His trade agenda would hurt American workers and companies.
Donald Trump offered some promising thoughts on taxes, regulation and energy in a speech on Tuesday—too bad they were made in passing, near the end, almost as an afterthought. Most of what his campaign billed as his signature economic message was the most detailed assault on trade by a presidential candidate since—well, we can’t remember. Mr. Trump wants to make Republicans into the Tariff Party.
“Our original Constitution did not even have an income tax. Instead, it had tariffs—emphasizing taxation of foreign, not domestic, production. Yet today, 240 years after the Revolution, we have turned things completely upside-down,” Mr. Trump said in remarks outside Pittsburgh.
He added that if China, Mexico, Canada and others don’t bend to his demands and rewrite our trade agreements, he will “use every lawful presidential power to remedy trade disputes, including the application of tariffs consistent with Section 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962.” So much for the idea that Mr. Trump would modify his antitrade views for the general election.
Instead he’s escalating, as he bids for Bernie Sanders voters and electoral votes in the industrial Midwest. Perhaps he figures swing states with large Hispanic populations like Florida and Colorado are already lost. So he’s doubling down on a strategy to win white working-class voters who have been told for years by Democrats that trade is to blame for their declining economic fortunes. We’ll find out soon enough if this works politically, but as economics it’s nonsense.
Start with his idea that tariffs are good for economic growth. A tariff is a tax levied at the national border. A tariff raises the cost of imports, which reduces the standard of living of consumers who buy finished goods or businesses that buy inputs for their products.
If a domestic producer can replace the import at the same cost, the harm is minimal. But if that were true, there usually would be no demand for the import. Mr. Trump understands this in his own business, which is why he farms out production of his ties, scarves and other branded Trump products to China.
The same logic applies to the North American Free Trade Agreement, which Mr. Trump calls “the worst trade deal in history.” He cites as an authority the Economic Policy Institute, the AFL-CIO’s think tank, but that’s like asking Sid Blumenthal if Hillary Clinton is trustworthy. Most economists understand that free trade with Mexico and Canada has been a historic success.
Nafta took effect on Jan. 1, 1994, and the American economy boomed for the rest of that decade. The U.S. jobless rate fell to 3.8% in April 2000. Nafta helped Mexico recover faster from one of its familiar peso crises in late 1994, and today our southern neighbor is providing more jobs at home for workers who once would have illegally crossed the U.S. border.
Nafta has also helped U.S. industry stay globally competitive. Many companies have moved plants to Mexico, but they often supply parts for U.S. finished goods. An April 2015 Congressional Research Service study credits Nafta “with helping U.S. manufacturing industries, especially the U.S. auto industry, become more globally competitive through the development of supply chains.” By moving some low-wage jobs to Mexico, car makers have been able to maintain U.S. production.
If Mr. Trump imposed a tariff on Mexico now, he’d in effect be taxing American exports. The same CRS study cites evidence that “40% of the content of U.S. imports from Mexico and 25% of the content of U.S. imports from Canada are of U.S. origin.”
Mr. Trump also cites Ronald Reagan’s tariffs on motorcycles and semiconductors. But the Gipper was a committed free trader who applied narrow tariffs only rarely and reluctantly. His tariff on memory chips was a particular fiasco that damaged American computer makers. The U.S. semiconductor industry was saved by innovation that moved to higher-value microprocessors.
Most preposterous is Mr. Trump’s claim that trade protection is a declaration of “independence from elites” in Washington. Trade favoritism is the epitome of crony capitalism that benefits those with the best political connections. Mr. Trump’s tariffs would be the crony equivalent of President Obama’s subsidies for Al Gore’s green-energy investments. The only difference is who benefits.
Americans are frustrated by slow economic and wage growth, but the first obligation of political leaders is not to deceive them with false remedies. Mr. Trump’s tariff remedy would face furious foreign opposition, and it would probably end in tears if he imposed it.
As for the election campaign, Mr. Trump’s protectionism contradicts his promise of economic revival. He’ll have a better chance of winning the economic debate if he focuses on the taxes, regulations and monetary policy that are the real cause of our economic malaise.