The Arc of the Economic Debate Is Long, but Bends Toward Tariffs

How’s the tariff debate going? Well, on Wednesday, The Atlantic ran a great essay in favor. Thursday saw twin legislative efforts: In the Senate, Republican leaders Tom Cotton, Marco Rubio, and Josh Hawley joined on a comprehensive bill to finally revoke China’s Permanent Normal Trade Relations status and impose high tariffs on Chinese imports. In the House, conservative Democrat Jared Golden introduced a bill to establish a 10% global tariff and increase it until the U.S. trade deficit is eliminated.

In response, opponents have spent the week really homing in on critical issues like WhO fUnDs American Compass’s work and also trying to decide who is a real economist. After all, real economists say things like: “On this issue there has been only one answer: that welcoming China into the global economic system is right for the American economy.” For an actual argument, they’ve landed on the idea that externalities do not exist and if you disagree you may be a Marxist.

So, it’s going.

Accordingly, your one thing to read this week is my new essay in The Atlantic, “Trump’s Most Misunderstood Policy Proposal: Economists aren’t telling the whole truth about tariffs.”

In many ways, the essay is a sequel to one I wrote last year for the Wall Street Journal, which focused specifically on the idea that “making things matters.” As someone who believes that ideas matter, I think it’s important to decompose a broad argument into its component parts, delineating what someone would have to believe to come down on one side or the other. Economists had generally opposed tariffs, I noted there, because they rejected the idea that a strong domestic industrial base was something worth preserving. From that starting point, of course a tariff would seem silly.

But force economists to concede that making things does matter, and their opposition to tariffs becomes much harder to sustain. What they have done subsequently is to produce skewed assessments of a tariff’s effects, counting costs but not benefits and looking only at the shortest-term impacts. The new essay addresses all that: If you acknowledge that making things matters, and properly analyze the long-term tradeoffs associated with a tariff, the case in favor looks quite strong.

The argument’s strength is most evident in the bizarre angle from which critics are attacking it. If making things didn’t matter, or a proper cost-benefit analysis didn’t support a tariff as an effective tool, one might expect opponents to start there. What they’ve done instead is reject the basics of market logic entirely. Maybe making things matters to the nation, they argue, but individuals pursuing their own private interest will take this into account and ensure the strength of the American industrial base of their own accord. There is no market failure, no externality, and to suggest otherwise is to privilege the collective over the individual’s freedom.

This is indefensible and, bluntly, difficult even to take seriously as an effort in participating in a policy debate. Professor Donald Boudreaux, who teaches economics at George Mason University, provides perhaps the starkest statement. My assertion that corporations and consumers “will probably not consider the broader importance of making things in America” is an “error,” he says. “The value of producing particular outputs in the U.S. as opposed to abroad is captured in the prices, wages, and other market signals that guide corporations’, workers’, and consumers’ choices.” That’s just not true. If a corporation thinks it can earn more profit making something in China, that’s what it will do. There is no market signal rewarding consideration of that decision’s effect on the U.S. industrial base.

A sillier version of the argument came from Richard Hanania. I had written:

A corporation deciding whether to close a factory in Ohio and relocate manufacturing to China, or a consumer deciding whether to stop buying a made-in-America brand in favor of cheaper imports, will probably not consider the broader importance of making things in America. To the individual actor, the logical choice is to do whatever saves the most money. But those individual decisions add up to collective economic, political, and societal harms. To the extent that tariffs combat those harms, they accordingly bring collective benefits.

But that phrase “collective economic, political, and societal harms” was, in his mind, “literally just every collectivist anti-market argument in history.” It should go without saying, but apparently does not, that the use of the term “collective” does not make an idea “collectivist.”

Over at National Review, meanwhile, Dominic Pino declared “the larger point” to be that “Oren Cass does not trust you to make your own economic decisions.” When it comes to national security, for instance, that is indeed the case. Pino’s argument suggests we should do away with taxation to pay for a military—if people want defense, they can buy some at Home Depot. Maybe get together a purchasing group (don’t say collective!) to buy an aircraft carrier or something. No? You don’t trust them?

Pino buttress the point by writing that the case for tariffs is “the same style of argument that environmentalists make when they argue for higher energy prices and more government spending on green energy.” Well, yes. The “styleof argument” is the recognition that private actors in markets, pursuing only their self-interest, will not always generate good outcomes when their actions create benefits or costs borne by others. It’s one of the most basic insights in economic policymaking and entirely uncontroversial. The issue for the environmentalists is not that they make this “style” of argument, but that they define the environmental problem poorly and propose spending that won’t solve it anyway. Conservatives want environmental protection too, by the way. Or should we reject this “style” and just trust polluters to make their own economic decisions. What could go wrong?

Otherwise serious economists are remarkably comfortable with such arguments and eager to echo and retweet them—any tool at hand to stand against tariffs, I guess. But if you have to abandon the basic rationale for having government in the first place to make the case against tariffs, you may not be winning.