Oren Cass is a font of economic misunderstanding.
Editor, The Atlantic
Editor:
Oren Cass’s attempted defense of Trump’s proposed tariffs misfires on many counts (“Trump’s Most Misunderstood Policy Proposal,” Sept. 25). Perhaps most egregiously, he accuses economists who discuss trade of having “an obsessive and uncharacteristic focus on short-term consequences.” In fact, it’s protectionists who are guilty of analytical myopia. For example, let’s grant that Cass is correct that Trump’s tariffs on washers and dryers caused the domestic production of these appliances to increase by so much that in the long run the prices of washers and dryers were not raised. These tariffs still cannot be counted a success because any expansion in the production of these appliances necessarily draws resources away from other domestic industries, causing outputs in these industries to fall and prices of their outputs to rise. Although economists routinely pay attention to such economy-wide effects, Cass ignores them.
Another error – one that’s ironic – is his assertion that free trade creates a negative “externality” because corporations and consumers, when making production and consumption choices, “will probably not consider the broader importance of making things in America.” Not so. The value of producing particular outputs in the U.S. as opposed to abroad is captured in the prices, wages, and other market signals that guide corporations’, workers’, and consumers’ choices. Or at the very least, the information and incentives conveyed by the market signals that guide private-sector economic decisions are more accurate and reliable than are the information and incentives conveyed by the interest-group lobbying, electoral bargaining, and retail politicking that guide political decisions.
The irony, then, is that those who are guilty of creating negative externalities are Cass and other protectionists who, seeing only the industries and jobs promoted by tariffs, ignore both the industries and jobs that tariffs necessarily damage and destroy, as well as the very real externalities that distort political decision-making.
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
