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Note to Trump And Sanders Supporters: 4 Reasons Economic Protectionism Is Stupid

Both Donald Trump and Bernie Sanders pledge to shut down trade if elected. The media have assumed that Trump’s appeal to blue collar workers stems from his opposition to illegal immigration, and indeed, immigration in general. But a large swath of his support springs from his protectionist trade policies -- policies also backed by Bernie Sanders. Trump’s been preaching government-imposed protections for American products from foreign competition for years. Here’s Trump in August:

We have to bring back our jobs back from China. As an example, we have to bring manufacturing back. You look at Japan with the boats that come pouring in with cars – you know what we send Japan? We send them beef. We send them wheat, we send them corn…I want American cars. If Japanese companies build here, that’s fine. But you know what? I don’t want to see boats pulling into Los Angeles because I saw boats the other day that were the biggest boats I’d ever seen – loaded up, you wouldn’t even believe the thing could float so many cars…They make cars in Mexico, and they just send them across the border. How does that help us?

Trump speaks like this routinely. So does Bernie Sanders:

You didn’t need a Ph.D. in economics to understand that American workers should not be forced to compete against people in Mexico making 25 cents an hour…They’re gonna start having to, if I’m president, invest in this country.

And more and more Republicans have begun to buy into all of this. They’ve decried the failure to reach out to disenchanted blue collar voters in the Rust Belt, and they believe that they can pander to those voters by magically bringing back disappeared jobs through tariffs and regulations. They’ve heard the cry of the disenfranchised voters who lost his job but has no advocate, and they’re willing to throw free markets over to gain his vote.

This is foolishness. Here are four reasons.

Tariffs Are An Unfair Tax. Trade has two sides. Always. It is a bargain among consenting individuals. Trump complains about us importing cars. That’s because there are Americans who want to purchase those cars and are willing to do so. Depriving them of their free choice is tyranny. Beyond that, you are sucking money out of those Americans’ pocket by forcing them to pay more money for products just because they’re made in America; you’re just redistributing wealth. And you’re doing it regressively – rich people can usually afford marginally more for a product, but poor people can’t. There is no difference between the government forcing me to pay a farmer more for a product by placing restrictions on imported goods, and the government taking money directly from me and handing subsidies to others. Trade redirects money to the most efficient industries across the world. That makes everyone more efficient, and redirects American resources to industries that are ever more sophisticated.

Tariffs Destroy Jobs. Removing money from profitable industries – people who don’t need tariffs and subsidies – to give to those who are inefficient merely keeps jobs in industries that will collapse as soon as competition is allowed. And if competition is never allowed, product quality declines while price rises, and the economy stagnates, sucking jobs away from industries that could be producing them. Take, for example, Detroit. Bernie Sanders acts as though Detroit collapsed because of evil foreign trade. Here’s what he said in the last Democratic debate: “Do you know that in 1960, Detroit, Michigan was one of the wealthiest cities in America? Flint, Michigan was a prosperous city. Corporate America said why do I want to pay someone in Michigan a living wage when I can pay slave wages in Mexico or China. We are going to shut down and move abroad and bring the products back.”

This is not what happened in Detroit. Detroit collapsed because unions and regulations made Detroit uncompetitive in the global market while other countries recovered from World War II. Subsidies and tariffs made Detroit uncompetitive; when we went free trade, Detroit died. The eroding tax base led to the city's collapse as politicians tried desperately to grab as much cash as possible amidst the flight. The city emptied out of all capital.

Tariffs create zombie industries, just waiting for the head shot. We can complain all we want about the demise of manufacturing jobs – but how many service and information sector jobs are you willing to sacrifice for one manufacturing jobs? And why? In the 1930s, the government thought agricultural jobs were worth the sacrifice, and pushed forward the Smoot-Hawley Tariff. The result: a decade-long depression.

Here’s the truth: most job losses are created by technological innovation, not trade. But good news: that technological innovation also creates jobs! That’s why the unemployment rate in America has been relatively stable for a century, despite the creation of the automobile, the computer, the assembly line, the airplane, and the internet, among other inventions. The notion that something new is happening in the American economy is a lie – it’s been happening all over the world since the Industrial Revolution. And guess what: we’re all better off thanks to such innovation.

America Is Not Damaged By “Unfair Trade Practices” Of Other Countries. Both Mitt Romney and Donald Trump have complained in the past about China’s “unfair” trade practices, particularly their devaluation of their currency. But devaluing your currency doesn’t give you any advantage, any more than pretending that Yao Ming is 5’9” gives Nate Robinson an advantage over him. Currency is merely an exchange unit. If China inflates its currency, the American dollar is worth more against it; that means we purchase more Chinese goods.

Well, good for us! That makes it cheaper for our consumers, supposedly. But not for long, since currency is a substitute for goods and labor, and government manipulation doesn’t change that. China’s consistent devaluation has led to economic crisis in the country, more poverty among the people who use their currency (namely, Chinese citizens) and multiple stock market collapses in the last year. Right now, the Chinese government is desperately attempting to stop a devaluation spiral. If devaluation were such a threat to the American economy, why wasn’t Weimar a world power when people were shoveling around cash in wheelbarrows?

How about China refusing to import American products? That’s obviously not good for either us or them, but that doesn’t mean that our attempts to stop their imports would help us. That would be cutting off our nose to spite our face. Jim Geraghty gives a good case example: our 2009 tariffs on Chinese tires, which resulted in – at best -- $48 million in “additional worker income and purchasing power,” at the cost of $1.1 billion in American money spent on more expensive tires, plus another $1 billion in the poultry industry thanks to Chinese retaliatory tariffs.

Trade Is Not A Zero-Sum Game. Trump and others have constantly whined about America’s trade imbalance. This sort of economic silliness has a long history. Adam Smith pointed this out in The Wealth of Nations: “Each nation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades, and to consider their gain as its own loss. Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity.” As Thomas Sowell writes:

In general, international deficits and surpluses have had virtually no correlation with the performance of most nations’ economies. Germany and France have had international trade surpluses while their unemployment rates were in double digits. Japan’s postwar rise to economic prominence on the world stage included years when it ran deficits, as well as years when it ran surpluses. The United States was the biggest debtor nation in the world during its rise to industrial supremacy, became a creditor as a result of lending money to its European allies during the First World War, and has been both a debtor and a creditor at various times since. Through it all, the American standard of living has remained the highest in the world, unaffected by whether it was a creditor or a debtor nation.

Sowell points out that if the Japanese send us lots of cars and we send them lots of dollars, they will use those dollars to buy American assets. That’s exactly what they’ve done. As Scott Lincicome pointed out at The Federalist, “every dollar traveling overseas to buy imports (in excess of our exports) eventually comes back to the United States in the form of investment, and our “trade deficit” is matched by a “capital account surplus.” In other words, we buy goods and services from foreigners, and they buy an equal amount of our exports plus our financial assets (aka foreign investment in the United States).”

If trade were really about “beating” the other guy, as Trump seems to suggest, perhaps the best solution would be for us to sink all Chinese ships carrying imports. Wouldn’t that help the economy, after all? Countries that effectively do that with high tariffs invariably collapse economically and end up having to inflate their currencies. See, for example, Latin America. Nobody invests in countries with high tariffs; nobody trades with countries with high tariffs. If trade were a zero sum game, wouldn’t it be best to just keep everything in house?

But logic doesn’t matter in this conversation. All that matters is that tariffs and trade barriers represent yet another government policy with clear beneficiaries and diffuse victims. So they’ll be politically popular, even as they drive the American economy into the ground.

 
 
 

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