Donald Trump’s return to the White House thrust tariffs back into the public spotlight. The president has targeted tariffs at both friendly and adversarial trading partners.
Reaction to Trump’s plans tends to follow predictable political fault lines surrounding the 47th president.
Democrats who had been relatively silent about tariffs in recent years — including Biden administration tariff increases finalized as recently as September — now decry the impacts of new Trump administration trade restrictions. Many Republicans who spent decades advocating free trade tend to downplay the issue these days. Some even back Trump’s tariffs as one piece of a larger economic agenda designed to boost America in the long run.
My organization believes in free markets and limited government, no matter who lives at 1600 Pennsylvania Avenue. We believe tariffs are bad. They produce unanticipated negative consequences.
Leaving the debate about current tariffs to other members of the chattering class, this column will highlight timeless teaching on the topic from economist Thomas Sowell, one of today’s most enlightened thinkers.
In “Basic Economics,” his self-described “common-sense guide” to economic principles, the Gastonia-native Sowell tackled pros and cons of using tariffs to promote home-grown industry.
“At any given time, a protective tariff or other import restriction may provide immediate relief to a particular industry and thus gain the political and financial support of corporations and labor unions in that industry,” Sowell wrote in the book’s fourth edition, published in 2011.
“But, like many political benefits, it comes at the expense of others who may not be as organized, as visible, or as vocal,” he continued.
Sowell pointed to the declining number of American steel industry jobs in the 1980s. The drop from 340,000 jobs to 125,000 “had a devastating impact and was big economic and political news,” he wrote. Politicians responded with laws and regulations targeting imported steel.
“Of course, this reduction in supply led to higher steel prices within the United States and therefore higher costs for all other American industries that were manufacturing products made of steel, which range from automobiles to oil rigs,” Sowell explained.
“All these products made of steel were now at a disadvantage in competing with similar foreign-made products, both within the United States and in international markets,” the economics text continued.
If protectionist measures boosted American steel companies’ profits by $240 million and saved 5,000 jobs, “those American industries that manufacture products made from this artificially more expensive steel lost an estimated $600 million in profits and 26,000 jobs as a result of the steel tariffs,” Sowell wrote.
“In other words, both American industry and American workers as a whole were worse off, on net balance, as a result of the import restrictions on steel,” he concluded.
Sowell found similar results when investigating import restrictions for sugar. Saving jobs in the sugar industry, they “cost three times as many jobs in the confection industry, because of the high cost of the sugar used in making confections. Some American firms relocated to Canada and Mexico because sugar costs were lower in both these countries,” the economist added.
This result should pique the interest of a presidential administration that worries about economic activity north and south of the American border.
Trump and his more experienced advisers lived through debates in the 1980s over steel tariffs and their impacts. Yet Sowell’s “Basic Economics” text reminds us that concerns about trade restrictions did not arise for the first time in the late 20th century.
The history of one of America’s darkest economic periods should have warned would-be restrictionists about the likely impact of their policies.
During the Great Depression, the Smoot-Hawley tariffs of 1930 raised American levies on imports to “record high levels,” Sowell wrote. Other countries soon retaliated against American restrictions.
“The net economic consequences were quite different from what was expected — but were precisely what had been predicted by more than a thousand economists,” Sowell explained. Those dissenting voices included “many leading professors of economics at Harvard, Columbia, and the University of Chicago.”
“The proponents of higher tariffs claim that an increase in rates will give work to the idle,” the economists wrote to President Herbert Hoover and the tariffs’ congressional sponsors. “This is not true. We cannot increase employment by restricting trade.”
The Trump administration is pursuing policies — lower tax rates, more energy production, cuts in government regulation and waste among them — that should boost the American economy. Each would lead to more employment opportunities.
Tariffs cut against those positive economic developments. It’s a lesson worth learning again.
Mitch Kokai is senior political analyst for the John Locke Foundation.