≡ Menu

Trade, Protectionism, and Manufacturing Output

Here’s a letter to the Washington Post:

George Will correctly and wisely notes that, if foreign governments retaliate against U.S. protectionist measures with their own higher tariffs, such retaliation will likely reduce U.S. manufacturing output by reducing U.S. exports (“Trump is the waterbeetle of American politics, and he’ll keep on flabbergasting,” Jan. 19).  But the economic case against U.S. protectionist measures is even stronger than Mr. Will suggests: higher U.S. trade barriers will reduce U.S. manufacturing output even in the unlikely event that foreign governments do not retaliate by raising barriers against American exports.  The reasons are two.

First, because more than half of American imports are capital goods and industrial supplies, many of which are used by American manufacturers, higher trade barriers here will raise American manufacturers’ costs of operations.  The consequence will be reduced manufacturing output.

Second, when Americans import less, foreigners earn fewer dollars.  And having fewer dollars, foreigners buy fewer American exports as well as reduce their investments in America – both of which consequences likely lead to reduced American manufacturing output.

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