What’s the Cost of Trade Protectionist Policies?
According to the White House s website, “blue-collar towns and cities have watched their factories close and good-paying jobs move overseas, while Americans face a mounting trade deficit and a devastated manufacturing base. By fighting for fair but tough trade deals, we can bring jobs back to America’s shores, increase wages, and support U.S. manufacturing.”
There is disagreement about the extent to which trade and outsourcing have actually cost Americans manufacturing jobs. Most experts say that automation and increasing worker productivity that have led to loss of the large majority of US factory jobs. And, as a recent report from the American Enterprise Institute pointed out, “there’s been no devastation of America’s manufacturing base.” On the contrary, US manufacturing output has reached near all-time highs recently, having recovered from the downturn associated with the financial crisis of 2008 and 2009.
Trump’s solution to the loss of US manufacturing jobs is a series of protectionist trade measures including tariffs, at rates ranging between 30 and 50 percent), “tougher trade deals,” Buy American policies, and border adjustment taxes, among other strategies.
The question posed by the AEI report is, “How have protectionist trade policies in the past worked out for the US economy and how expensive is it to save American jobs with the protectionist trade policies Trump is proposing?”
Some of the answers can be found in the 1986 book Trade Protection in the United States: 31 Case Studies by Gary Clyde Hufbauer, Diane T. Berliner and Kimberly Ann Elliot. Although written over 30 years ago, the book reads like an echo if the trade rhetoric that can be heard today.
Protectionist pressures have been mounting worldwide during the 1980s. These pressures are due to various economic problems including the large and persistent balance of trade deficits in the United States; the hard times experienced by several industries; and the slow growth of many foreign counties. Proponents of protectionist trade policies argue that international trade has contributed substantially to these problems and that protectionist trade policies will head to improved results. Professional economists in the United States, however, generally agree that trade restrictions such as tariffs and quotas substantially reduce a nation’s economic well-being.
The book generated estimates of the consequences for each major group affected by protectionist measures in 31 case studies. The research indicated that annual consumer losses exceeded $100 million in all but six of the cases. The largest losses, $27 billion per year, come from protecting the textiles and apparel industry. There also are large consumer losses associated with protection in carbon steel ($6.8 billion), automobiles ($5.8 billion) and dairy products ($5.5 billion). Domestic producers were the primary beneficiaries of protectionist policies.
In 18 of the 31 cases, the cost per-job-saved is $100,000 or more per year, in 1986 dollars. The consumer losses per-job-saved in some commodities $500,000 per year.
“The costs of protectionist trade policies far exceed the benefits,” concluded reviewers of the research. “The losses suffered by consumers exceed the gains reaped by domestic producers and government.”
Excessive domestic production promoted inefficiencies in domestic industries and there are also costs associated with the enforcement of the protectionist legislation and attempts to influence trade policy. Low income consumers were found to be more adversely affected by protectionism that than higher-income consumers.
In other words, concluded the AEI report, “an increase in protectionist trade policies would Make America Poorer— not ‘great again’— and would especially impoverish the most vulnerable Americans.”
TARIFFS: NAVIGATING THE LATEST TARIFFS ON CHINESE GOODS