Why Are Protectionists’ Arguments Always Shockingly Weak?

by Don Boudreaux on March 20, 2018

in Myths and Fallacies, Seen and Unseen, Trade

Here’s a letter to BloombergMarkets:

You report on a new “study” by the anti-free-trade Coalition for a Prosperous America that finds that Pres. Trump’s punitive taxes on Americans who buy steel and aluminum will create 19,000 jobs and reduce U.S. GDP by only $1.4 billion (“U.S. Tariffs May Add 19,000 Steel and Aluminum Jobs, Study Says,” March 20).  It’s unclear if this jobs figure of 19,000 is net or merely the number of jobs that the CFPA finds will offset jobs that the tariffs will destroy elsewhere in the U.S. economy.  No matter; in order to make the case for the tariffs as strong as possible, let’s assume (contrary to what economics predicts) that the additional 19,000 jobs created in steel and aluminum mills will be a net addition of 19,000 to all U.S. jobs.

By the CFPA’s own reckoning, then, each job created will cost $73,684 (which is $1.4 billion divided by 19,000).  The typical worker in a steel mill earns in annual wages about $55,556.  If we assume that this worker gets another 20 percent of this pay in the form of fringe benefits, each steel-mill worker, on average, is annually paid about $66,667.  It appears, therefore, that the price we Americans will pay per job created will be roughly $7,000 more than each of these jobs is worth.

The CFPA’s dodge that $1.4 billion is only a tiny percentage of GDP doesn’t justify the CFPA’s conclusion that the tariffs are therefore economically warranted.  Here’s why.  First, this same reasoning, were it valid, would also justify pickpocketing, as the negative impact of pickpocketing on U.S. GDP is likewise very tiny.  Second, not only is the cost of the tariffs a tiny percentage of GDP, the number of jobs created by the tariffs is also a tiny percentage of something relevant, namely, of the number of annual job openings.  Over the past three years the average number of job openings in the U.S. was about 67.8 million annually.*  And so 19,000 jobs is a mere 0.028 percent of the number of job openings annually today in the U.S. – hardly an impact that warrants Mr. Trump’s violation of Americans’ rights to spend their incomes as they choose.

Finally, as my Mercatus Center colleague Dan Griswold asked, in personal correspondence, when he read your report, “If the number of workers goes up, and total output goes down, is it not simple math that output per worker (or per hour worked) has gone down?” – and, thus, because worker pay is ultimately determined by worker productivity, isn’t it true that even by the CFPA’s own calculations these tariffs will reduce Americans’ wages?  The answer is yes.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* Calculated from here.  Here’s a screenshot of what I pulled up at this BLS site:

(I thank my intrepid Mercatus Center colleague Veronique de Rugy for alerting me to this BloombergMarkets report.)

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