Trump’s Awful Tariff Plans Will Hurt America

He plans a 35% tariff on goods manufactured by American firms abroad:

This is less coherent economic doctrine and more puffed-up pseudo-alpha male posturing. Unfortunately, given that the man is about to become President, it will also be executive policy. Things, in other words, are about to get an awful lot more expensive for the American consumer.

Because it will be the consumer who pays the price to subsidize American manufacturing. As this excellent rundown by Taos Turner and Paul Kiernan of The Wall Street Journal explains, that is what happens when countries engage in naked protectionism via import tariffs:

As U.S. President-elect Donald Trump contemplates tariffs and other limits on trade, he might consider the results of such protectionist measures in two economies on the other end of the hemisphere, in Argentina and Brazil.

For decades, South America’s two largest economies have tried to shield their workers from global trade, largely through high tariffs and regulations that promote domestic production over imports. The World Bank ranks Argentina and Brazil among the world’s most closed big economies.

In Brazil, locally made products are enshrined in the constitution. Gadget-loving Argentines often use the black market or go to Miami to buy iPhones, which were barred for years because Apple wouldn’t produce them in Argentina.

These protectionist policies have created tens of thousands of well-paid factory jobs and may have helped avoid factory layoffs like those that rattled Midwestern U.S. states like Michigan. But they have come at a huge cost to consumers, who now pay higher prices, and to taxpayers, who underwrite the subsidies. Taken together, these measures essentially transfer wealth from society at large to a smaller group of workers.

These policies have not transformed Argentina or Brazil into industrial powerhouses. Far from it. These two countries—sitting in 36th and 54th place in the world—lag way behind the United States in terms of manufacturing value added per capita.

In other words, the consumer pays massive tariff costs for the high quality foreign-made goods they want—things like, for example, iPhones, Japanese and German cars, etc—to subsidize unproductive and non-competitive domestic operations. And those subsidized operations don’t do much in terms of adding economic value. That’s because they’re not internationally competitive. Protectionism weakens a country’s domestic industry by shielding it from market competition. A choice between a cheaper but inferior subsidized domestic good, and an artificially more expensive foreign good of higher quality is a choice between the worst of both worlds.

Today, this kind of protectionism may not even do much to create subsidized jobs. Companies may well take up Trump on his offer and manufacture domestically. But that doesn’t mean jobs will come roaring back. Robotics, A.I., and automation are advancing to an extent where automated factories can churn out huge volumes without employing many people.

This would be a worst-of-both-worlds scenario. Domestic production may increase without an attendant increase in industrial employment. International goods will become inordinately expensive, hitting the American consumer—and every American is an American consumer—hard in the pocketbook.

27 thoughts on “Trump’s Awful Tariff Plans Will Hurt America

  1. But unrestricted trade — classical liberalism — did not work out at all well for the people of the Rust Belt (and a lot of others) so they voted for Trump, and he’s paying them off. Protectionism was one of the few coherent promises he made during his campaign. I expect to see at least a serious pass at it, and then later mitigation through various forms of compromise and corruption. Those who don’t like protectionism should have offered a solution to the problems caused by global free trade, such as the slow race of wages to the bottom for a great majority of the population.

  2. I may be misreading his statements, but it seems he’s not talking about production that’s already moved outside the U.S., but rather things that would go after his inauguration. Maybe I’m taking his typically imprecise comments too literally, but if that is what he meant, it’s a completely different ballgame.

    • I read it as a general statement about American companies manufacturing abroad. Certainly it would be easier to implement that way than as a company-specific tariff system. But it would be nice and less ambiguous if he announced policy through normal channels and not tweetstorms.

      • He’s playing poker here to get some edge — who knows what he’ll try and do ultimately? It’s what all dealmakers do. He likes to make guys like you quiver in their pants.

        And what are “normal” channels? Last time I checked, the internet was a pretty mainstream communication platform — especially for a man who is not even president yet. Don’t worry, once he’s in, they will yank his twitter account.

        • Guys like me, who understand the benefits of free trade, the importance of free speech, and freedom of movement.

          The guy is a fascist idiot, economically illiterate, geopolitically illiterate. This is the closest we’ve come to Armageddon probably in the history of the world.

        • I think that you counseled me on “straw men” recently.

          You are so far out there with your assertations, and foot-stomping name calling. He wants to keep a few jobs in Ohio and it’s armageddon?

          I thought Britexit was the end of the world for you too?

          And is free speech — let’s just use twitter as an example — only important when it’s something that you want to hear?

        • Don’t give nuclear weapons to the mentally unstable man who says he wants to use nuclear weapons.

