Like President Reagan, I believe in free trade rather than protectionism.
So you won’t be surprised that I agree with the message in this video:
To elaborate, one of the big lessons of the Trump era is that he undermined his good policies – such as tax reform – by imposing higher taxes on global trade.
Sadly, he didn’t realize that a “trade deficit” is largely an irrelevant statistic. Indeed, it’s merely the flip side of having a capital surplus.
To state the obvious, it’s not a bad thing when foreigners decide they want to invest in the United States economy. Heck, it’s a good thing, a sign of economic strength.
Professor Douglas Irwin of Dartmouth made the same point, and many additional points, in a column for the Wall Street Journal late last year.
After four years, what have we learned? Many things, but especially that old economic truths still have value: Tariffs don’t reduce the trade deficit. …Economists have long pointed out that the trade deficit is driven by macroeconomic factors, particularly international capital flows. …The merchandise trade deficit was $864 billion in 2019, more than $100 billion higher than in 2016. …Tariffs are paid by consumers, destroy jobs and hurt the economy. Mr. Trump insisted that China would pay for the 15% to 25% duties that he imposed on $300 billion of its exports. In fact, the tariffs were passed on to American consumers, who paid more… Take steel. Higher prices might have saved some jobs in the steel industry, but..steel protection is a job-destroying policy. Economists at the Federal Reserve found that the steel and aluminum tariffs reduced overall employment in manufacturing by 75,000 workers.
But destroying jobs was just one negative effect of protectionism.
We also got more corruption, as the Wall Street Journal opined.
…it’s time to point out one unsightly effect of the Trump tariffs: expanding the D.C. swamp. …As Mr. Trump’s tariffs began to bite, Congress sent hundreds of letters to the USTR, supporting specific tariff exclusions. …Rep. Steny Hoyer signed a letter, “on behalf of the Congressional Fire Services Caucus,” asking for an exclusion on smoke alarms. North Carolina Senator Thom Tillis sought one for Honda’s lawn mower flywheels. For Sen. Sheldon Whitehouse, it was BedJet’s “ultra-thin adjustable bed ‘device.’” For Congressman Doug Collins, Home Depot’s light fixtures. For Sen. Patty Murray, empty coffee K-cup pods. Some of these exclusions were granted, and many weren’t. It’s difficult to know if lobbying by Congress made a difference… One substantial downside is more political interference in the economy. Pretty swampy.
We saw something very similar when President Obama was granting waivers for Obamacare. That was just one of the ways insiders got rich lobbying politicians for special treatment under government-run healthcare.
Let’s wrap this up.
Writing for the Wall Street Journal in March, Senator Pat Toomey and former Senator Phil Gramm conclude Trump’s protectionism was a failure.
In his first two years as president, Mr. Trump lifted regulatory burdens and pushed through a major tax cut, which triggered a broad-based rise in income and employment. He then turned to his protectionist agenda, which reduced economic growth and failed to deliver Michigan, Pennsylvania or Wisconsin in the 2020 election. Protectionism failed both as economic policy and political strategy. …As Mr. Trump found when he imposed tariffs on steel and aluminum, the resulting increase in jobs in those industries was small. …Jobs gained in the steel and aluminum industries after the tariffs were dwarfed by jobs lost in industries that use steel and aluminum in their manufacturing process, not to mention the jobs lost due to foreign trade retaliation. …Innovation, technological development and the capacity of a market economy to adapt to change provide our only sure path to job creation and prosperity. This is a lesson all politicians, but especially Republicans, need to learn from the economic and political failure of protectionism in the Trump era.
Amen.
Protectionism didn’t work. It didn’t create jobs, and it didn’t even buy votes.
Which is why I hope this meme is the lesson that people remember from the Trump years (also the message we should have learned from the Hoover years).
The bottom line is that “Tariff Man” hurt himself and hurt the economy.
P.S. Sadly, Biden has not reversed many of Trump’s protectionist policies. But that’s not a surprise given his support for statism.
P.P.S. Though I hold out some hope that Biden will utilize the World Trade Organization as a tool to expand trade, thus reversing one of Trump’s mistakes.
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Image credit: Gage Skidmore | CC BY-SA 2.0.
