Trump’s trade war is based in bad economics

President Donald Trump’s unwavering support for tariffs has enveloped the United States in an escalating trade war with China. Economists and historians have been warning that such an unintended negative consequence ought to be the expected result.

I warned in 2018:

The thinking is, the tariffs will help domestic producers of those things. They will. The assumption beyond that is they’ll help the domestic economy by visibly boosting those domestic producers. They won’t.

This reality about tariffs — that they’re so fraught with unintended negative consequences that they cause more harm than good — is a founding insight to the whole discipline of economics

The “trade deficit” rationale behind the tariffs flies in the face of mainstream economics, going all the way back to the very founding of the discipline. For a quick read, see my series on “Economists: warning about protectionism since Adam Smith,” parts 1, 2, and 3.

There’s no reason to think a trade war would make America greater. Now it even appears that the president has abandoned his position that the tariffs are a sure-fired economic winner. As Politico reports today,

President Donald Trump and his allies are appealing to nationalism in the trade war with China, calling on Americans to make “patriotic” sacrifices in language reminiscent of national crises and even wars. … [As Trump] extends his showdown with Beijing, he is targeting the message to the farmers who bear much of the burden of Chinese tariffs.

“Our great Patriot Farmers,” the president wrote in a series of tweets on Tuesday, “will be one of the biggest beneficiaries of what is happening now.” Trump’s claim followed China’s announcement that it plans to retaliate against his latest tariffs with increased duties on $60 billion in U.S. goods, in an escalating showdown with no end in sight.

Politico goes on to suggest that “Few modern presidents have issued bold calls for patriotic sacrifice.”They reach back to Jimmy Carter during the oil crisis and FDR during World War II. But Barack Obama called for “economic patriotism” from Americans to support his transportation plan and desire to increase the minimum wage.

Harming ourselves to harm them more is a terrible policy

Either way, the “patriotic sacrifice” argument is for people to consent to be a little worse off in the hopes of making the adversarial Other to be much worse off. In this case, it’s tariffs.

But we see the same kind of argument in favor of hiking taxes, since it’ll “punish the rich more.” They tend to leave off the implication that it’ll “punish” you, too.

It’s like the joke about the genie in the bottle granting a wish to man with the stipulation that whatever he gets, his hated wife will get double, so he wishes himself to be beaten half to death. Dark humor can reveal the ridiculousness of such envy and malice, but in public policy? As Hamlet puts it, “though it make the unskillful laugh, cannot but make the judicious grieve.”

Here’s the thing. As Adam Smith wrote in his Wealth of Nations (1776):

It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. … If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.

Think about it. Being able to buy the cheaper good helps poor consumers the most (that should be obvious). But also it leaves all consumers with more money available to spend meeting other domestic needs, benefitting domestic producers of goods and services, making us better off.

Jon Sanders / Director of Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...

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