A few days ago the Wall Street Journal – admirably giving space to persons with alternative views – published a truly horrendous piece by John Paulson who sought to defend Trump’s tariffs. I was too busy to write a letter or otherwise respond, but I’m delighted to discover that in tomorrow’s print edition there will appear letters in response from Art Carden, from Ira Stoll, from GMU Econ alum Dave Hebert, and from my intrepid Mercatus Center colleague, Veronique de Rugy. I share here Art’s and Vero’s letter. In a later post I’ll share Dave’s and Mr. Stoll’s.
In “The Case for Trump’s Tariffs” (op-ed, Sept. 20), John Paulson asks, “Isn’t it better to tax foreign entities for entering the American market than impose new taxes on American families?” His question is emotionally resonant but at odds with economic theory and mountains of evidence.
As every economist can tell you, and as my introductory economics students will learn over the next few weeks, tariffs are “new taxes on American families.” Free trade became “orthodoxy” among economists in response to compelling theory and overwhelming evidence. This time isn’t different: American consumers, not foreign producers, will bear any tariff’s brunt.
Prof. Art Carden
Samford University
Birmingham, Ala.…..
Mr. Paulson’s defense of former President Donald Trump’s protectionism is seriously flawed. As documented by economist Michael Strain and others, wages haven’t “stagnated” since 2000. Real average hourly earnings of production and nonsupervisory workers are today 25% higher than in 2000. Nor has the merchandise trade deficit “been devastating for U.S. industry.” American industrial capacity is at an all-time high and 17% greater than in 2000, while industrial production is 1% shy of its historical peak in September 2018.
One reason the merchandise trade deficit hasn’t devastated U.S. industry is that nearly 80% of American gross domestic product is produced in the service sector. It’s unsurprising Americans import more merchandise than we export—and export more services than we import. Further, more than half of our imports are intermediate goods used by U.S.-based producers. American industry is helped, not harmed, by this net inflow of goods from abroad.
Finally, Mr. Paulson errs by describing tariffs as taxes on foreigners. Tariffs protect domestic producers only insofar as they raise prices that consumers pay for imports. In other words, U.S. tariffs are taxes paid by Americans who purchase either imports or domestically produced outputs, the prices of which are artificially raised by tariffs.
Veronique de Rugy
Mercatus Center, George Mason U.
Arlington, Va.
