Mr. Robert Romano
Americans for Limited Government
Your response to my most recent critique of your defense of protectionism reveals that you simply don’t understand the economics of trade. Your errors are many. But because I (and countless other people, dating back to Adam Smith) have addressed and exposed these errors repeatedly, I’ll focus this reply on only one of your errors. If time permits, I’ll address some other errors in a follow-up letter.
The error that I address here is among the most frequent and fundamental committed by protectionists such as yourself. It occurs in this paragraph of your essay: “So, in short, prices for goods shipped from China are cheaper, and that’s why we buy them – and that serves U.S. interests. And, if tariffs were put on Chinese goods, prices and thus inflation would rise, and that would not serve U.S. interests, in Boudreaux’s eyes. This ignores certain social costs of outsourcing including displacing people out of their jobs, and reduces the analysis to simply that of the costs of production and the rate of return on capital.”
Before turning to the fundamental error in this paragraph, I note that I’ve never said that tariffs are inflationary. For all of their faults, tariff are not inflationary; they cause no sustained increases in the price level. That you read into my critique of tariffs an accusation that they are inflationary shows either that you do not grasp the core economic argument against tariffs or that you don’t understand what causes inflation.
The fundamental error of this paragraph is that you ignore the reality that any change in the pattern of consumer spending destroys some jobs today and creates others. Improvements in the market for used cars, including the advent of Carmax – as well as innovations that extend the life of automobiles – reduce the demand today for new cars, thus destroying some jobs for U.S. autoworkers and new-car salespeople. Increased usage of e-readers destroys some jobs in paper mills, book binderies, and bookstores. Greater awareness of the health consequences of smoking and heavy drinking have destroyed some jobs on tobacco farms, in cigarette factories, and in distilleries. Improved techniques that make long-combination trucking safe and efficient have destroyed some jobs for truckers and railway workers.
The polio vaccine destroyed jobs for workers in plants that produce wheelchairs and crutches.
Indeed, yesterday Pres.-elect Trump promised that his administration would, as the Wall Street Journal reports, “work with Silicon Valley executives to foster innovation.” Be aware, sir: innovation that is fostered during Mr. Trump’s tenure in the White House will, as does nearly all innovation, destroy some jobs. Glance at your smartphone and behold innovations that have destroyed jobs – jobs such as traffic reporters, photographic-film developers, music-store clerks, and bank tellers.
Therefore, what you call the “social costs” of “displacing people out of their jobs” is a “cost” that, contrary to your claim, is not remotely limited to “outsourcing.” So unless you’re willing to completely disavow the title of your organization in order to require that consumers must first receive the blessing of the state before they change any of the ways that they spend their own money, you have not made an economically sound case for import restrictions. (Oh, by the way, losing jobs to increased imports, or to any other changes in consumer spending patterns, is not a “social cost.” The fact that you describe it as such only further reveals your poor grasp of economics – as does your stream of mistaken claims about currency manipulation. But these matters are for a later discussion.)
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030