John Hood: Both Sides Offer Bad Trade Policies
RALEIGH — For all the obvious and consequential differences between Joe Biden and Donald Trump, on one issue the two have much in common. Both the current and former administrations have employed tariffs and other restrictions to help special interests at the expense of average North Carolinians and their counterparts in other states.
When Trump was in office, he spearheaded efforts to raise taxes (that’s what tariffs are) on goods imported not just from strategic adversary China but from the likes of Canada, Australia, South Korea, and Europe.
When Biden took over in 2021, he surprised some observers (not me) by retaining most of Trump’s tariff taxes and impairing other trade negotiations by insisting on the imposition of regulatory burdens in other countries that would hamstring their economies. According to a study by the Tax Foundation, the Trump-Biden tariffs already in place will destroy hundreds of thousands of jobs over time and inhibit the growth of the American economy.
Why? Because that’s what always happens when you restrict competition. With few exceptions, all related to national defense, protectionism is a conspiracy against the public interest.
Quite literally, those who seek to raise barriers to international trade believe that prices here are too low. The explicit purpose of protectionist taxes and regulations is to make things more expensive, the argument being that households and businesses ought to pay more for goods and services in order to keep domestic industries viable and their workers employed.
Unless we’re talking about domestic industries dedicated to national defense or sensitive technologies, however, this argument is theoretically flawed and empirically unsound. While some workers may gain higher wages, most households are net losers as their cost of living goes up. And even in the case of Chinese companies involved in our defense-related supply chains, the most pro-taxpayer policy is often to find new business partners in friendly countries with lower production costs rather than trying to make everything we need domestically.
Although politicians often deny it, the costs of tariffs and other trade restrictions fall primarily on domestic consumers, in the form of higher prices, rather than on foreign exporters. That’s what economists from Columbia and Princeton universities found when they studied the consequences of Trump’s 2018 tariffs on Chinese products. “U.S. consumers of imported goods have borne the brunt of the tariffs through higher prices,” they concluded. All other things being equal, the policy reduced average incomes in both countries.
As Texas Tech economist Benjamin Powell pointed out in a recent piece for the Independent Institute, tariff supporters might deem higher prices to be worth paying if the policy created jobs for Americans. That’s not how the math works out, though. Other research shows that the tariffs “did not increase employment in the regions of the newly protected industries,” and that “China’s retaliatory tariffs decreased agricultural employment in the United States.”
Alas, both presidential candidates continue to espouse protectionist policies. If Trump is elected this fall, he promises to introduce a new 10% tariff tax on all imports from all countries, along with a 60% baseline tariff on Chinese imports and a 100% tax on Chinese cars. Democrats are already touting studies that estimate the average cost of Trump’s proposals at $1,500 per American family.
Unfortunately, Joe Biden shows no signs of rediscovering the benefits of free trade, either. A second administration would likely pursue the same policies as the first. Indeed, the president’s U.S. Trade Representative Katherine Tai calls tariffs “a playing-field-leveling tool” for “remedying unfair trade.”
Here in North Carolina, we can’t afford another round of costly trade wars that diminish foreign markets for the machinery, pharmaceuticals, farm products, and other goods and services we produce. Nor should our households and businesses be gouged by another round of price increases imposed by our own government — supposedly for our own good.
Want to make it easier to start businesses and employee people here? Let’s talk about real solutions. Raising prices isn’t one of them.
John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history (FolkloreCycle.com).
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