Lansing — University of Michigan economists predicted Friday increased tariffs on cars, parts, aluminum and steel will reduce Michigan’s employment growth by 13,000 jobs over the next five years, but they also acknowledged overall jobs could increase modestly from other sectors.
Gabriel Ehrlich and Yinuo Zhang of UM’s Research Seminar in Quantitative Economics detailed their projections during a meeting inside the Michigan Capitol, where state officials heard presentations from experts to set tax revenue expectations for the next state budget and slightly scaled back their expectations.
Ehrlich said his group forecasts that Michigan’s economy will add jobs “at a moderate pace” in the coming years. But he said the growth will face a negative hit from higher tariffs imposed by Republican President Donald Trump’s administration and those imposed as retaliation by other countries.
“We believe the economic momentum was solid coming into this quarter,” Zhang said. “However, we’ll likely see tariffs drag on the economy soon.”
A Friday report from the Research Seminar in Quantitative Economics noted the “drag on consumption and investment” will begin this summer.
The increased tariffs from the Trump administration will likely provide a boost for auto manufacturing in the United States by driving up the cost of imported vehicles, Ehrlich said. But they’ve spurred retaliatory tariffs from other countries and will push up the prices of U.S.-made cars and trucks, he added. The economists could also see some long-term benefits from efforts to onshore manufacturing.
Michigan is expected to still experience overall job growth of about 1.3% over the next five years, according to the UM economists. That will be driven by additions in the sectors of government, private education, health services, leisure and hospitality, they said.
The UM economists said there will be significant differences in the performance of “cyclical” industries, such as manufacturing and construction, and “non-cyclical” industries, such as government and health care services.
“We are projecting the non-cyclical industries to account collectively for nearly all of Michigan’s job growth over the next few years, with 29,800 job gains this year, 15,300 next year and 12,800 in 2027,” the UM outlook report said.
In manufacturing specifically, the UM economists projected job losses in the coming years. In auto manufacturing, they estimated 7,300 net job losses from 2024 through 2027. The predicted government employment would increase over that time period by 16,300 jobs.
Treasurer: ‘Grow across the board’
Asked about the tradeoff of losing manufacturing jobs but gaining government jobs, State Treasurer Rachael Eubanks said the right thing to do for Michigan “is to grow across the board.”
“Job growth across all sectors is always the goal,” Eubanks said.
The auto industry is an important employment sector in the state, and its success or failure has ripple effects throughout Michigan’s economy, said Robert Schneider, senior research associate with the Livonia-based nonprofit Citizens Research Council of Michigan.
However, Schneider said, “it’s just a portion of the economy.”
As of February, Michigan had lost more manufacturing jobs since January 2019 than 47 other states: 27,600, according to a Detroit News analysis. Only New York, at 30,100 fewer manufacturing jobs, and California, at 65,000 fewer manufacturing jobs, had steeper declines over that time.
The UM economists also predicted that the higher tariffs would increase the average cost of producing a vehicle in the United States by 5.7%.
Over the next five years, the increased tariffs will cost Michigan’s auto industry about 3,300 jobs, the economists said. Those job losses will have a multiplier effect on Michigan’s broader economy, meaning there will be a reduction of “approximately 13,000 jobs over the next several years,” according to their report.
Both Ehrlich and Zhang said there was a high degree of uncertainty in the estimates, in part, because of the volatility in policy decisions about tariffs and trade.
Michigan currently has about 159,000 auto vehicle and parts manufacturing jobs, according to the federal Bureau of Labor Statistics.
Asked Friday about the 13,000-job reduction number over the next five years, House Appropriations Committee Chairwoman Ann Bollin, R-Brighton Township, contended the economists were also suggesting the near future was potentially “going to be a little more painful” than the long term.
“It’s also a projection,” Bollin said of the number.
Higher jobless rate forecast
Eubanks, who was appointed treasurer by Democratic Gov. Gretchen Whitmer, told reporters Friday afternoon it’s “hard to say right now” whether the projected 13,000 tariff-spurred job losses will come to fruition.
The state treasurer emphasized that the economists were predicting job growth in other industries that would exceed the losses tied to tariffs.
“We are a much more diversified state than we were in decades past,” Eubanks said.
Michigan’s unemployment rate was 5.5% in April. In March, which was the latest data available for all states, Michigan had the second-highest jobless rate in the nation
The UM economists said they expected Michigan’s cyclical labor market to continue feeling the cumulative strain of elevated interest rates and the impact of the higher tariffs, with the state’s unemployment rate projected to peak at 6% next year.
“From there, the unemployment rate is expected to decline modestly, reaching 5.8% by the end of 2027, as federal tax cuts and lower interest rates help offset the effects of the tariffs,” the UM outlook report said.
‘Uncertainty’ pervades
Kristin Dziczek, an adviser in the Federal Reserve Bank of Chicago’s research, policy and public engagement division, also gave a presentation on the auto industry for state leaders at Friday’s meeting.
“You can’t say uncertainty enough in this industry right now,” Dziczek said.
Likewise, Michigan’s state budget director, Jen Flood, labeled “uncertainty” the word of the day at Friday’s meeting.
Trump, who took office on Jan. 20, signed an executive order in March to levy 25% tariffs on vehicles and certain auto parts not produced in the United States. However, last month, he announced a series of efforts to provide relief for automakers by preventing the layering of tariffs on imported vehicles and to reduce duties on imported auto parts for those building vehicles in the United States.
In a Friday statement, Senate Appropriations Chairwoman Sarah Anthony, D-Lansing, said the country had experienced “significant changes since January, including shifting economic policies.”
Consistent tariff policy could drive investment in U.S. manufacturing, Dziczek said. And that investment could benefit Michigan, which is home to a larger share of the auto industry than other states, she said. Michigan has a lot at stake in the ongoing policy discussions in Washington, D.C., Dziczek said.
“Costs were rising … before tariffs went into effect,” Dziczek said. “The outlooks have shifted downward, and automakers have pulled back financial guidance.
“They’re not certain how this is all going to play out this year.”
However, she added that the tariff debate is also distracting attention from the long-term competitive challenges facing the U.S. auto industry.
cmauger@detroitnews.com
