Though a few economists carelessly exaggerated the likely ill effects of President Donald Trump’s tariffs, economists’ overwhelming consensus was not that “inflation would surge. Supply chains would crash. And the economy would be plunged into a deep recession while the stock market tanked,” as Matthew Lynn noted in his Oct. 10 online op-ed, “Economists were wrong about tariffs. They need to figure out why.”
Because trade is a relatively small part of the U.S. economy, the tariffs were never destined to wreak damage on such a scale.
But this doesn’t mean economists have been wrong about tariffs. Tariffs will neither spark a boom in manufacturing employment nor increase total employment or raise wages. Tariffs should not be used to reduce trade deficits, both because tariffs are a poor tool to achieve this outcome and because this outcome isn’t necessarily desirable.
And because tariffs divert resources from more to less productive uses, they reduce the rate of economic growth. Much smaller tariffs had this effect during Trump’s first term, and there’s every reason to expect a larger negative effect in his second term.
Reasonable estimates of a tariff-induced slowing of economic growth range from 0.4 percent to 1 percent annually. So let’s take an estimate on the smaller side and say that, on average, tariffs will reduce annual U.S. economic growth from roughly 2.5 percent to 2 percent. In 2035, each American man, woman and child would, on average, have approximately $5,000 less in income than if the tariffs weren’t in place. Although not cataclysmic, this economic loss is substantial — and nothing in the data so far shows that economists are wrong to predict that.
Donald J. Boudreaux, Fairfax
The writer is an economics professor at George Mason University.
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