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Trade and Production

In the print edition of tomorrow’s Wall Street Journal, Phil Gramm and I argue that even if – contrary to fact – production rather than consumption were the (or an) ultimate goal of economic activity, protectionism would still be counterproductive. A slice:

But protectionism shrinks rather than expands production. It does so most directly by obstructing U.S.-based producers’ access to inputs. As Dartmouth’s Douglas Irwin has shown, more than half of American imports are raw materials or intermediate goods used as inputs in production. Restricting these imports raises producers’ costs and thus hamstrings American production and competitiveness. Every job “created” or “saved” by tariffs, which force American consumers and users of protected inputs to pay higher prices, keeps noncompetitive firms operating.

Protectionism’s assault on production shows up in the data. Consider Mr. Trump’s tariffs, which he called “historically successful” and which Mr. Lighthizer continues to claim created manufacturing jobs. Although Mr. Trump’s tax cuts and regulatory relief stimulated production, his tariffs worked in the opposite direction. Real per capita growth in gross domestic product accelerated from 0.93% in 2016 to 1.6% in 2017 and then to 2.4% in 2018, a 13-year high. But in 2019—the first full year of Mr. Trump’s tariffs—annual real per capita GDP growth fell to 1.83%.

The record looks no better if we focus exclusively on manufacturing. Annual worker productivity growth in manufacturing hit its peak in 2011 and then began a slow annual decline. From 2011 to 2017, manufacturing worker productivity fell at an average annual rate of 0.65%. It then grew in 2018 with the implementation of the Tax Cuts and Jobs Act. But in 2019, when the Trump tariffs were fully in effect, the productivity of manufacturing workers plummeted by 2.2%—a larger decline than in any prior year dating to 2011.

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