Here’s a letter to The Daily Spark.
Editor:
Torsten Sløk proposes that Trump has “outsmarted everyone on tariffs” (“Has Trump Outsmarted Everyone On Tariffs?” June 21). Mr. Sløk’s evidence for this conclusion is weak, to put it mildly.
First, Mr. Sløk’s conclusion depends on Trump delaying by one year the imposition of the “Liberation Day” tariffs, yet no such delay has been announced by the White House.
But let’s suppose that such a delay does occur. Here’s Mr. Sløk:
Extending the deadline one year would give countries and US domestic businesses time to adjust to the new world with permanently higher tariffs, and it would also result in an immediate decline in uncertainty, which would be positive for business planning, employment, and financial markets.
This would seem like a victory for the world and yet would produce $400 billion of annual revenue for US taxpayers. Trade partners will be happy with only 10% tariffs and US tax revenue will go up. Maybe the administration has outsmarted all of us.
Sigh.
Of course businesses adjust to higher tariffs, and the more time they have to do so, the better. But such adjustments only minimize the damage that tariffs inflict on the economy. These adjustments don’t eliminate the damage. Because the entire point of protective tariffs is to deny domestic buyers access to lower-cost options outside of the country, the tariffs will necessarily result, even after the most optimal adjustments to them, in product selection being less, prices being higher, and economic growth being slower than without the tariffs.
As for trade partners being “happy with only 10% tariffs,” they’d be even happier – as would also, not incidentally, American consumers – with 0% tariffs. To say that the 10% tariffs are a positive source of joy for anyone other than the handful of industries that are benefitted by the protection is akin to saying that a robbery victim is happy to have only 10% of her property stolen rather than a higher percentage. The appropriate baseline in both cases is zero, not some higher number arbitrarily concocted by individuals who are intent on seizing other people’s property.
Finally, although any revenue raised by tariffs is plausibly reckoned as a positive, these sums must be set against the economic damage done to the domestic economy by the tariffs. And when the purpose of the tariffs is protection, the economic damage is greater than whatever benefits come from the revenue that’s raised as an incidental consequence of the tariffs.
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
