The logic of the Trump protectionist policy is that a nation can become richer by producing at home products that it could buy more cheaply abroad. Not only does this defy reason, but the administration has presented no evidence showing how the U.S. or any other nation has benefited economically from broad-based protectionist policies.
Certainly there is no evidence that the protectionism of the first Trump administration benefited U.S. industrial production, which rose in 2017 and 2018 in response to deregulation and tax cuts, then fell by 2% under protectionist policies in 2019. Economic growth, which reached a 13-year high in 2018, slumped in 2019 under Mr. Trump’s protectionist policies, and employment in manufacturing as a percentage of total employment continued to fall on a secular basis, as it had before Mr. Trump’s tariffs.
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Only 8% of American workers are now employed in manufacturing, which is so mechanized that it produces 2.5 times the output value it did in 1975, when it accounted for 22% of the labor force. If putting high tariffs on clothing at Walmart brings back the cotton mills where our parents and grandparents toiled, who wants those jobs? Should the capital to build these mills be funded by cutting back on artificial-intelligence investment?
The state-directed capitalism of President Biden’s subsidies and Mr. Trump’s tariffs might attract some investments and create hothouse jobs that require perpetual subsidies and protection, but they misallocate productive resources and make the nation poorer. Protectionism also raises consumer prices, dampens competition, and slows innovation and growth. A less efficient country with a lower growth rate and closed markets is less likely in the long run to attract foreign investment.
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