The Destruction of Protectionism

It seems that tariffs are paid by Americans after all. Last month, President Trump exempted a list of grocery and food products from his so-called “reciprocal” tariffs, freeing these goods from the burdens of the so-called Liberation Day. Of course, the White House ought to have guessed in the first place that the reason many of these products are imported in large quantities is not a lack of protection. In fact, for myriad reasons, it is simply impractical for Americans to produce many goods and commodities domestically. The Peterson Institute for International Economics estimates per-household relief Trump’s exemptions at $35 annually, although, according to the Yale Budget Lab, the remaining tariffs will impose “a loss of $1,700 for the average household and $900 for households at the bottom of the income distribution.”

It is low-hanging fruit (so to speak) for free marketeers to glibly mock the White House’s reversals on the “protection” of produce not grown in the United States. However, the damage inflicted by President Trump’s tariffs on American industry and manufacturing should not be overlooked.

The gratification of the administration’s autarkic tendencies is funded by American consumers and businesses—to the detriment of capital investment, productivity, employment, and the savings accounts of American consumers. An analysisfrom Goldman Sachs estimated the share of tariff costs borne by American businesses at 51 percent and the share borne by American consumers at 37 percent. Sure enough, manufacturing employment is sinking, with 58,000 jobs gone since Liberation Day and 6,000 vanishing in September alone. This is no coincidence, nor does it bespeak a protectionist triumph.

American manufacturers rely on imports. Indeed, “[a]round half of U.S. imports are used by American manufacturers,” the Cato Institute notes. “Trump’s tariffs are a roughly 15% tax on more than a TRILLION DOLLARS-worth of US manufacturing inputs,” Cato’s Scott Lincicome wrote on X.

Bloomberg reports that General Electric (GE) and other firms have begun to return their manufacturing to American soil, but they have faltered because of the barriers erected by protectionism.  “Because of the way supply chains are laid out, Trump’s tariffs have actually made it more economical for some companies to build things in Mexico, where raw material and import costs are much lower,” Bloomberg writes. While large companies such as GE will continue its self-appointed task of reshoring, other, smaller companies likely will not.

Rising tariffs invariably beget requests for the relief of affected industries—relief that tends to be gifted to the friends of the powerful. This administration has proven itself no exception. But “[w]hat [President Trump] hasn’t excluded from his tariffs is the very machinery and other inputs needed if you want to build a factory,” according to another Bloombergpiece. “In fact he’s threatened to impose more tariffs on industrial machines and robots. Which means that fitting out a new manufacturing plant in the US is significantly more expensive than it was when Trump took office and may become pricier still.”

In an excerpt from The Wealth of Nations that might be summarized as “I, Woolen Coat,” Adam Smith made clear the problem of protectionism that lacks a limiting principle. He wrote:

The woolen-coat, for example… is the produce of the joint labor of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! How much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world! What a variety of labor too is necessary in order to produce the tools of the meanest of those workmen! To say nothing of such complicated machines as the ship of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider only what a variety of labor is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting-house, the brick-maker, the brick-layer, the workmen who attend the furnace, the mill-wright, the forger, the smith, must all of them join their different arts in order to produce them.

The system is inputs all the way down. The man of system intent on protecting domestic shepherding raises the costs of the sorter of the wool; the protection of the sorter raises the costs of the carder; protection of the carder raises the costs of the dyer; and so forth, as each new layer of protection raises costs on each enterprise downstream in the supply chain, perhaps prohibitively. A Trumpian all-things-to-all-people protectionism raises the costs paid by manufacturers, rendering American industry poorer and less competitive. The protective tariff, wrote economist William Graham Sumner, “consists in delivering every man over to be plundered by his neighbor and in teaching him to believe that it is a good thing for him and his country because he may take his turn at plundering the rest.”

As a matter of pure addition and subtraction, these successive rounds of plundering yield a negative number. Trump’s “steel and aluminum tariffs…created a few metals-producers’ jobs—1,000 in steel and 1,300 in aluminum,” Phil Gramm and Donald J. Boudreaux wrote of the first Trump administration’s tariffs. “Using Federal Reserve data, Kadee Russ of the University of California, Davis and Lydia Cox of Harvard estimated that these tariffs destroyed about 75,000 manufacturing jobs,” the duo adds. For the mathematically challenged, that comes at best to more than 55 jobs lost for each one created.

“[I]gnore a fact, and that fact will be your master,” Russell Kirk wrote. President Trump would do well to face facts.