From: lessgovt@gmail.com   
      
   Trump’s Trade War Was a Loser   
   By Phil Gramm and Donald J. Boudreaux, Sept. 11, 2023, WSJ   
   Donald Trump boasts that his protectionist policies were “historically   
   successful,” which suggests that he thinks he’s exempt from the old dictum   
   that we are entitled to our own opinions but not our own facts. While Mr.   
   Trump’s tax cuts and    
   regulatory relief rejuvenated an anemic recovery, his protectionist policies   
   stunted the ensuing expansion. Growth accelerated from 1.7% in 2016 to 2.2% in   
   2017 and then to almost 3% in 2018, a 13-year high. But in 2019—the first   
   full year in which Mr.    
   Trump’s tariffs were in effect—the growth rate fell to 2.3%. That decline   
   was in line with Congressional Budget Office and Federal Reserve estimates of   
   the potential negative effects of Mr. Trump’s protectionist policies.   
      
   Mr. Trump’s trade war began in July 2018, when he imposed tariffs on steel   
   and aluminum. While these tariffs raised the prices of those metals, the   
   numbers of additional jobs created in steel and aluminum production were a   
   trifling 1,000 and 1,300,    
   respectively. Decades of technological innovation ensured that any increases   
   in output would produce few jobs, since the production of a ton of steel,   
   which had taken 10.1 man-hours in 1980, had fallen to only 1.5 man-hours by   
   2017.   
      
   For every American employed making steel or aluminum in 2018, 36 were employed   
   by firms that used steel or aluminum as inputs. By raising the prices of these   
   metals, Mr. Trump’s tariffs destroyed far more manufacturing jobs than they   
   created. Overall    
   manufacturing employment fell in each of the four quarters of 2019 and in the   
   first quarter of 2020, leaving the pre-pandemic level of manufacturing   
   employment lower than when Mr. Trump took office.   
      
   The higher cost for steel and aluminum and Chinese component parts produced by   
   Mr. Trump’s tariffs, combined with foreign retaliation, reduced the demand   
   for American exports. As a result, the annual rate of growth in manufacturing   
   output fell, turning    
   negative in the fourth quarter of 2018. By the first quarter of 2019 it   
   reached a post-Great Recession low of negative 5.3%. Manufacturing output   
   growth continued to fall until its post-lockdown bump in the second half of   
   2020. Under Mr. Trump’s    
   protectionist policy, total manufacturing output was 2% lower by the start of   
   the pandemic than it was when he raised tariffs.   
      
   Protectionism even hurt manufacturing in the states it was supposed to help.   
   According to the Bureau of Labor Statistics, manufacturing employment in   
   Michigan, Pennsylvania and Wisconsin, which increased in 2017 and 2018,   
   started to fall in 2019 as the    
   trade war intensified. Mr. Trump lost all those states in 2020.   
      
   Protectionist policies also failed to deliver promised reductions in the trade   
   deficit. When the tariffs went into effect, goods that the U.S. imported   
   became more expensive and Americans instead bought domestic substitutes, which   
   the U.S. produced less    
   efficiently than the world market. By reducing demand for foreign goods,   
   tariffs and quotas reduced the supply of U.S. dollars in the world currency   
   market, raised the value of the dollar, and made American exports less   
   attractive. The result was lower    
   employment in the industries where the U.S. was most efficient and most   
   competitive and higher employment in industries where the U.S. was less   
   efficient. Protectionism didn’t create jobs. The nation was made poorer as   
   prices rose and the American    
   economy became less efficient. Jobs were simply transferred from our most   
   efficient, most competitive sectors to industries where we were less efficient   
   and competitive. As a result, economic growth declined.   
      
   Fortunately, and contrary to Mr. Trump’s insistence, trade deficits aren’t   
   signs of the “hemorrhaging of America’s lifeblood.” Trade deficits,   
   under international accounting rules, simply mean foreigners are investing   
   more in the U.S. than    
   Americans are investing abroad. Japan, Germany, Canada and the U.K. provided   
   over half of all foreign investment coming into the U.S. last year. Foreigners   
   invest in America because of their confidence in the U.S. economy and the   
   returns that they can    
   earn by investing in our future. Foreign investment enhances America’s   
   economic strength and fosters entrepreneurship by funding new businesses. It   
   finances the expansion of existing businesses, research-and-development   
   projects and worker training.    
   Even when foreigners invest their dollars in U.S. government bonds, they help   
   the American economy by preventing profligate government spending from   
   crowding out private investment as Washington’s borrowing drives up interest   
   rates.   
      
   History supplies ample proof that trade deficits don’t harm the economy.   
   From the settlement of Jamestown in 1607 until World War I, the U.S. ran   
   chronic trade deficits. Foreign capital, principally from Britain, and labor   
   from all over the world came    
   together in America and gave birth to the most prosperous nation in history.   
   Today our per capita gross domestic product is 51% higher than the U.K.’s.   
   Only in Trumponomics does that constitute “being plundered.”   
      
   The U.S. ran trade surpluses in 102 of the 120 months of the 1930s, when the   
   Smoot-Hawley tariff dictated trade policy. The result of that protectionist   
   regime was a collapse in the world’s trading system, which was a major cause   
   of the Great    
   Depression. In the postwar period, with the rest of the developed world in   
   ruins, the U.S. had a virtual monopoly in heavy manufacturing. We ran large   
   trade surpluses, and American foreign investment rebuilt the world economy,   
   enriching both the U.S. and    
   our trading partners. Annual trade deficits returned with the end of the   
   postwar period in 1976, and the U.S. has run trade deficits for the last half   
   a century. Trade deficits soared during the Reagan and Clinton booms, as   
   foreign investors rushed to    
   invest in America’s dynamic economy. Those foreign investments earned high   
   returns by funding a new American boom. That boom sent real U.S. per capita   
   GDP soaring to 2.3 times its level in 1975.   
      
   Trade wars, like all wars, empower government as plowshares are beaten into   
   swords. The first casualty of a trade war is economic freedom; the second is   
   prosperity.   
      
      
   [continued in next message]   
      
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