Why targeting an overall reduction in imports would reduce America’s real wages and national income
“To me the most beautiful word in the dictionary is ‘tariff’,” Donald Trump told an audience at the Economic Club of Chicago on Oct 15. Judging from the thunderous applause that followed, many in the business community believe that Trump’s plan for comprehensive tariffs will help their bottom lines.
At the same time, Trump and his allies insist that tariffs will aid American workers. But tariffs cannot raise worker incomes and business profits simultaneously, because they undermine the US economy’s efficiency, imposing costs on consumers and producers that compress total national income. A more likely outcome is that workers and business owners alike will suffer real economic pain.
Those who favour tariffs regard international trade as a main cause of US manufacturing job losses and wage stagnation for workers lacking college degrees. According to this view, cheap imports from low-wage countries like China have eliminated US jobs producing similar goods; at the same time, US businesses have moved production abroad in search of cheaper labour.