          This covers a lot of different bases. I radically disagree with his economic policy, because it will turn the U.S. into a banana republic like Brazil or Argentina or Venezuela. I radically disagree with his foreign policy, which seems totally incoherent and likely to result in war. I radically disagree with him wanting to strip people of their citizenship based on their dissent. I radically disagree with his plans to end freedom of religion by banning all Muslims from the U.S. I radically disagree with his personal actions of sexual assault against women. I radically disagree with his insane views on man-made climate change, which he claims was a lie made up by the Chinese when in fact it is already causing cataclysmic damage to our environment.

          I couldn’t dislike the man more. In the long run, the best case scenario is banana republic, and there is a real risk (via either nuclear war or climate change disaster) he will be worse than Hitler, ISIS, and Mao put together.

        • His desire to ban all Muslims from the US? Are you kidding me? I won’t even waste my time. You just made your bed with that comment.

          I could not agree with him more to not let my state turn into a Mexican shit hole — which of course it already is due to open migration.

          Of course. he’s going to be worse than Hitler! 100% on that bet.

          Be sure to save this comment stream and throw it in my face 4 years from now.

        • The “ban on all Muslim travel” line is still on his website, and his campaign was inconsistent about whether this included U.S. citizens such as Muhummad Ali or not.

        • These are the bullet points he has on his website regarding radical islam. To claim that he wants to “ban all muslims” is, well, just wrong. Oh, gotta go. I’m late for my KKK meeting (everyone who does not hate trump is a racist, don’t forget that). I might even win Deplorable of the month this month should I get enough votes! We are also holding a raffle for a paid vacation to Acapulco. The weather is great down there this time of year. A fun, safe place! Hope that I win.

          Defeat the ideology of radical Islamic terrorism just as we won the Cold War.
          Establish new screening procedures and enforce our immigration laws to keep terrorists out of the United States.
          Suspend, on a temporary basis, immigration from some of the most dangerous and volatile regions of the world that have a history of exporting terrorism.
          Establish a Commission on Radical Islam to identify and explain to the American public the core convictions and beliefs of Radical Islam, to identify the warning signs of radicalization, and to expose the networks in our society that support radicalization.

        • ‘Radical Islam’ and Soviet Communism seem very different. Soviet Communism was subverted by its own leadership. I don’t see that happening in Islam, radical or otherwise, any time soon.

  3. Have you considered the fact that USA, Australia, UK and other Western countries that have followed a open borders non tariff policy, have been flooded by a lot of unusable junk due to tariff reductions, that breaks down to some cheap part sourced from some obscure Chinese supply chain, and is sitting in the trash or garden shed. Yes the products WILL become more expensive but possibly higher quality and long run total cost for the economy is lower BECAUSE YOU BUY QUALITY. With capital kept in the country and more better paid jobs the middle class WILL return. Wealth will be inherited by inter generational accumulation of assets.

  4. International trade is necessary. No nation is entirely self-sufficient. Ideally, a nation should only import that which it cannot produce locally. Importing products that compete with local industries – especially if those imports come from places with much lower production costs – is detrimental to the local economy. The benefits of lower prices come at a severe cost to the nation’s economy, which negatively affects all those individuals who may enjoy lower prices.

    In a quasi-closed economy (which is what I’m suggesting) the profits earned by local corporations stay in the nation that paid them. No, it will not “lift all boats”, but it will enhance the economy much more than an open economy, where the profits leave the country.

    • I agree with your balanced take. Allowing our country to be pilfered by importing cheap labor and then having that labor send their untaxed income back to Mexico, well, is not a great trade deal.

    • Not sure that HRC is bland or unadventurous (we sure know Billy is not), but, yes, we may all soon tire of Trump. But when the establishment keeps sticking it to the little guy, eventually they get the boot. And hopefully, when and if the leftists are elected again, they are a bit wiser.

        • Trump is the most establishment candidate of them all. Way more than Hillary. If people don’t understand this now, they will later. I am sick of the establishment, too. Trump is the biggest one of all.

        • They represent different sides of the same establishment, it is hard to say which one of them is more ‘hardcore’ than the other.
          As of being sick about anything… the ‘establishment’ is inevitable… if not this then another one… what really sickens me is when the establishment becomes so entrenched that it very soon becomes obsolete.
          And this is the real significance of Trump versus Clinton. None of them brings any freshness into the system.

        • I think from the point of view of the ruling class, Trump has so far been a loose cannon. If he can continue to attract public support, _and_ he toes their line and serves their interests, they’ll let him play his games. If not, well, something will probably happen to him. Appointees like Mnuchin indicate to me that Mr. T has been clued in on the program.

        • He’s been a loose cannon in that he’s excited passions among the proles which the ruling class may later find difficult to control. And they can’t be pleased with the fact that they turned their kept media loose on him and yet failed to bring him to heel thereby. I think, however, that since the election, someone has had a little talk with him, going by the mostly standard Republican stiffs he has chosen for his cabinet.

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