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Yet Another Open Letter to Donald Trump

Donald Trump
Trump Tower
New York, NY

Mr. Trump:

In your Tweets today you make inconsistent boasts.  First you boast that, as president, you’ll “substantialy [sic] reduce taxes and regulations on businesses.”  You then boast that, as president, you’ll raise taxes – in the form of higher tariffs – on businesses that offshore the production of goods for sale in America.  Which is it?  Will you increase or decrease the tax and regulatory burdens borne by entrepreneurs and businesses in America?  You can’t simultaneously do both.

You’ll reply that your scheme cuts taxes and regulatory burdens only for business operations that occur in America.  But are you aware that, according to Dartmouth economist Douglas Irwin, “Over half of all imports are either intermediate components or raw materials”?  (This figure rises to nearly 100 percent if consumer-goods imports are reckoned, as perhaps they should be reckoned, as inputs for retailers.)  So to the extent that American producers themselves wish to shift some of their production offshore in order to better compete to supply these inputs to their own U.S.-based operations or to other American producers, your tariff will put these American efforts at an artificial disadvantage relative to foreign producers.  The likely outcome is that production of almost all of these inputs will be ceded to foreign firms.

The only way to avoid ceding the production of more (and perhaps all) of these inputs to foreign firms is to impose your 35 percent tariff on all inputs imported into America.  The result of such a tariff would be a vast and widespread artificial hike in the costs of producing goods and services in America, even for many firms that were never candidates to shift any of their production offshore.  This outcome would make a mockery of your promise to reduce the costs that American producers incur.  It would also result in a steep hike in the prices of consumer goods in America – hardly an outcome consistent with making Americans more prosperous and America “Great Again.”

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