions, that has generated considerable interest and speculation. Economic models can be useful in ascertaining some of the broad price and production effects but also can be extremely misleading. For example, during the Asian currency crisis of 1997, models pointed to the loss of export markets to US firms when the far greater issue was the loss of domestic markets to suddenly, radically cheaper foreign competition. More fundamentally, economic models do not well-capture disruptions in the critically important wholesale distribution network that can sharply influence the ability of buyers to obtain their necessary goods at any price. Buyers of steel, aluminum, and fabricated products are already reporting considerable business disruption due to the tariffs imposed last month.
At the same time that foreign trade dominates the headlines, the exceedingly “in-your-backyard” issue of employment stability is also coming to the fore as federal worker and federal spending cuts take effect. In the aggregate, the employment reductions appear highly manageable in economic terms. At the local level, the reductions are potentially devastating. Much attention has been placed on the greater Washington, DC area in this regard, but the problem is really largest for smaller, less economically diversified communities. The US labor force traditionally has demonstrated remarkable flexibility and mobility, especially in comparison to areas like Europe with more rigid labor rules. However, as the US labor force has aged, it appears that the willingness to move for a job has been somewhat diminished. With lower job quit rates and greater overall economic uncertainty, the labor market adjustments to these actions may take somewhat longer than anticipated.
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