Frederic Bastiat, the great French economist from the 1800s, explained that a good economist looks at both direct effects and indirect effects of government policies.
Here are a few examples.
If tax rates are increased, a good economist will look at the direct effect (more money for government), but also consider the indirect effects (less economic growth and a smaller tax base).
If welfare spending is increased, a good economist will look at the direct effect (more money for recipients), but also consider the indirect effects (more dependency and less incentive to work).
If the minimum wage is increased, a good economist will look at the direct effect (more money for low-skilled workers), but also consider the indirect effects (fewer jobs for low-skilled workers).
Today, we’re going to apply Bastiat’s insights to trade.
Senator J.D. Vance, Trump’s running mate, has been promoting higher taxes on trade. He claims that “more jobs come into the country” and that “you gain in higher wages, so you’re ultimately much better off.”
At the risk of understatement, almost every economist in the country disagrees with Vance.
By the way, a 2017 poll of economists also found overwhelming agreement that trade taxes are bad for prosperity.
And I explained to Politifact that protectionism is a net job destroyer.
With former President Donald Trump proposing aggressive tariffs on foreign goods — including a 10% tariff on all nondomestic goods sold in the U.S. — his 2024 presidential running mate, Ohio Sen. J.D. Vance, R-Ohio, defended their benefits… Most economists disagree with this idea. Our previous review of academic studies of real-world tariffs concluded that consumers ultimately shoulder most of the burden in higher prices for goods, and the burden outweighs tariffs’ economic benefits. …Tariffs also mean that producers pay more as prices rise for materials used to make products domestically. “There are far more jobs in industries that use steel as an input than there are steelmaker jobs,” Daniel Mitchell, an independent libertarian economist, told PolitiFact. And higher input costs are also likely to be passed on to consumers, economists said. Meanwhile, U.S. producers can expect to face retaliatory tariffs, which can also raise prices for U.S. consumers.
Vance’s mistake (assuming he actually believes what he says) is that he sees the jobs supposedly saved in the protected industries and is oblivious to the jobs destroyed in the rest of the economy.
Bastiat would give him a failing grade for noticing the “seen” while being oblivious to the “unseen.”
P.S. This video from 2018 shows that lots of jobs get destroyed every year as part of “creative destruction,” but even more jobs are created. And our average living standards keep increasing.
It’s critically important, however, to make sure there are decent economic policies. Otherwise, we’ll have the downside of creative destruction without getting the benefits.
Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.
