Pierre Lemieux points out that if a nation’s greatness is measured by its government’s success at creating jobs then North Korea would truly be Great. And applying the logic to offer an insight about an ill-effect of protectionism, Pierre writes:
Any new goods produced as substitution for imports will divert jobs away from producing something else that would otherwise have been produced. Jobs will be diverted from producing higher valued goods to producing lower valued ones. More precisely, resources will be wasted in producing domestically what could have been purchased abroad at lower cost. The cost of the increased domestic production will be higher, in terms of goods foregone, than the value consumers assign to it.
If excess capacity is needed for future national-security emergencies, then a subsidy for maintaining such excess capacity, as a formal part of the defense budget, would be a much more efficient way to create it. And if national defense is a government product accruing to the benefit of all, then it should be financed through the tax system rather than through trade protectionism, the costs of which are borne disproportionately by consumers of steel. Was Mr. Trump elected to continue the age-old Beltway practice of finding ways to hide the costs of government by shifting them out of the budget and into prices in the private sector?