Trump & Co.’s Sheer Ignorance of the Economics of Trade
Here’s a letter to The Hill.
Editor:
The justifications offered by Pres. Trump’s lackeys for his chaotic trade ‘policy’ are truly Orwellian, as evidenced by White House press secretary Karoline Leavitt telling reporters this week that Mr. Trump is
actually not implementing tax hikes. Tariffs are a tax hike on foreign countries that again, have been ripping us off. Tariffs are a tax cut for the American people, and the President is a staunch advocate of tax cuts…. Ultimately, [we’re arranging for] fair and balanced trade, which the American people have not seen in decades” (“GOP senator says ‘tariffs is a tax’ and Trump understands ‘completely,’” March 13).
If the president and Ms. Leavitt really believe that Trump’s tariffs are a tax cut, then let’s hear no more from them about how foreigners have been “stealing” American jobs and industries with unfairly low prices that these tariffs will raise to appropriate levels. Tariffs cannot simultaneously lower prices, which they must do if they are to be tax cuts, and raise prices, which they must do if they are to protect domestic producers from foreign competition.
Further, because every American purchase of imports is voluntary, no American is ripped off by trade. To insist otherwise makes no more sense than to insist that the housewife who buys groceries at Safeway and the Georgetown resident who purchases a subscription to The Hill are being ripped off.
Mr. Trump and Ms. Leavitt might defend their charges of unfairness by replying that many American imports are subsidized by foreign governments. But this reply fails because foreign governments that subsidize their countries’ exports to America both enable American buyers to acquire valuable goods at lower prices and – by reducing production in the U.S. of these kinds of goods – enable increased production in the U.S. of other goods and services. The only people who are “ripped off” when any government subsidizes exports are that government’s own citizens, for it is they who pay the taxes that fund these subsidies. Indeed, if Trump & Co. truly wished to “put America first” they would actively encourage foreign governments to subsidize exports and thereby force foreign taxpayers to pick up part of the tab for Americans’ consumption.
Finally – and again because every American purchase of imports is voluntary – we Americans are not treated unfairly when we buy imports (even if some foreign taxpayers are unfairly forced by their governments to subsidize our purchases). Nor is there any ‘imbalance’ in trade.
Team Trump will dispute this latter claim by pointing to America’s nearly half-century-long string of annual trade deficits. But in doing so they’ll reveal their ignorance of the fact that U.S. trade deficits are offset by U.S. capital surpluses. As shown in the nearby graph from a recent essay by Scott Lincicome, the net inflow into America of capital exactly balances these trade deficits. Americans’ foreign commerce is and has always been “balanced” and, therefore, needs no intervention by the U.S. government to bring balance about.
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
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