Trump’s Trade War Was a Loser

Tariffs destroyed jobs in Michigan, Pennsylvania and Wisconsin and made all Americans worse off.

By Phil Gramm and Donald J. Boudreaux. Excerpts:

"Growth accelerated from 1.7% in 2016 to 2.2% in 2017 and then to almost 3% in 2018, a 13-year high. But in 2019—the first full year in which Mr. Trump’s tariffs were in effect—the growth rate fell to 2.3%. That decline was in line with Congressional Budget Office and Federal Reserve estimates of the potential negative effects of Mr. Trump’s protectionist policies."

"While these [steel and aluminum] tariffs raised the prices of those metals, the numbers of additional jobs created in steel and aluminum production were a trifling 1,000 and 1,300, respectively."

"Mr. Trump’s tariffs destroyed far more manufacturing jobs than they created. Overall manufacturing employment fell in each of the four quarters of 2019 and in the first quarter of 2020, leaving the pre-pandemic level of manufacturing employment lower than when Mr. Trump took office.

The higher cost for steel and aluminum and Chinese component parts produced by Mr. Trump’s tariffs, combined with foreign retaliation, reduced the demand for American exports. As a result, the annual rate of growth in manufacturing output fell, turning negative in the fourth quarter of 2018. By the first quarter of 2019 it reached a post-Great Recession low of negative 5.3%. Manufacturing output growth continued to fall until its post-lockdown bump in the second half of 2020. Under Mr. Trump’s protectionist policy, total manufacturing output was 2% lower by the start of the pandemic than it was when he raised tariffs."

"By reducing demand for foreign goods, tariffs and quotas reduced the supply of U.S. dollars in the world currency market, raised the value of the dollar, and made American exports less attractive. The result was lower employment in the industries where the U.S. was most efficient and most competitive and higher employment in industries where the U.S. was less efficient."

"trade deficits aren’t signs of the “hemorrhaging of America’s lifeblood.” Trade deficits, under international accounting rules, simply mean foreigners are investing more in the U.S. than Americans are investing abroad. Japan, Germany, Canada and the U.K. provided over half of all foreign investment coming into the U.S. last year. Foreigners invest in America because of their confidence in the U.S. economy and the returns that they can earn by investing in our future. Foreign investment enhances America’s economic strength and fosters entrepreneurship by funding new businesses. It finances the expansion of existing businesses, research-and-development projects and worker training. Even when foreigners invest their dollars in U.S. government bonds, they help the American economy by preventing profligate government spending from crowding out private investment as tradWashington’s borrowing drives up interest rates."

"From the settlement of Jamestown in 1607 until World War I, the U.S. ran chronic trade deficits. Foreign capital, principally from Britain, and labor from all over the world came together in America and gave birth to the most prosperous nation in history. Today our per capita gross domestic product is 51% higher than the U.K.’s."

"The U.S. ran trade surpluses in 102 of the 120 months of the 1930s, when the Smoot-Hawley tariff dictated trade policy."

"Trade deficits soared during the Reagan and Clinton booms, as foreign investors rushed to invest in America’s dynamic economy. Those foreign investments earned high returns by funding a new American boom. That boom sent real U.S. per capita GDP soaring to 2.3 times its level in 1975."