Thursday, July 26, 2018

Trump’s Fake Fix for a Bad Economic Policy



By Walter E. Block

As an economist who shares President Trump’s belief that we should be cutting taxes and shrinking government, I might be expected to be enthralled by his policies. But that is not the sentiment I and many other libertarians feel when it comes to his decision to impose tariffs on steel, aluminum and a host of other products made overseas, particularly in China.

On Wednesday, Mr. Trump and the president of the European Commission, Jean-Claude Juncker, said they had reached an agreement to step back from a trade war and to discuss ways to lower tariffs and other trade barriers, and possibly increase European imports of American soybeans. But the outcome of those talks is far from certain, and trade tensions between the United States and China remain very high.

What is driving the president’s apparent eagerness to impose tariffs is a simple and wrongheaded idea that plays to a large part of his base: A trade war will spur job growth in America. He is trying to use tariffs to give a leg up to American industries against countries that manufacture the same products that we do — whether steel, aluminum or cars — but more efficiently. And who could be against that if it creates more jobs?

In reality, however, creating jobs alone does not make for a strong economy. What we really want is to increase production. And to achieve that, we need to allocate labor as efficiently as possible. One way to do that is to ensure that if other countries can make certain goods more efficiently than we can, we trade with them for these items, rather than manufacture them ourselves. The result is cheaper goods, which is to our advantage.

But tariffs do nothing to improve this efficient allocation of labor. They also do not increase or decrease employment. They just shift jobs around, and almost always in a manner that hurts the economy.

Read the rest here.