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August Brought 201,000 New Jobs, but Future Gains Threatened by Trade Restrictions

The U.S. economy added 201,000 jobs in August, the U.S. Labor Department announced today. Good news, but impending trade restrictions could put a damper on those gains, Competitive Enterprise Institute analysts warn.

Iain Murray, CEI senior fellow:

Today’s jobs numbers are further evidence that the economy is in a strong position. Beating expectations for jobs created in an increasingly tight labor market is a sign of economic dynamism. Supply-side reforms like deregulation and tax cuts are working. The tax cuts probably enabled employers to offer higher starting wages, which has been a major area of concern since the Great Recession.

There will be some people, however, who point to the jobs numbers as evidence that the trade war is having no effect on employment. This would be a mistake. To be sure, trade never accounts for more than a small percentage of jobs lost in any given month, and those effects will be swamped by new job creation in a strong economy. However, the effect of tariffs over time will be to entice employers and workers into the wrong industries and the wrong jobs—jobs the market would not have created on its own. That means that those jobs will be less able to spur growth and their wages will be artificially high. This will weaken the economy in the long run.

Ryan Young, CEI fellow:

It is good news that the economy continues to create new jobs—it shows that economic fundamentals are strong despite political turmoil. The worry is that the good news is only in the short term. Regulatory burdens have practically stopped growing, which probably deserves some of the credit. But policymakers need to lock in recent short-term reforms with permanent legislation.

Producers have been stockpiling affected goods before new trade tariffs kick in, which gives an economic boost now, but likely at the expense of future months. Tax cuts can also create short-term economic benefits, though again, at the cost of long term harm if increased deficits must be repaid eventually, with interest.

Like quarterbacks, presidents get too much criticism when the economy is bad and too much credit when times are good. Unemployment rates are mostly due to a number of long-term factors a president simply does not control. Congress can help by cooperating with the current president’s deregulatory agenda and restraining his bad impulses on trade and the Federal Reserve’s independence.

Murray and Young recently co-authored a study making the case for free trade, “Traders of the Lost Ark: Rediscovering a Moral and Economic Case for Free Trade.”