Here’s a letter to Business Standard.
Editor:
You report that “in a high-stakes call with top US automakers earlier this month, US President Donald Trump issued a warning: Do not raise car prices in response to his new tariffs” (“Trump warns auto industry: No car price hikes after tariff shake-up,” March 27). This warning, like his tariff policy, is inconsistent with Mr. Trump’s stated goal of helping ordinary Americans and improving the U.S. economy.
Because the tariffs will at least initially make automobiles more scarce in the U.S., the market value of automobiles will necessarily rise. By demanding that automakers not raise their prices to reflect this increased market value – this tariff-induced greater scarcity – Mr. Trump is demanding that automakers provide political cover for him by arranging for posted prices to lie to the public about the fact that his tariffs make automobiles more scarce.
This heavy-handed attempt to restrict automakers’ pricing decisions strikes at the very heart of the market order, the price system. And in doing so it virtually ensures that Mr. Trump’s desired increase in production in the U.S. by foreign automakers will be insufficient to offset the decrease in automobile imports caused by the tariffs.
Foreign automakers – and, indeed, also domestic automakers – will anticipate that additional production in the U.S. might very well be rendered unprofitable by White House pressure to keep their prices from rising to reflect the higher costs of whatever new government interventions this president and his successors might impose. This rational anticipation makes the U.S. a less-attractive place to establish and expand operations. Ordinary Americans will suffer as the economy stagnates.
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
