And, Also, the Earth Is Flat

by Don Boudreaux on September 13, 2019

in Balance of Payments, Myths and Fallacies, Trade

Here’s a letter to the Wall Street Journal:

Editor:

Peter Navarro’s series of assertions that Pres. Trump’s tariffs are “working” is an intellectual dumpster fire (Letters, Sept. 11). Ironically, this eruption of red herrings and irrationalities only further proves that anything that Navarro says or writes about trade ought to be dismissed out of hand

Forget that Navarro ignores the central economic argument against tariffs, namely, that while they do indeed help protected industries, they create greater losses throughout the home economy – losses such as jobs destroyed in unprotected industries, and a reduction in the quantities and qualities of goods and services available to consumers.

Focus instead on his boast that “The Trump tariffs are attracting billions of dollars of foreign investment in manufacturing on U.S. soil.” If true, these investments almost surely increase the U.S. trade deficit – and certainly do nothing to decrease it. So given Trump’s and Navarro’s repeated hysterical warnings about the dangers of  the U.S. trade deficit and their promises to reduce it, why does Navarro here boast about an outcome that promotes U.S. trade deficits?

The fact that U.S. trade deficits in reality are not the problem that Navarro and Trump assert them to be is here irrelevant. Also here irrelevant is the fact that foreign direct investment in the U.S. hit its all-time high in the second quarter of 2018, just as Trump began to escalate his tariffs and that, contrary to Navarro’s suggestion, this investment has since fallen.

What is relevant is Navarro’s shocking failure to understand the elementary point that there’s a positive connection between foreign investment in the U.S. and U.S. trade deficits.

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

Comments

Add a Comment    Share Share    Print    Email

Previous post:

Next post: