Mr. Michael Stumo, President
Coalition for a Prosperous America
– You present as a scientific, objective claim that over the course of five years the tariffs you propose will increase U.S. employment by 1.05 million jobs. Yet there’s no plausible way that your researchers can have detected any such effect; this number is simply too tiny given the massive job churn that is a regular part of the U.S. economy.
– You allege that a significant source of gain to Americans from your proposed tariff on Chinese imports will arise from “the relocation of US bound production from China to other nations [which] would lead to a reduction in the average cost of imports because many alternative production locations, such as those in Southeast Asia, today have lower costs of production than China.”
Well now, answer me this: If producers in Vietnam and other Southeast Asian countries can produce for the U.S. market more goods at lower costs than can producers in China, why aren’t producers in those other countries already producing for export to the U.S. the amounts that you allege they would be led to produce only when Uncle Sam imposes higher tariffs to artificially raise Americans’ costs of importing these goods from China? Do you know more about global prices than is known by American importers? Or do you suppose that American importers are simply so uninterested in keeping their costs as low as possible that they must be compelled by tariffs to seek out the lowest-cost sources of supplies? Your implicit assumption about the behavior of American importers is nothing short of preposterous.
– Among the sources that you claim to identify of tariff-induced economic growth is U.S. government expenditure of the revenues that it reaps from the tariffs. You assert that this expenditure will expand the U.S. economy because part of the tariff is paid by foreigners. You then treat Uncle Sam’s expenditure of this part of the tariff revenue as a net increase in spending in the U.S. But you’re mistaken.
That part of the tariff that is paid by foreigners is made up of dollars that foreigners otherwise would have cleared on their sales to Americans but that, because of the tariff, they do not clear. And so while, with the tariff, these dollars will be spent in the U.S. by Uncle Sam, absent the tariff these dollars would have instead been spent (or invested) in the U.S. by foreigners. It’s astonishing that you overlook this tariff-induced reduction in foreign spending and investment in the U.S.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
The above originally appeared at Cafe Hayek.