With apologies to Kramer’s boss in Seinfeld. From Oren Cass’s “Trump’s Most Misunderstood Policy Proposal: Economists aren’t telling the whole truth about tariffs,” The Atlantic:
Their first mistake is to consider only the costs of tariffs, and not the benefits. Traditionally, an economist assessing a proposed market intervention begins by searching for a market failure, typically an “externality,” in need of correction. Pollution is the quintessential illustration. A factory owner will not consider the widespread harms of dumping pollutants in a river when deciding how much to spend on pollution controls. A policy that forces him to pay for polluting will correct this market failure—colloquially by “making it his problem.” It imposes a cost on the polluter in the pursuit of benefits for everyone else.
Tariffs address a different externality. The basic premise is that domestic production has value beyond what market prices reflect. A corporation deciding whether to close a factory in Ohio and relocate manufacturing to China, or a consumer deciding whether to stop buying a made-in-America brand in favor of cheaper imports, will probably not consider the broader importance of making things in America. To the individual actor, the logical choice is to do whatever saves the most money. But those individual decisions add up to collective economic, political, and societal harms. To the extent that tariffs combat those harms, they accordingly bring collective benefits.
I dunno. I’m not the trade specialist in my forthcoming textbook with Doug Irwin (Cambridge University Press), but I’m pretty sure I talked about to my intro to trade course about transfers, dead weight loss on production and consumption sides, and what the infant industry argument was. I think I also talked about learning-by-doing, and long run impacts. Checking back, why yes I did: see on tariff transfers to Treasury, DWL here, on infant industry etc., here. (In fact, the fact that Mr. Trump keeps on talking about all the tariff revenue the Treasury would get to replace lost revenue for getting rid of income taxes means that we cannot in general be ignoring the transfers from consumers to Treasury.)
It all comes down to empirics, then, if we’re talking about effects. And here we know what happened to indicators of activity in the wake of the 2018-20 trade war, at least to manufacturing.
Figure 1: Manufacturing employment (bold black, left scale), hours (light blue, left scale), production (green, left scale), valued added (red, left scale), all in logs 2018M07=0; and capacity utilization (purple, right scale). Source: BLS, Federal Reserve, BEA via FRED, and author’s calculations.
See also this assessment of job losses, here.
So, if Mr. Cass wants to talk about welfare, I’d love to see his calculations of welfare loss to consumers, welfare gains to producers, and transfers to Treasury in short run and long run. He’d have to specify the value of the externalities associated with manufacturing, among other things. I suspect he has little idea of the quantities involved.
And this guy is running the think tank that’s going to provide the ideas for Trump 2.0?
Here is what this fellow is trying to say I guess:
https://americancompass.org/a-new-conservative-think-tank-challenges-market-fundamentalism/
A New Conservative Think Tank Challenges ‘Market Fundamentalism’
Huh – a rightwing version of Marxism?
“Tariffs address a different externality. The basic premise is that domestic production has value beyond what market prices reflect. A corporation deciding whether to close a factory in Ohio and relocate manufacturing to China, or a consumer deciding whether to stop buying a made-in-America brand in favor of cheaper imports, will probably not consider the broader importance of making things in America.”
Externality is not the right term here. Adjustment costs maybe. But this excuse for protectionism is as old as it gets and in general it is quite fallacious. Your list is the right way to think about these things but this MAGA nutcase cannot articulate basic economics as he indeed has no economic training at all.
Even if he did – consider the mess Trump gave us in 2018. Of course back then Trump relied on WILBUR Ross and the likes of Larry Kudlow and Stephen Moore aka a pack of Village Idiots. Based on his speeches of late – his economic team is even dumber.
“Which brings us back to washers and dryers. If we extend the data a bit further, through the end of 2019, the higher prices completely vanish. (They spike again in 2020, after the pandemic begins wreaking havoc upon global supply chains.) This could be because Samsung and LG brought U.S.-based factories online after the tariffs took effect, expanding domestic supply.”
Not that I do not trust Cass here (actually I think he’s lying about a lot of things but hey) but could someone who knows how to access the data he (ab)used in his tweet check his spin here?
What’s behind recent false claims about immigrants and crime in the US?
https://www.msn.com/en-us/news/world/what-s-behind-recent-false-claims-about-immigrants-and-crime-in-the-us/ar-AA1rqb8E?ocid=msedgdhp&pc=U531&cvid=ff88a15008ce4b6080524d3475764427&ei=7
An interesting discussion that includes the host of racist lies Trump is making and how the facts note how much Trump is lying.
He is trying to find excuses for a pretty poor economic policy that institute across the board heavy tariffs. Pathetic to see a former “small government” and “free trade” advocacy organization bend itself into weird contortions in order to support the fever dreams of Orange Jesus.
The idea of tariffs as a substitute for taxes on the rich is absurd. You can imagine what happens if all countries/trading zones add a huge 100% tariff on imports. That will close down almost all trade, except for a few raw materials that are not commonly available. Those “essential imports” would either be exempt or not produce that much money. The tariff import tax has no chance of producing enough money to run our government, no matter how you cut it. Either it’s too small to have a big effect on imports and budgets, or it’s big enough to substantially reduce imports, but then cuts off its own revenue stream.
The products no longer imported will instead be made domestically, and that will create new jobs. However, jobs are also lost because export industries will face the same high tariffs in foreign countries – and lose their export business. Whether a country has a net gain, or loss, of jobs, is hard to predict. However, a lot of people will have to change jobs as some factories close and others open. What is certain, is that prices will go up – and not just to fund that transition. The reason a product is made in a foreign country is that even with the added shipping cost, it’s cheaper than what is made domestically. The domestic product will be more expensive, because of higher production cost – and possibly also because of less (or no) competition. The cost of making products that require special (in demand) skills, will have an extra cost addition in the form of higher labor cost (salaries). That will be good for those with unique skills and bad for those having to pay for it. The extreme scenario is hyperinflation – if too many jobs are created relative to available workers.
In essence the import tax “kill trade” policies will take the making of a product from a place in the world where it is created the most cost/efficiently, to places where it is produced less cost/efficiently. There are specific cases of products where that can be justified, but as a general policy, it’s just stupid.
What Trump is really looking for is a mega grift. He want all trade to be dependent on him doing country to country negotiations at a product by product level. So washing machines imported from Sweden can avoid the tariffs, IF they can cut a deal with Trump. His willingness to do so will depend on how many nights the delegation spend at the Trump resort hotel, how many Trump watches they bought, and whether they have removed their tariffs on Ivanka’s fashion products.