Aahh the perils of a populist president. But at least I can try to think of more words that start off with TR.* So yesterday Mr. Trump declared war on most of America and a few foreigners to support a few jobs in the solar cell and washing machine industries. Let’s just review the standard economic reality of what this means, and then address why this happens, and what Christians should think about this. So here is the pretty straight forward explanation of the economics, once one considers not just the initial effects, but also the unintended consequences.
- The near term and only certain effect is to increase the price that every American has to pay for washing machines and solar cells. The tariff will not be swallowed completely by the company, but the price will increase potentially up to the tariff itself, depending on consumers’ willingness to adjust their consumption choices. So effect #1–we’ll pay higher prices.
- Effect #2 is that the quantity of foreign washing machines sold will fall (which is the intent of the tariff), leaving foreigners with less $$, meaning they will not be able to buy as many of our exports.
- The industries that will be hurt by reduced sales of exports are precisely those that are the most efficient; the companies benefiting from our tariff are our most inefficient. So we harm the winning industries to help the losing industries.
- This does not yet address the fact that countries that are slapped with a tariff will usually retaliate in some form or the other, resulting in further harm to our exporters. In the WSJ report on this (gated), one new solar panel manufacturer may open a US plant based on the tariff (potentially creating 800 jobs), but the losses inflicted on other American exporters are estimated to be 23,000! Yes, Mr. Trump really, really, really cares about American jobs. Just listen to what he says, not what he does.
- The reward to the special pleading of those anti-competitive companies will be noticed by other domestic companies, encouraging yet further rent-seeking activities in totally unrelated industries, further consuming scarce social resources and increasing the Washington DC corruption.
- More entrepreneurs will be encouraged not to come up with innovative new ideas, but become cronies!
These effects are not likely (hardly) to be exhaustive, but are certainly reflective of some of the reasons why trade is a winner and hostility to trade a loser. But I thought Donald Trump was always a winner? Why would he want to lose this way?
This is the classic fallacy of composition in new guise: what is good for the individual is not necessarily good for the whole. It’s true that as a whole country we lose. But in a world of rationally ignorant people, support of special interest groups is very easy for populist politicians like Mr. Trump to exploit. Everybody sees when free trade leads to uncompetitive firms shutting down, and can see that China (or you name the country) is to blame. But the benefits of free trade are almost never shown to be from free trade itself. As an export industry expands its production or opens a new plant, well, its just a good market. No one sees the linkage to another country’s ability to purchase the export goods from the U.S. with its ability to sell us imports. The linkage is undeniable to anybody that looks at it deeply, but whoever thinks about that? After all, the super bowl is just over a week away. And did you see the latest on facebook?
The greatest commandment is to love the Lord our God with all our hearts, souls, minds, and strength. And the second is like it–to love our neighbor as ourselves. But that suggests that we need to think with our minds to effectively love our neighbors, not simply with our hearts (although don’t lose the heart!). That means that Bereans should be about trying to see the unseen as well as the seen as we advocate policies that affect our neighbors. Using your minds is the best way to avoid being snookered by populist politicians.
* Ok readers, give me word suggestions that I should use Mr. Trump in the future that begin with TR. I’m sure Mr. Trump’s trade salvo here will not be the last, and hence source of unending blog material!