Gramm’s and Boudreaux’s Letter in The Economist on Lighthizer’s Misunderstanding of Trade

From Cafe Hayek.

"In the latest issue of The Economist, Phil Gramm and I respond with the following letter to three of the many errors about trade that appear throughout Robert Lighthizer’s recent brief, in that publication, for protectionism:

The case made by Robert Lighthizer, America’s trade representative under Donald Trump, for protective tariffs is full of logical, factual and economic fallacies (By Invitation, March 8th). First, Mr Lighthizer slays a straw man. The economic case against tariff increases is that they worsen the economy’s performance and not, as he claims, that they “destroy capitalism”. The survival of America’s market-oriented economy in the wake of Mr Trump’s tariffs, therefore, does nothing to discredit the case for free trade.

Second, Mr Lighthizer insists that the past several decades have left America in dire need of “reindustrialisation”. In fact, industrial output in America rose rather steadily from the end of the second world war until the Great Recession of 2008 and 2009, and then slowly rose again until the pandemic, after which it once again increased. It hit its all-time high in September 2018 and is today only 1.5% below that record level. As for America’s industrial capacity, today it is a mere 0.4% below the historic peak it reached in December 2016, the month before Mr Trump took office.

Third, it is simply untrue that increases in a country’s imports to match any increases in its exports is “how trade is supposed to work”. Trade can work in this way. But it can also work when a country uses its export earnings, not to import more, but to invest abroad, thus potentially increasing the amount of capital available in destination countries. This has happened in America in every year since 1975, when it last ran a trade surplus.

PHIL GRAMM
Non-resident senior fellow at the American Enterprise Institute
Helotes, Texas

DONALD BOUDREAUX
Mercatus Centre
George Mason University
Fairfax, Virginia"