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Will Trump Reduce or Increase Power in Washington?

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Here’s a letter to the Wall Street Journal:

In his inaugural speech, President Trump vowed that his administration will be dedicated to “transferring power from Washington, D.C. and giving it back to you, the people” (“Trump’s Populist Manifesto [2],” Jan. 21).  Sounds great.  But in that same speech he also said that “We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs.”

Overlook the absurd suggestion that foreigners who peacefully offer to sell to us attractive products at low prices are akin to invading armies and terrorists intent on violent destruction and murder.  Instead, recognize that Mr. Trump’s incessant promise to raise trade barriers is a promise to reduce each American’s freedom to spend his or her money as he or she chooses; it is a pledge to give to politicians and bureaucrats in the capital city more authority to override the economic decisions of ordinary families and businesses from Bangor to Bakersfield.  It is, in short, a vow that his administration will be dedicated to transferring yet more power from us, the people, and giving it to Washington, D.C.

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

…..

I wish also that the WSJ‘s editors had responded a bit differently to this Trump jeremiad than they did.  They wrote

U.S. companies aren’t stolen; they’re driven away by high tax rates and punitive regulation.

It’s true that U.S. companies aren’t stolen through peaceful commerce.  It’s true also that high tax rates and punitive regulation render all businesses less productive and dynamic than they would otherwise be, and cause some of these businesses to go bankrupt when they are faced with intensified competition from foreign rivals.  But contrary to the impression that I fear is conveyed by this otherwise excellent WSJ editorial, it’s not true that, were all businesses in the United States to have their tax and regulatory burdens greatly lightened, Americans would import less, that fewer American companies would be threatened with extinction by foreign rivals, or that American businesses would no longer find it profitable to expand their foreign operations or to relocate outside of America.

Trade patterns reflect the pattern of producers’ comparative advantages (whether these advantages be ‘natural’ or the results of business or policy choices).  Raise taxes or lower them, and increase regulations or decrease them, comparative advantages will still exist (even if they differ from what they would be under alternative tax and regulatory schemes).

Judging from the pronouncements of many of the people who write to me, as well as from much of the commentary that I encounter in various outlets, there’s a widespread belief among conservatives that taxes and regulations in the U.S. put American producers in general at a great disadvantage in global markets and cause Americans to import more than we would were taxes and regulations here lighter.  But this belief is mistaken.  Not only, again, do those who hold this belief ignore the reality of comparative advantage [3], they also wrongly assume that businesses in the United States all operate under the burden of uniquely oppressive taxation and heavy regulations.

Note that my argument here is emphatically not that tax rates should not be cut and regulations not reduced.  I support radical tax cuts and the abolition of nearly all government-imposed regulations.  Cutting taxes and reducing regulations would increase Americans’ prosperity (and, importantly, also our freedom, regardless of the economic consequences).  But cutting taxes and reducing regulations will not reduce our imports (quite the contrary, most likely) or shield American firms generally from the rigors of global competition.

(Updated above to reflect Walter Clark’s comment.)

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