Tariffs: File under Duh

Tariffs suck. I know Phil Gramm's son. I went to PG's presidential announcement in the 90s.

Donald Trump boasts that his protectionist policies were “historically successful,” which suggests that he thinks he’s exempt from the old dictum that we are entitled to our own opinions but not our own facts. While Mr. Trump’s tax cuts and regulatory relief rejuvenated an anemic recovery, his protectionist policies stunted the ensuing expansion. Growth accelerated from 1.7% in 2016 to 2.2% in 2017 and then to almost 3% in 2018, a 13-year high. But in 2019—the first full year in which Mr. Trump’s tariffs were in effect—the growth rate fell to 2.3%. That decline was in line with Congressional Budget Office and Federal Reserve estimates of the potential negative effects of Mr. Trump’s protectionist policies.

For every American employed making steel or aluminum in 2018, 36 were employed by firms that used steel or aluminum as inputs. By raising the prices of these metals, Mr. Trump’s tariffs destroyed far more manufacturing jobs than they created. Overall manufacturing employment fell in each of the four quarters of 2019 and in the first quarter of 2020, leaving the pre-pandemic level of manufacturing employment lower than when Mr. Trump took office.

The higher cost for steel and aluminum and Chinese component parts produced by Mr. Trump’s tariffs, combined with foreign retaliation, reduced the demand for American exports. As a result, the annual rate of growth in manufacturing output fell, turning negative in the fourth quarter of 2018. By the first quarter of 2019 it reached a post-Great Recession low of negative 5.3%. Manufacturing output growth continued to fall until its post-lockdown bump in the second half of 2020. Under Mr. Trump’s protectionist policy, total manufacturing output was 2% lower by the start of the pandemic than it was when he raised tariffs.

Protectionist policies also failed to deliver promised reductions in the trade deficit. When the tariffs went into effect, goods that the U.S. imported became more expensive and Americans instead bought domestic substitutes, which the U.S. produced less efficiently than the world market. By reducing demand for foreign goods, tariffs and quotas reduced the supply of U.S. dollars in the world currency market, raised the value of the dollar, and made American exports less attractive. The result was lower employment in the industries where the U.S. was most efficient and most competitive and higher employment in industries where the U.S. was less efficient. Protectionism didn’t create jobs. The nation was made poorer as prices rose and the American economy became less efficient. Jobs were simply transferred from our most efficient, most competitive sectors to industries where we were less efficient and competitive. As a result, economic growth declined.

 

Opinion | Trump’s Real Trade Record

Mr. Trump’s answer, as usual, is to quintuple down in a second term. A universal 10% tariff would “raise taxes on American consumers by more than $300 billion a year—a tax increase rivaling the ones proposed by President Biden,” the Tax Foundation says. Including expected retaliation, it would “shrink the U.S. economy by 1.1 percent and threaten more than 825,000 U.S. jobs.”

Slapping 10% tariffs on everything made by Vietnam, South Korea and other U.S. partners would have the effect of abandoning them to China’s economic sphere, which is the opposite of America’s geostrategic interests.

Mr. Trump’s great mistake is his belief that trade is a zero-sum exercise. But countries and companies trade because they see a mutual advantage. When American consumers buy clothing and Scotch on a global market, while American producers sell soybeans and

 

actually, the 2nd link includes this:

But that isn’t all: After other countries retaliated, Mr. Trump bailed out farmers with tens of billions from taxpayers. If a U.S. business found itself suddenly uncompetitive after tariffs raised prices on imported parts or materials, it had to beg a Commerce Department bureaucrat for an exclusion to stay alive.