Here’s another follow-up letter to a new, and persistent, correspondent.
Mr. L__:
Thanks for sharing the Wall Street Journal report that mentions that, in response to Trump’s tariffs, Nissan is producing more automobiles in the U.S. You conclude that “this is a clear victory for Americans, and, vindication of the president’s tariffs.”
Not so.
First, because producing these vehicles in the U.S. is more costly than producing them abroad, insofar as these vehicles will be offered for sale to Americans, American automobile buyers are made worse off because they’ll pay higher prices. At the very least, neither you nor Trump has any way to know if the gains to U.S. autoworkers from Nissan’s expanded U.S. production exceed the losses inflicted on American auto purchasers.
Second, Nissan’s increase in U.S. automobile production necessarily decreases U.S. production of other goods and services. These tariffs draw American workers, capital, and raw material away from activities at which they have a comparative advantage and into an activity for with they have a comparative disadvantage. The productivity of the U.S. economy falls, causing economic growth over time to be lower than it would otherwise be.
Suppose Trump hires hoodlums to prevent your household from, say, buying chicken from supermarkets and other specialized suppliers. As a result, you set up chicken coups in your backyard and commence to raise and slaughter your own chickens. Your neighbor then shows up, and admiring your chicken coups and observing the time and energy that you and your family members exert to supply your own chickens, announces that Trump has engineered a “victory” for you: Before his intervention, no chicken production occurred in your household, but now, because of Trump’s intervention, you produce your own chickens.
Surely you’d regard your neighbor’s announcement as cockamamie. If it were in your best interest to produce chickens yourself, you’d do so absent Trump’s intervention. The very fact that you produce your own chickens only because Trump has made it too costly for you to acquire chickens from specialized suppliers means that Trump’s protectionism has made your household, not better off, but worse off. The same logic applies to the U.S. and its acquisition of automobiles.
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
