Do Old Principles Still Hold?
Steve Dittmer | AFF Sentinel
Colorado Springs, CO
Originally sent to subscribers 07/22/24
Free trade has been supported for decades by evidence of economic growth, economic efficiency and philosophical acceptance of democratic approaches. However, there is some recent research available which examines whether protectionism to save jobs and companies works.
An opinion story in the Wall Street Journal, by Samuel Gregg, the Friedrich Hayek Chair for Economics and Economic History at the American Institute for Economic Research, examined some recent data on tariffs, (Tariff Men Won’t Help America’s Workers,” 07/18/24).
Gregg said confronted with a ten percent increase in a raw material for manufacturing, some American companies would keep sourcing the material they preferred and find some other way to offset the costs, like automating more of their production and cutting labor costs. That would mean cutting the number of workers needed, losing jobs.
Others would raise their prices, pass them on to consumers and wealthy Americans could manage. But a May 2024 study by the Peterson Institute for International Economics said tariffs would reduce the after-tax income for those in the bottom half of income distribution. Middle- and low-income people would bear the brunt of tariffs.
Trump’s 2018 steel tariffs (25 percent) and aluminum (10 percent) were designed primarily to target China’s unfair trade practices. A 2019 White House report said China didn’t change policies on steel and aluminum but retaliated with tariffs on U.S. farm goods. As we are familiar with, the U.S. government then had to compensate farmers, with taxpayer money, Gregg pointed out.
A 2019 Federal Reserve analysis showed the tariffs were associated with reductions in manufacturing employment and increased producer prices. Any jobs saved in industries using steel and aluminum were offset in the short-run by retaliation by reduced competiveness from retaliation and higher costs to metal users.
Steel using companies, to stay competitive in U.S. and international markets, had to cut costs somewhere, often by cutting blue collar jobs.
Tariffs on some goods imported for Americans, especially any larger ones on Chinese goods, as some have bandied about, would definitely raise prices for Americans at a difficult time, especially given the wide spectrum of goods we import from China.
Importantly for the beef industry, there would be a risk of losing or damaging our exports to China.
The market -- people voting with their dollars -- counts competition as a key component. Protectionism undermines competition, weakens the drive for innovation and, in some cases, props up industries or companies doomed to obsolescence or failure.
Protectionism long term is not the answer. Providing incentives to keep great conditions for business is the answer. Good business conditions tend to keep American companies in America. Government needs to provide things like lower taxes; minimal regulatory restrictions; an educated and trained workforce; safe, crime-resistant communities; a world-class standard of living and protecting the personal liberties and freedom of association America’s Founding Fathers established.
Economic growth, making the economic pie bigger so more people can get a piece of it, is what a limited government with incentives and rule of law creates for a nation.
Our address: Agribusiness Freedom Foundation, P.O. Box 88179, Colorado Springs, CO. 80908.
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