President Trump is expected soon to announce whether he will impose 20 percent tariffs on imported steel. If so, this would be the second unforced error in trade policy by an inexperienced Administration, following the President’s January withdrawal from the Trans Pacific Partnership. But for American workers, this one may inflict more pain.
The United States is the world’s largest importer of steel. This is because it makes little economic sense to divert scarce resources to producing a product with little value added that we can so easily and cheaply obtain elsewhere. Better that we focus on high-value goods and services that create more wealth for Americans, and buy our steel, coffee, socks and toys from others. This is the principle of comparative advantage, and few concepts in economic theory are as well settled and relatively undisputed.
Still, politicians will pander to their electoral base, even if they really know better. On the subject of protectionism as with few others, history clearly demonstrates the folly of the president’s threatened course.
Christopher HopkinsArticle I of the U.S. Constitution effectively prohibits one state from erecting trade barriers against another. Tennessee cannot impose a tariff on Georgia peaches. Why is that? The Founders understood that free and uninhibited trade was essential to the expansion of income, wealth and security of each state and thereby of the entire Union. They may not have read about “comparative advantage” in economic textbooks, but they clearly and rightly grasped the concept.
One of President Reagan’s greatest mistakes was his imposition of “voluntary export restrictions” on Japanese cars in 1981. The action temporarily reduced foreign competition and allowed the woefully inefficient American automakers to delay necessary improvements in productivity and quality while gouging U.S. car buyers. After competition inevitably resumed, two of Detroit’s three major producers ultimately collapsed into taxpayer-funded bailouts.