More than 30 days have passed since the appearance in the Wall Street Journal of Phil Gramm’s and my piece on the anti-productiveness – that is, the destructiveness – of protectionism. I can now share our op-ed in full, which I do beneath the fold.
The High Cost of the Trump-Biden Tariffs
Phil Gramm
and
Donald J. Boudreaux
Jan. 17, 2024 at 11:45 am ET‘National conservative” protectionists portray themselves as the adults in the room. They allege that free traders’ focus on consumption imperils America’s economy by undermining our ability to produce. President Trump’s trade representative, Robert Lighthizer, declares that “production is the end,” not consumption or efficiency. Analyst Oren Cass insists that “people’s ability to produce matters more than how much they can consume.” To promote production, they propose more protectionist measures.
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.
A similar story is told by manufacturing output. Over the first three quarters of 2018 it rose by 2.5%, spurred by tax cuts and deregulation. As tariffs commenced, it quickly began to fall. By the last quarter of 2019 manufacturing output was 4.7% lower than it was in the third quarter of 2018. On the eve of the pandemic, 32,000 fewer Americans were employed in manufacturing than at the same point in the prior year. These realities are difficult to square with protectionists’ assertions that tariffs encourage production and create or save manufacturing jobs.
The failure of Mr. Trump’s tariffs to increase manufacturing employment is no surprise given that many American workers are employed in firms that import key inputs. His steel and aluminum tariffs, for instance, created a few metals-producers’ jobs—1,000 in steel and 1,300 in aluminum. But for each American worker employed to produce steel or aluminum, 36 were employed in the production of goods that use steel or aluminum as inputs. When tariffs raised the prices of steel and aluminum, many of these workers were given pink slips. Using Federal Reserve data, Kadee Russ of the University of California, Davis and Lydia Cox of Harvard estimated that these tariffs destroyed about 75,000 manufacturing jobs.
Mr. Lighthizer counters that this comparison “ignores the fact that the biggest users of steel—transportation equipment manufacturing and construction—saw 1.4 million new jobs.” This is a red herring. These new jobs resulted not from tariffs but from the largest infrastructure bill in American history. Not only did the steel tariffs, implemented by Mr. Trump and retained by President Biden, not cause the surge of infrastructure spending, they raised construction costs and reduced the amount of infrastructure that will be built.
The high cost of protectionism has been long documented. Surveying research on protections for various U.S. industries from 1950 through 1990, the Cato Institute’s Scott Lincicome found that the average annual cost to American consumers per job saved during those four decades was $620,000 (in 2017 dollars). Moving forward a few decades, Peterson Institute economists Gary Clyde Hufbauer and Sean Lowry estimate the price tag for each job saved by President Obama’s tire tariffs at $926,500.
More recently, researchers at the Fed and University of Chicago found that Mr. Trump’s tariffs on washing machines created a measly 1,800 jobs at an annual cost of $815,000 each. As Mr. Hufbauer and his colleague Euijin Jung found, the annual cost to consumers for each job saved by the Trump steel tariffs exceeded $900,000. Creating jobs at these prices inevitably diminishes the nation’s overall production. Jobs that don’t pay their own way waste resources that would otherwise be used to increase production, investment and growth.
Given all this evidence, why does protectionism persist? The answer is politics. Although protectionism’s overall costs are high, they are spread thinly over millions of consumers, making them difficult to detect. While the benefits of protectionism are small, they are concentrated. This buys political support.
Consider the 92-year-old U.S. sugar program, which severely restricts imports. U.S. consumers pay twice the world market price for sugar. The Government Accountability Office recently estimated that this program annually bestows between $1.4 billion and $2.7 billion in benefits to the roughly 4,100 U.S. sugar growers—between $341,500 and $658,500 for the average grower. The GAO also estimates that the annual cost of the program to consumers ranges from $2.5 billion to $3.5 billion. Yet because we all consume sugar, the average American annually pays only between $7.35 and $10.30 more in higher prices. Sugar growers are well aware of the benefits they get from protectionism and show it during election years with endorsements and contributions, but consumers remain largely unaware of the theft.
This dynamic works similarly in other protected industries. The beneficiaries are relatively few and vocal; the victims are numerous and muted. When a spokesman for the current U.S. trade representative suggests that Mr. Biden’s protectionism will end trade policies that benefit “the powerful at the expense of the rest” he has it backward. Protectionism, by its nature, is a gift to the powerful paid for by the rest of us.
Mr. Gramm, a former chairman of the Senate Banking Committee, is a nonresident senior fellow at the American Enterprise Institute. Mr. Boudreaux is a professor of economics at George Mason University and the Mercatus Center. Mike Solon contributed to this article.
