Here’s a letter to a new correspondent.
Mr. W__:
Because I read the Wall Street Journal avidly, I was familiar, before you sent it, with its report titled “Why Everyone Got Trump’s Tariffs Wrong.” Nevertheless, thanks for your email in which you suggest that this report should prompt me to humbly reassess what you call my “strong position” against tariffs.
I don’t, however, see why my position needs reassessing. Nothing in this report that is correct contradicts the economic case against Trump’s tariffs, while the parts of the report that do challenge economists’ case against the tariffs are incorrect.
First, contrary to the report’s suggestion, no credible economist predicted “an economic collapse.” International trade is important for America’s economy, but it’s still a relatively small share – roughly a quarter of U.S. GDP. And only about half of U.S. imports have been affected by Trump’s tariffs. An increase in the average U.S. tariff rate from 2.4% to around 18% will make us Americans poorer than we’d otherwise be, but it won’t bring calamity. Avoiding calamity, of course, is a pathetically low baseline on which to judge a policy to be ‘successful.’
Second, one of the chief economic arguments against Trump’s tariffs is that his goal of reducing so-called U.S. “trade deficits” is foolish. Because U.S. trade deficits largely reflect the disproportionate attractiveness of the U.S. economy to global investors, these “deficits”phenomena to cheer rather than jeer. Yet Trump’s deep ignorance of trade causes him to believe that foreigners should be pressured to spend more of their dollars buying our exports rather than investing those dollars in the U.S. (Anyone who agrees with Trump on this front must believe, too, that America would be further enriched if our government also pressured more of us to increase our consumption of domestically produced outputs while simultaneously reducing our investments.)
Making matters even more topsy-turvy is Trump’s celebration of the commitments he extracts from foreigners to increase their investments in the U.S. He doesn’t understand that, because these investments aren’t market-driven, they’ll likely draw American resources from more-productive to less-productive uses. Nor does he realize that these investments increase the trade deficits that he claims to be committed to reducing.
More can be said, but I close with this thought. The economic case against tariffs is not that they’ll cause a recession or a net loss of jobs. It’s also not that tariffs fuel inflation, as the additional dollars spent on tariff-protected goods draws spending away from non-protected goods, thus reducing their prices and resulting in no discernible effect on the overall price level.
Instead, the case against tariffs is that over the long-run they’ll make us poorer than we’d otherwise be by causing resource misallocation – not least the misallocation of human energy away from economic innovation and toward seeking privileges from government. We might still grow richer absolutely as what remains of entrepreneurial innovation – for example, in AI – swamps the damage done by tariffs, but this result will hardly be cause for applause for tariffs. Nothing whatsoever in that WSJ report refutes the economic case against 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
