Trump, Biden have bad economic policies in common
Joe Biden and Donald Trump are locked in a perverse competition to see who can do the most damage to one of the pillars of our prosperity: international trade.
There are few issues economists agree on more than the benefits of international trade. The general public is also overwhelming in favor of trade. For instance, a 2023 poll conducted for the Chicago Council on Global affairs found that 74% of those surveyed thought that international trade is good for the U.S. economy and 82% thought that international trade is “good for consumers like themselves.”
The favorable view that economists and the general public have of trade isn’t reflected in the policies of Trump or Biden. First, consider Trump’s proposal to impose a new 10% tariff on all imports to the United States. Trump has apparently learned nothing from the effects of the destructive trade policies he pursued while in office. He imposed tariffs on some imports from China, Canada and European countries, arguing that foreign firms exporting to the U.S. — and not U.S. buyers — would pay the tariffs. Economists don’t believe Trump’s argument.
Tariffs are effectively taxes on imported goods. Like sales taxes, tariffs are mostly paid for by
U.S. buyers in the form of higher prices. Economic research shows that, in the words of Mary Amiti of the Federal Reserve Bank of New York and colleagues, “U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers.”
U.S. consumers were actually hit twice by Trump’s tariffs: First, the tariffs directly raised prices on clothing, consumer electronics and other goods. Second, the tariffs raised prices indirectly by raising the prices of inputs — such as steel and aluminum — that U.S. firms use in manufacturing cars, washing machines and other goods.
U.S. consumers were further hurt when other countries raised their tariffs on U.S. exports in retaliation for Trump’s tariffs.
The nonpartisan Tax Foundation estimates that if Trump’s new 10% tariff were enacted, it would cost U.S. consumers $300 billion per year, even before taking into account the effects of foreign retaliatory tariffs.
Many economists were hopeful that Biden would roll back Trump’s tariffs. He reduced some tariffs but left most in place. Biden also reduced trade by limiting the ability of foreign firms to sell to the federal government and by requiring electric vehicles be assembled in North America to be eligible for buyer tax credits.
These measures have saved some jobs in favored industries but only at an enormous cost.
The Washington Post reported in 2019 that higher prices mean the U.S. economy loses $900,000 per year for each job saved in the steel industry, according to calculations by experts at the Peterson Institute for International Economics. More jobs may be wiped out in other industries than are saved in the targeted industries. As a result of Trump’s steel and aluminum tariffs, employment in metals-using industries likely fell by more than the increase in employment in the steel and aluminum industries.
Biden and Trump’s trade policies pick the pockets of the average person in order to pay off politically favored groups. Worse, the tariffs and Biden’s domestic content and “Buy American” policies are contrary to our commitments under the World Trade Organization. The current WTO agreement is the result of decades of effort reversing the disastrous effects of the trade war of the 1930s, which Congress set off by passing the infamous Smoot-Hawley Tariff. That trade war caused U.S. exports to drop by two-thirds from 1929 to 1933, worsening the Great Depression.
After World War II, the non-Communist countries met to hammer out an agreement intended to avoid future trade wars. The result in 1947 was the General Agreement on Tariffs and Trade (succeeded by the WTO in 1995) that through a series of negotiations sharply reduced high tariffs. The average U.S. tariff rate dropped from 59% in 1932 to 1.6% in 2016. The countries also pledged, with a few exceptions, not to impose non-tariff restrictions on trade — a pledge that Biden’s domestic content policies violate. These agreements expanded world trade, substantially raising average incomes in the U.S., increasing the variety of products available to U.S. consumers, and lowering the prices of many goods.
A new trade war would be a
catastrophe for the U.S. economy, reversing the gains from trade made over the past 75 years. The U.S. annually exports more than $2.5 trillion of goods and services, second only to China. Three million jobs in goods-producing industries depend on exports, as do 6 million jobs in service industries. More than 1 million U.S. jobs depend on agricultural exports. A trade war would do more damage today than it did in the 1930s when the U.S. economy was less dependent on exports.
There are bad policies, there are stupid policies, and, in a class by themselves, are Biden and Trump’s recklessly destructive trade policies.