This e-mail is to a rising college freshman who reads my blog.
Mr. Will Lohston
Thanks for your e-mail. Your uncle is mistaken to describe tariffs as a way “for President Trump to give Americans a raise.”
What your uncle sees – correctly – is the fact that American workers who are protected from having to compete with foreign workers might well get more money in their paychecks, and that these particular workers will indeed be better off if the prices of the things that they buy rise by less than the rise in their pay. But what your uncle doesn’t see is much larger.
Your uncle doesn’t see that if foreigners earn fewer dollars by selling things to us they have fewer dollars to use to buy things from us and to invest in our economy. And so your uncle doesn’t see the American workers who lose jobs, or who don’t get jobs, because of U.S.-imposed tariffs. Your uncle also doesn’t see that the resulting lower demand for workers in these negatively affected U.S. industries lowers the wages for workers in these industries.
And simple arithmetic gives us a hint – verified by economics – that the size of the losses from tariffs is greater than the size of the gains. The very purpose, and the actual effect, of protectionist policies is to reduce our access to goods and services. Protectionism obliges us to produce things for ourselves at higher costs than we’d incur if we instead imported those things. Thus, tariffs cause the amounts of goods and services that the typical American worker gets in exchange for his or her effort to decrease rather than to increase.
In summary, tariffs are a way for Pres. Trump to give Americans, not a raise, but a “lower.”
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