How the $23 trillion debt crisis in America affects your own money
An economic bragging rights referee
In a recent Wall Street Journal op-ed, presidential trade advisor Peter Navarro painted a wondrous picture of the bountiful economic effects of President Trump's anti-trade tariff programs. Indeed, he credited the tariffs with everything from the current 50-year low unemployment rate, last year's rise in median family income and the 7 million jobs added to the economy during the Trump years.
Strangely enough, a pair of previous Trump administration officials had already credited another Trump policy - tax cuts - with these same improvements. Looks like we need a bragging rights referee.
It was just a few weeks ago, in a December 22 Wall Street Journal op-ed, when the president's former Council of Economic Advisers (CEA) Chairman Kevin Hassett and his former CEA colleague Gary Cohn pointed out that the Trump tax cuts generated the very same enhanced economic activity. Hassett and Cohn referred to their earlier written forecast that identified the future macroeconomic benefits that would come with the tax cuts; they understandably celebrated its accuracy. They made no mention of Trump's accelerating trade wars lifting all the boats.
Next, let's examine several aspects of Navarro's argument. He asked that we be patient before being too critical of tariffs, pointing out that there is more going on here than just matters of trade. There are also troublesome property rights and government subsidy policies, especially with China, that need to be addressed. As we have heard many times before, the trade wars may be a way of getting China to change these policies.
Navarro took strong exception with regard to tariff critics who have regularly written in favor of freedom and open markets, and who frequently note that tariffs are taxes paid by ordinary Americans who ultimately bear the burden of trade wars. I readily admit that I am one of those critics.
Focusing primarily on China, Navarro never mentions the tariffs imposed on Canadian timber and milk products, and on steel and aluminum from global producers. Nor does he mention those on an array of French consumer products including wine and champagne and the earlier threat that the United States might impose tariffs on EU-produced cars. And he does not touch on President Trump's August 2019 warning that U.S. corporations should prepare to move their China operations back to the homeland, a remark that triggered the largest surge in economic policy uncertainty that occurred in all of 2019.
Somehow, Navarro's message seemed to say that tariffs are wonderful devices that, if continued, may make us all rich. He did not suggest that we impose 100 percent tariffs on everything that comes into our country. But he did close his piece by saying "Americans should welcome this analysis warmly-especially in the heartland, where the ugly predictions of the anti-tariff forecasters seem so out of touch with the beautiful realities of the Trump economy."
So what are we to make of Navarro's strong pro-tariff position? His single-minded focus on China and the neglect of other tariffs now imposed almost globally? And his claim that by putting more tariff rocks in our harbors to keep out foreign goods, we can all become richer?
I suggest that we've heard this before, and it doesn't work. Forcing higher prices on all Americans by way of tariffs and limiting our choices as consumers simply cannot make everyone better off. Yes, tariff-protected firms may gain some temporary relief from the winds of world competition. But protecting the few by penalizing the many is no sustainable path to prosperity.
Yes, the economy is in good shape. Although GDP growth is at a low level, wage gains now exceed inflation, employment opportunities are exceptionally high, and retail sales and housing markets are strong. As Hassett and Cohn have pointed out, it's clear that tax policy deserves some credit for most of this.
And yes, it is possible that our trade war efforts may bring beneficial change in China's trade policies and the recently signed Phase One trade agreement offers real promise. But let's not confuse tariffs as a political tactic with tariffs as economic policy for its own sake. The longer we endure the pain for bringing change, the larger the offsetting future benefits must be, if and when they arrive.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson College of Business and Behavioral Sciences.