Tuesday, March 13, 2018

Tariffs and Courage, Guest Post by Charles Trzcinka, Professor of Finance, Kelley School of Business, Indiana University

My brother is losing his job this month because of foreign competition. At his age and with his roots in the community where he lives, it will be a struggle to replace the income. He is exactly the person whose life experiences should drive him to support the protectionism that is flowing out of the White House. He does not. He makes all arguments that economists make about tariffs costing far more than the benefit and weakening the industries that are protected. He certainly is on solid ground. Arguing against free trade is like arguing against evolution. The scientists have accumulated so much evidence that the arguments for protectionism are taken as a demand for welfare or a demonstration of a psychological problem. Moreover, in the case of trade, there is 200- year history of building our economy with free trade— that is having lower tariffs than anyone we trade with. Tariffs are also very anti American who compete in markets around the world. I was in Hungary just after the fall of the communist regime when a British CEO told me that “everywhere in the world where there is money to be made, you will find an American”. Even our universities have benefited from global competition. Unlike, profit-making firms, universities have long had virtually unlimited H1B visas which means there are much fewer restrictions on immigrants. In principle, the result has been lower wages and in practice it has resulted in more competition. The free trade in ideas and people has given Americans far better universities which by any metric are the best in the world. This story repeats in many industries.

We now have an administration that uses rhetoric to encourage the worst protectionist views. President Trump thinks that all trade agreements are “unfair”, that the World Trade Organization is a waste of time, and that trade deficits show that other countries are “taking advantage of us”. In imposing steel and aluminum tariffs, the White House has politicized trade policy and opened itself to furious lobbying efforts. The policy has become more “carve outs galore” than a coherent trade effort.

Ronald Reagan and George Bush used tariffs as a threat to open markets and reduce trade barriers. If the Trump administration moves in this direction it will be strong positive factor for the economy. However, the simplistic statements from the White House have united economists who know that the facts and logic are strongly against these views. While economists differ on how much China cheats and what should be done about it, virtually nobody thinks deficits show anything other than low savings and all agree that trade has built the wealth of this country. Economists who make these arguments often do not have much “skin in the game” and some argue this makes them wrong. Not having a stake in the argument tells us nothing about the truth of the argument and it is too easy and cheap to dismiss the argument for free trade based on who is saying it. Still, it is courageous for someone who is losing his job to agree. My brother is an example of an American who takes personal responsibility seriously and doesn’t look to broad trade protection to save his job. He doesn’t let his personal experience distort his views. Neither should anyone who thinks and votes on the question of tariffs. There are winners and losers for every policy decision and the protectionists need stop imaging a fantasy world where there are no trade-offs. We have built this country with free trade and there is no case for ending it with broad tariffs. Just ask my brother.


  1. The most important phrase in your article is identifying your brother as “an American who takes personal responsibility seriously”. In an era where populist focus is solely on the “rights” side of the rights/responsibility equation, we will always drift toward the lowest common denominator for the individual, or small group of individuals, and sacrifice the common good.

  2. http://jewishworldreview.com/cols/williams031418.php3

  3. Loved the article Chuck! Republicans used to be the party of personal responsibility. Seems like these days they want to blame others for their problems.