Trump’s Most Misunderstood Policy Proposal

Donald Trump’s proposal to impose tariffs as high as 60 percent on imports from China, and a global tariff of 10 to 20 percent, takes the right approach to addressing globalization’s failures—but it has drawn resounding mockery from economists, and, in turn, from the mainstream media. “Trump Is Proposing a 10% Tariff. Economists Say That Amounts to a $1,700 Tax on Americans,” a representative CBS News headline declared in June.

At a moment when the cost of living is consistently one of voters’ top issues, the message is clear: A vote for Trump is a vote for inflation. But in making that argument, economists are abandoning some of their most basic analytic principles.

Traditionally, an economist assessing a proposed market intervention begins by searching for a market failure, typically an “externality,” in need of correction. Pollution is the quintessential illustration. A factory owner will not consider the widespread harms of dumping pollutants in a river when deciding how much to spend on pollution controls. A policy that forces him to pay for polluting will correct this market failure—colloquially by “making it his problem.” It imposes a cost on the polluter in the pursuit of benefits for everyone else.

Tariffs address a different externality. The basic premise is that domestic production has value beyond what market prices reflect. 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.