Inspired by this excellent column by George Will, Veronique here drives home the fact that protectionism is cronyism.
Vincent Smith describes the national-defense ‘arguments’ conjured up in defense of Trump’s punitive taxes on Americans who purchase steel and aluminum as “somewhat outlandish.” (I believe that Mr. Smith could have dropped the “somewhat.”) (One friendly, small criticism of another point that Mr. Smith makes in this otherwise fine essay: just as there is no good reason to suppose that protective tariffs raise overall employment, there is no good reason to suppose that protective tariffs reduce overall employment. The long-run overall level of employment is unaffected by trade policy. Trade-policy’s effect is on the kinds of jobs that exist. Protectionism creates and protects relatively inefficient, lower-paying jobs while it blocks and destroys more-efficient, higher-paying jobs.)
According to Bureau of Economic Analysis, the industries that consume steel as an input to their production account for 5.8 percent of GDP, while steel producers account for just 0.2 percent of GDP. Steel users contribute $29 dollars for every $1 dollar contributed by steel producers. The Bureau of Labor Statistics data show that for every worker in steel production there are 46 workers in steel-consuming industries. It doesn’t require complicated analysis to see that the costs to the broader U.S. manufacturing sector and the economy at large will dwarf any small benefits that accrue to the steel lobby.
Meanwhile, the costs to the economy will be compounded, as foreign governments target U.S. exporters for retaliation. Lost market share abroad will mean smaller revenues for U.S. companies that need to hit profit target in order to invest, expand, and hire.
By signing these tariffs into law, President Trump has substantially lowered the bar for discretionary protectionism, inviting governments around the world to erect trade barriers on behalf of favored industries.