Thursday 6 December 2018 8:21 am

Tariff man Trump is the most economically illiterate President in US history

America and China may have called a truce in the trade war, but nobody seems to have told the President.

On Tuesday, Donald Trump tweeted: “I am a tariff man. When countries come in to raid the great wealth of our nation, I want them to pay for the privilege of doing so.”

I don’t have the historic evidence to prove it, but I reckon that quote is probably the most incompetent statement on the economy ever uttered by a US President.

Let’s do some textual analysis. “I am a tariff man” is stated with pride. The President truly seems to believe that protectionism protects an economy, when the economic history of the world suggests precisely the opposite.

Way back in 1824, Thomas Babington Macaulay stated that “free trade, one of the greatest blessings which a government can confer on a people, is in almost every country unpopular”. It’s certainly unpopular in the Oval Office.

If you read Bob Woodward’s book Fear, on the Trump White House, you see a whole swathe of cabinet ministers and economic advisers trying to explain to the President why he’s wrong on protectionism, with absolutely no effect.

Trump simply does not recognise the two huge benefits from free trade. First, the static effect: consumers pay lower prices on imported goods (world prices, not world prices plus tariffs).

Second, the dynamic effect: more competition on domestic producers drives up productivity and incomes in the long term. Douglas Irwin, perhaps the world’s leading academic on free trade, states that “there is overwhelming evidence that free trade improves economic performance by increasing competition in the domestic market”.

The simple reality is that the people who will pay most for tariffs will be US consumers. They may not realise it yet, but they will when those iPhones made in China suddenly get a lot more expensive.

The tit-for-tat consequences of the trade war are already becoming apparent. Walmart, Coca-Cola, and General Motors have stated that they may have to raise prices as a consequence of import tariffs.

Soybean farmers in the Midwest have been bailed out by the government after China slapped on 25 per cent tariffs in retaliation to Trump.

This is a ludicrous situation – raise the prices paid by consumers and then have to use the tariff revenues to subsidise producers.

Sadly, our analysis reveals yet more howlers. Trump believes that imports “come in to raid the great wealth of our nation”. This is nonsense. Does he believe that US exports are a raid on the wealth of other nations? Does he want to have zero international trade?

From Adam Smith and absolute advantage, to David Ricardo and comparative advantage, to left-leaning economists today like Paul Krugman, the economic benefits of trade have been proven beyond dispute.

Free trade’s positive effect is one of the few areas where economists are virtually united. They have to be, because the evidence is so powerful. But with a President who doesn’t listen and doesn’t read, it seems that’s an impossible message to get over.


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