President Donald Trump has temporarily stepped back on steel and aluminum tariffs on some countries. He’s also announced as much as $60 billion in tariffs on China. But an economist at Texas Tech is unequivocal in his belief that once implemented the tariffs won’t bring general prosperity to the U.S.
According to Ben Powell, the director of the university’s Free Market Institute and a professor of economics in the Jerry S. Rawls College of Business Administration, “We have over 200 years of economic theory that explains how tariffs don’t promote general prosperity in the country imposing them, nor will they on net create jobs. You could probably not find any other issues that economists speak with a single voice on is the fact that tariffs do not promote prosperity.”
Powell says he thinks politics more than economics spurred Trump to take steps to impose tariffs.
“Tariffs concentrate benefits narrowly on special interest groups who can lobby for them and support campaigns of politicians who will impose them. Meanwhile, the cost of the restrictions are more dispersed among hundreds of millions of consumers,” Powell says. “So, a policy that benefits narrow groups by millions and millions of dollars, but costs everybody else a hundred, or a few hundred dollars, the dispersed group doesn’t lobby as hard against it and doesn’t make as much of an impact in the political realm. This is why the logic of free trade is often hard to push in politics.”
The Free Market Institute is a scholarly institute that studies how free markets work and the institutional environment that supports markets to function well and those that don't.
Last week Trump announced that his administration would suspend the tariffs on Canada, Mexico, the European Union, Australia, South Korea, Brazil, and Argentina until May 1, 2018. Earlier this week, reports came out that the administration had renegotiated United States-Korea Free Trade Agreement. Financial markets have tumbled each time Trump has announced tariff information.
Since WWII, trade’s history in the US and the global community has been about almost continuous reduction in tariffs and trade restrictions. That, Powell says, has brought increased prosperity in countries participating in trade.
It’s clear to him that tariffs will harm the US economy. “The question is, are the other beneficial things that he has put in place for the economy, enough to offset it enough so that there’s not economy-wide recessions that drive voter backlash?”
Tariffs aren’t unique to justTrump, Powell says. Steel tariffs were imposed shortly after 2000 when President George W. Bush put them in place but eventually they were rolled back. And other politicians in the last election and 2012’s were yelling about China. Powell says that plays well with voters in certain districts and special interest groups.
Powell says Trump is wrong about the ease of winning a trade war. “But in this case, exempting Canada and Mexico, to possibly get something else out of them, is simultaneously going to result in the European Union and other places in the world throwing retaliatory tariffs on us. He said a trade war is easy to win. No, a trade war is impossible to win. You hurt yourself while trying to hurt others,” he says.
Powell contends that trade isn’t about a field of competition, he says. “When we talk about fairness and we think about athletics, the point of the competition is to see who’s better. In the economy, the point isn’t to see who’s better, it’s to deliver the goods that make us wealthier.”
Powell doesn’t mince words when it comes to Trump’s claim that the steel tariffs are in the interest of US national security.
“One important thing to realize is that his initial justification for this is complete bogus,” Powell says. “The idea of national security concern because steel is vital to America’s national security. China is our eleventh biggest source of imported steel. There’s no justifiable national security reasons for this tariff.”