Norbert Michel, writing in the Wall Street Journal, busts the myth that America’s middle class was killed by free trade. Three slices:
Populists such as Vice President JD Vance argue that free-trade agreements cause middle-class wages to fall, hollowing out towns across America. Yet the only way to make this argument is to cherry-pick the data to death.
The U.S. middle class has thrived over the past 40 years. In fact, Americans of all economic backgrounds have done well. The share of households earning more than $100,000 has tripled over the past five decades, and the share earning less than $35,000 fell by 25%. For most of this period, workers in the bottom 10% of income distribution experienced stronger wage growth than those with higher incomes.
The middle class has shrunk only in the sense that former middle-income earners have moved up the income ladder. Materially, Americans are much better off than they were in 1970. Over the past 40 years, 70% of working-age Americans spent at least one year among the top 20% of income earners. And 80% never spent more than two consecutive years in the bottom 10%.
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The populist story of the death of U.S. manufacturing is nonsense. Mr. Vance and his cohort maintain that increased free trade with countries such as China in 2000 or Mexico in 1994 killed American jobs. It’s true that the number of manufacturing jobs is lower than it was in 1970. But that’s because we can make so much more with fewer people. Blame technology, not trade.
Real hourly output per manufacturing employee has been on an upward trend since 1959. Real U.S. manufacturing value-added—the sector’s contribution to gross domestic product—reached its highest recorded level in 2022. Manufacturing output was close to its all-time high in 2022, and the U.S. remained the global leader in manufacturing value-added per worker.
Steel is one example. In 1980, one steelworker could produce 0.083 tons of steel in one hour. By 2018, one steelworker could produce 1.67 tons in an hour. This is a good thing. Wage and income data in the U.S. show the rising tide is lifting all boats—especially the smallest.
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American manufacturers now operate more efficiently, use fewer natural resources, require less backbreaking labor, produce less pollution and employ more highly educated people than ever. No tariff or trade restriction is going to reverse those trends, and the U.S. shouldn’t try to do so.
Enterprising folks on X figured out how the White House got these numbers. It turns out that they don’t have anything to do with tariff rates. The administration simply took the U.S. trade deficit in goods with each country, and then divided it by the amount of imported goods the U.S. buys from that country. The U.S. tariff rate is then “discounted” by dividing that result in half.
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The table, and the order on which it was based, both work from the mistaken assumption that trade deficits are inherently bad. The administration basically assumes that all trade with each country would be perfectly balanced if not for other countries’ unfair behavior causing a trade deficit. If that were true, it would also mean that the U.S. is engaging in unfair behavior with the 100-plus countries with which the U.S. has a trade surplus, but the goods from those countries get tariffs too, just because.
It’s one thing to say total trade should be balanced; it’s another thing to say trade with each and every country should be balanced. Both are wrong, but the second is crazier, since it ignores the possibility that different countries will naturally want to buy different amounts of stuff from each other. Even Oren Cass, a tariff cheerleader who believes the total trade deficit does matter, wrote in his 2018 book The Once and Future Worker that trade deficits with specific countries don’t matter. Yet the Trump administration is working off the assumption that they not only matter but are a national emergency requiring presidential usurpation of Congress’s taxing powers.
To borrow a phrase from George Mason University economics professor Tom Rustici, the administration’s tariff plan is stupid-on-stilts with flashing neon lights.
President Donald Trump invoked emergency powers this week as he announced a “declaration of economic independence” and unveiled tariffs much harsher than markets had feared. His event in the Rose Garden was like a declaration of war — on allies, on globalization, and on Congress’s constitutional power to set taxes and import duties.
The muted public condemnation from corporate executives who fear Trump’s wrath, and from congressional Republicans who previously championed free trade, has been disappointing. But the president’s overreach is so drastic, and the odds of a recession are now so much higher, that at least a few Republican lawmakers have begun looking to reassert Congress’s power of the purse. More should follow.
On Thursday, Sen. Chuck Grassley (R-Iowa), the president pro tempore of the Senate, introduced legislation with Sen. Maria Cantwell (D-Washington) that would require Congress to ratify any new tariffs within 60 days, or they would expire. Akin to the War Powers Resolution of 1973, it’s a smart way to check presidents — current and future — from abusing emergency powers to impose far-reaching economic policy.
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The real emergency is Trump’s wrecking of the economy — in a way he should not have the power to do. Because of the unilateral nature of these tariffs, they undercut the president’s stated goal of incentivizing onshoring. Why would companies build factories in the United States now if the next president might change the rules? The lag in getting U.S. industry to scale and build domestic alternatives to imports will take years. But if Congress were to make tariffs harder to impose and adjust because lawmakers would have to co-sign any tweaks, the economy would gain a measure of certainty that is essential to spurring business investment.
For all of President Donald Trump’s talk about reciprocity, it turns out that he just wanted higher tariffs. After weeks of threatening “reciprocal” tariffs to match the higher tariffs and trade barriers of US trading partners, Trump announced yesterday that the United States was slapping a 10 percent tariff on everyone. Dozens more countries face still higher tariffs—up to 50 percent—for alleged trade transgressions.
In the past few days, Trump has violated at least 15 treaties to which the U.S. government is a party. (HT Scott Sumner)
Trump’s “Liberation Day” tariffs are hitting U.S. equity markets harder than they’re hitting equity markets outside of the U.S. (HT Scott Sumner).
Jack Nicastro is correct: “Trump is making affordable goods expensive.” A slice:
On Wednesday, President Donald Trump announced the elimination of the de minimis exemption for low-value ($800 and cheaper) Chinese imports. In addition to a 34 percent “reciprocal tariff” on Chinese imports and the 10 percent duty applied to all imports per Trump’s executive order on regulating imports, the president signed another order ensuring that no Chinese imports escape tariffs. With de minimis eliminated, Americans will have to pay more as direct-to-consumer businesses are forced to pay 30 percent duties beginning May 2.
The most disheartening part of the whole thing is that the president offered a list of fake tariff calculations based on junk science. The trade deficit is the “sum of all cheating,” we are told. I can’t believe that the Council of Economic Advisers endorsed this deranged interpretation of trade deficits.
Dear Sir,
Concerning Peter Navarro’s essay (“The Price of ‘Made in China‘,” August 4th): Thank goodness that, being more enlightened than in the past, we no longer will tolerate, much less provide a public forum to, such uncouth bigots as still persist in accusing the Jews of trying to take over our economy and subvert our way of life by lending us money on better terms than our fellow gentiles can offer. No sir. We have advanced well beyond that. We now devote op-ed space in the New York Times to uncouth bigots who blame the Chinese for trying to take over our economy and subvert our way of life by selling goods to us for less than what our own manufacturers can offer.
A wonderful thing to behold, this steady march of civilization!
Sincerely,
George Selgin
Professor of Economics
The University of Georgia
The most incomprehensible are those on Vietnam (the new tariff rate is 46 percent); Sri Lanka (44 percent); South Korea (25 percent); Cambodia (49 percent); and Taiwan (32 percent). Are those not some of the major countries we are expecting to hold China at bay? Do we not want Chinese manufacturing to end up moving to those and other countries, so we are less dependent on the Middle Kingdom? What could possibly justify the fact that Taiwan, which is a U.S. ally being threatened by China, now faces almost the same tariff as China (34 percent)?
Trump calls these “reciprocal tariffs,” and the claim is that we are taxing foreign nations at only half the rate they are taxing our imports. The numbers are illusory, however, some of them apparently made up (Brazil at only ten percent?) and others counting a VAT as a net tax on American imports, which it is not.
