The administration’s “Liberation Day” on April 2 was anything but liberating for the U.S. economy. The administration’s proposed tariffs led to a massive plunge in the stock market and levels of economic uncertainty on par with the early days of the COVID-19 pandemic.
President Donald Trump’s economic ire knew no bounds, with his miscalculated “retaliatory” tariffs covering even some uninhabited islands. This suggests that the president’s tariffs have little to do with some grand, strategic bluff to lower foreign trade barriers. They are instead the product of a mindset Trump once reportedly scribbled in the margins of speech years ago: “Trade is bad.”
That outlook is out of touch with an alarming amount of good evidence. While economists disagree on a number of policy issues, trade is generally not one of them. For example, survey data suggest that 95% of economists agree that tariffs tend to reduce economic welfare. Consensus isn’t evidence, of course — but in this case, the consensus exists because of the overwhelming data.
In a 2020 article in Economic Affairs, I reviewed the data linking trade to economic growth and poverty reduction. Critics sometimes claim that economic growth leaves those at the bottom behind. It may improve the average, they say, but only due to large income boosts at the top.
That talking point is simply untrue. Growth has been shown to improve incomes across the board, as it indicates a productive economy. And productive economies create more jobs, better wages and rising living standards for everyone. Government programs can perhaps help the poor in the short run. But these programs are funded by the wealth created by growing economies. Economic growth is pro-poor.
Economist Arvind Panagariya has documented trade’s role in the “economic miracles” such as Hong Kong, Singapore, Taiwan, South Korea, India, China and other economic successes throughout Asia, Africa and Latin America. Across more than 200 countries and five decades of data, he found a causal relation between trade and per capita income: Those countries that experienced intensive growth always maintained a high and/or expanding trade-to-GDP ratio.
In a brand new review of the literature, Dartmouth’s Douglas Irwin found the same thing: The empirical research on trade liberalization has been “remarkably consistent” in its conclusion that open trade fosters growth. Tariffs, on the other hand, hold it back. Previous literature reviews have come to similar conclusions.
During Trump’s first term, nearly $80 billion in new taxes were levied on Americans via tariffs. (Yes, tariffs are basically taxes.) Despite the populist rhetoric about helping the American workers and consumers, those same workers and consumers ended up eating the cost of Trump’s tariffs in the form of higher prices. Counties hit hardest by Trump’s tariffs saw higher unemployment and lower labor force participation. These negative effects have a disproportional impact on the poor, who tend to gain the most from trade.
A new bipartisan bill aiming to reign in presidential tariff powers may give us a glimpse into a possible future. And this gets at what is probably a misguided hope of mine: that the chaos and uncertainty caused by the administration’s tariffs ultimately lead to a greater appreciation for trade among Americans.
Not just international trade, mind you. There is nothing qualitatively different about trading across borders from trading within borders. There is nothing magical about a border that suddenly changes the nature of exchange. A market economy is a trade economy. An economy that is capitalist (that dirty word) is a trade economy.
In my view, it makes little sense to cheer for deregulation at home while championing tariffs abroad. And it’s equally incoherent to denounce Trump’s tariffs while simultaneously advocating for higher corporate taxes and more economic regulations.
When lawmakers slap a tax on a business in the name of helping “the people,” who do you think ends up eating the cost? The border doesn’t alter human behavior. That cost still gets passed on to consumers and workers in the form of higher prices, lower wages for workers and fewer employment opportunities.
Protectionism can take on multiple forms and signals distrust in commerce and, ultimately, people themselves. Demonizing foreign businesses and encouraging consumers to “buy American” isn’t all that different from demonizing corporations and encouraging consumers to “buy local.” But trade, whether across towns, counties, states or nations, is how people prosper.
Economic principles don’t stop at customs. Whether the intervention comes from a tariff, a tax or a regulation, the damage is the same. If we really want a liberation day, let’s start by liberating ourselves from economic myths.