Tar­iff pol­icy shows need for ba­sic eco­nomics lesson

The Mercury News Weekend - - OPINION - By Ni­nosMalek Ni­nos Malek is a lec­turer in the eco­nomics de­part­ment at San Jose State Univer­sity and a pro­fes­sor of eco­nomics at De Anza Col­lege.

Con­trary to the be­liefs of Pres­i­dent Trump, trade bar­ri­ers will not “Make Amer­ica Great Again.” The goal of im­pos­ing tar­iffs is to make Amer­i­can prod­ucts more at­trac­tive by seem­ing like an in­ex­pen­sive al­ter­na­tive, which sup­pos­edly will lead to an in­crease in Amer­i­can jobs. The prob­lem with the idea that trade bar­ri­ers will stim­u­late the Amer­i­can econ­omy is that it’s a very limited view.

Sound eco­nomic anal­y­sis ex­am­ines the ef­fects of public pol­icy on all groups, not just on some groups. While the pres­i­dent, some other politi­cians and do­mes­tic spe­cial in­ter­est groups ar­gue that the steel and alu­minum tar­iffs will save Amer­i­can jobs, the truth is that it will sim­ply save some spe­cific jobs. A tar­iff on for­eign steel and alu­minum will lead to higher pro­duc­tions costs in other in­dus­tries, which will lead to higher con­sumer prices for prod­ucts made with th­ese met­als. The prob­lem is that good eco­nomics and good pol­i­tics many times do not go hand-in-hand. Public choice anal­y­sis — the use of eco­nomics to an­a­lyze po­lit­i­cal de­ci­sion­mak­ing — ex­plains that be­cause of con­cen­trated ben­e­fits and dis­persed costs, of­ten spe­cial in­ter­est groups win at the ex­pense of the ma­jor­ity — Amer­i­can con­sumers.

When two in­di­vid­u­als vol­un­tar­ily trade, both par­ties ex­pect to ben­e­fit or the trade would not have taken place. There­fore, by def­i­ni­tion, vol­un­tary trade is a win-win sit­u­a­tion. The same prin­ci­ple ap­plies when two coun­tries trade. The prob­lem with the pres­i­dent’s rhetoric is that he be­lieves that when the United States trades with na­tions such as China, Canada and Mex­ico, they are “win­ning” and we are “los­ing.” How­ever, Trump has a faulty view of trade. Ob­vi­ously, mil­lions of Amer­i­can con­sumers are win­ning by hav­ing the abil­ity to buy prod­ucts from th­ese coun­tries at low prices; such bar­gains leave those Amer­i­cans with more money to spend on other Amer­i­can busi­nesses. More­over, by sell­ing Amer­i­cans a high vol­ume of goods, Chi­nese cit­i­zens have more money to in­vest in the United States.

Trump makes a mis­take by fo­cus­ing on the word deficit when it comes to the trade deficit. Typ­i­cally, the word deficit has a neg­a­tive con­na­tion; how­ever, when it comes to trade, there is noth­ing bad about a trade deficit. I have a trade deficit with my gro­cery store, my lo­cal Star­bucks and my Ap­ple store. I have only pur­chased from them (i.e., im­ported) and I have never sold any­thing to them (i.e., ex­ported). Am I worse off be­cause I “im­ported”? I think not. I much pre­fer to pur­chase items from those that have a cost ad­van­tage — a com­par­a­tive ad­van­tage — in pro­vid­ing food, cof­fee and elec­tronic prod­ucts in­stead of hav­ing to make ev­ery­thing my­self. If it doesn’t make sense for an in­di­vid­ual per­son to pro- duce ev­ery­thing him­self or her­self, then why does it make sense for a coun­try to make ev­ery­thing it­self? When the head­line reads, “U.S. has a trade deficit with China,” it could in­stead be stated as “China is in­vest­ing in the United States.” The for­mer sounds neg­a­tive es­pe­cially com­pared to the lat­ter. But it’s two sides of the same coin. You can’t have the in­vest­ment with­out the trade deficit.

Good eco­nomic anal­y­sis looks at the ef­fects of a pol­icy on all groups, not just some groups. If the pres­i­dent is try­ing to gain fa­vor with vot­ers in “steel” states, be­liev­ing that they will help him win the next elec­tion, then his po­si­tion is ra­tio­nal. How­ever, if he re­ally thinks that tar­iffs are good for the econ­omy, he ei­ther skipped his eco­nomics class at the Wharton School of Busi­ness or he needs a bet­ter eco­nomics ed­u­ca­tion im­me­di­ately, per­haps at San Jose State Univer­sity or De Anza Col­lege.

MARKWILSON — GETTY IMAGES

Pres­i­dent Trump’s tar­iffs will ul­ti­mately fail be­cause they fail to take a look at the over­all im­pact on the Amer­i­can econ­omy.

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