Here’s a letter to City Journal.
Editor:
The usually sound Joshua Hendrickson’s attempt at “making sense of the Trump tariffs” makes no sense (“Making Sense of the Trump Tariffs,” March 3). It’s filled with factual and logical fallacies.
Start with the fact that trade has not, contrary to Prof. Hendrickson’s assertion, “hollowed out America’s industrial base.” One expects protectionist pundits and politicians to ignore reality while repeating this convenient yet false sound bite, but one also expects a professional economist to know better – to know, for example, that U.S. industrial capacity is today at an all-time high, as is U.S. manufacturing value-added.
Prof. Hendrickson also mistakenly says that, because of the dollar’s role as a global reserve currency, it “tends to be overvalued.” No it doesn’t. Foreigners demand dollars for use in international commercial precisely because the dollar is especially valuable in this role. The value of the dollar reflects its utility as a global reserve currency – a valuable service that we Americans currently have a comparative advantage at supplying. To say that the dollar is overvalued because foreigners have a high demand for dollars makes no more sense than saying that gold is overvalued because people have a high demand for gold – because people demand gold not only as jewelry but also as an investment instrument.
Nor is it true that foreigners’ high demand for dollars causes them to specialize at producing outputs for which they have no comparative advantage. That Prof. Hendrickson suggests otherwise is, frankly, inexplicable. It’s true that the dollar’s role as a global reserve currency reduces Americans’ costs of acquiring foreign goods. But not only is this reality a benefit to Americans rather than a cost, it does nothing either to prompt foreigners to specialize in producing for sale to Americans outputs that we Americans can produce for ourselves at lower costs, or to prompt Americans to pay to foreigners higher prices for outputs that we can produce for ourselves at lower costs.
Donald Trump has for four decades proudly embraced protectionism as he has displayed his utter ignorance of the economics of trade. There is no reason to believe that his current protectionist policies – policies completely consistent with his long-expressed ignorance – are anything other than raw, unalloyed protectionism.
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
