In the wake of President Donald Trump’s announced tariffs Thursday on steel and aluminum imports from Canada, Mexico and the European Union, Sen. Ben Sasse, R-Neb., may have had the best response.
“This is dumb,” he said.
Sasse sought to remind the administration that it makes little sense to treat cherished allies as enemies. Adding to the absurdity, the administration would impose the tariffs based on a 1962 law that gives presidents the power to do so in order to protect national security.
That left Canadian Foreign Minister Chrystia Freeland scratching her head, wondering how “we would in any way be considered to be a national security threat to the United States.”
The world is dangerous enough without the United States having to view Canada as an enemy.
The economics of tariffs are not up for debate. Tariffs are taxes on consumers. Not only do they raise the prices of imported goods, they allow domestic producers of those goods to safely raise prices, as well, because they no longer need to fear foreign competition. This lack of competition also dampens innovation and quality control.
Tariffs do increase employment in narrow segments of the economy, but at the expense of far more jobs in the overall economy. Worse yet, foreign nations retaliate with tariffs of their own, hurting U.S. producers who rely on sales abroad.
The result is an overall reduction in economic output and a reduction in the buying power of American households.
To underscore this, the Trade Partnership Worldwide, based in Washington, published a study last month showing what would happen over three years if the administration imposed a 25 percent tariff on imported automobiles, something also under consideration.
The study said such tariffs would add 92,000 jobs in the American motor vehicle and parts industries. However, it would cost 250,000 jobs in the rest of the economy, leading to a net loss of 157,000 jobs and a .01 percent decline in the nation’s gross domestic product.
The study did not look at the effects on U.S. exports if other nations retaliated with their own tariffs on cars, which would further harm the economy.
In conclusion, the study said, “If supporting jobs and strengthening the economy are the motivations for invoking national security reasons for imposing protection, such tariffs would have the opposite impact from that intended.”
The United States ought to have learned this lesson from Herbert Hoover, who signed into law stiff tariffs on more than 20,000 goods in 1930, helping to turn an economic downturn into a decade-long era now known as the Great Depression.
The U.S. faces no such economic downturn today. Unemployment is low and median income is high, adding to the absurdity of a supposed threat to national security from the nation’s allies.
The president has said his objective is to reduce the nation’s trade deficit. As we have said before, trade deficits are not bad. They signal that the U.S. economy is growing faster than those of its trading partners, giving American consumers the money needed to buy more items from abroad.
Historically, trade deficits grow as the U.S. economy grows. They shrink only in times of recession.
And because trade represents transactions among private parties, each of whom willingly agrees to the transaction because of a benefit, governments generally cause only harm by getting in the way.
In this case, that means harm not only to the United States, but to its most important friends.