Trump has recently came out in support of trade tariffs on steel. He has also threatened protectionism policies in other industries. Sadly, this type of economic ideas are more common to leftist ignoramuses like Bernie Sanders, so why does Trump believe in protectionism? Trump regards a trade deficit as undesirable.
A trade deficit is when you import more goods than you export. So if we are importing more goods, or getting more goods in, than we are sending out, why is that bad for us? When I go to the grocery store for example, I create a trade deficit every visit. I bring more goods home than I leave at the store. So the fact is a trade deficit is actually desirable, from the consumer’s point of view. It is favorable, when you can get more, by sending out less.
What trump is doing, is he is concentrating not on the consumer side, but on the production side. He says that if we export for example less steel, we end up having less steel workers. The benefit of a steel tariff for a steel worker is then very clear. If you restrict the imports of steel with a tariff, more steel will be needed to be made inside the US , so there will be some US workers in the steel industry that will have jobs that otherwise they would not have. Thus the beneficial effects of a tariff for the US steel industry is perfectly clear and visible. The problem is of course, is there are also invisible effects, which are bad. If we import less steel, foreigners get less dollars. They now have fewer dollars to spend in US, and as result there will be people around the entire country, in different industries, who will not get a productive job because those exports never develop.
Agriculture for instance is one of America’s main exports. The harmful effect of steel tariffs is then the reduction of jobs in agriculture. There is no such thing as a free lunch, tariffs that create new jobs in steel, come at a cost of losing jobs in agriculture and other industries. So even if we assume that everything else is equal, that a trade war won’t start, that the cost of steel won’t increase, tariffs are still not a net benefit, at best they are a tie. Remember, the best scenario is a net net tie, and that is a very very rosy picture. Realistically the tariffs will be a massive cost to our economy. You don’t have to take my word for it, this is the analysis of a noble prize winning economist Miltion Friedman.