The True Cost of Tariffs: How Protectionism Hurts the Economy

 

The belief that trade kills jobs is rooted in the false notion that the economy is a zero-sum game, ignoring the dynamic potential of global engagement to create new opportunities and industries. In plain English, protectionist policies, such as high tariffs, often touted as job savers, tend to backfire by increasing costs for consumers and businesses, ultimately leading to job losses and economic harm.

Is the notion that trade kills jobs rooted in a misconception that there is a fixed amount of work to do? Absolutely, it is. The belief that trade results in job loss is based on a fundamental misunderstanding of economic dynamics. It is akin to thinking the universe has a finite amount of energy, when in reality, it is continuously expanding. Similarly, the economy is not a zero-sum game where one country's gain is another's loss. Instead, trade and international engagement can lead to overall economic growth, innovation, and job creation.

After World War II, the United States embarked on a revolutionary path by promoting global engagement. This strategy was driven by enlightened self-interest, recognizing that by fostering international stability and economic prosperity, America would also benefit. This approach has been instrumental in establishing a zone of peace and prosperity that has underpinned American economic growth for nearly eight decades. The success of this vision is evident in the numerous examples of countries that have transitioned from poverty to prosperity, benefiting not only themselves but also their trading partners, including the United States.

Take Japan, for example. In the aftermath of World War II, Japan was devastated. However, through policies of open trade and investment, coupled with substantial American support, Japan transformed into one of the world's leading economies. This transformation was not at the expense of American jobs. On the contrary, it created opportunities for American businesses and workers. The U.S. exported goods, technology, and services to Japan, generating jobs and economic activity domestically. Moreover, Japanese investments in the U.S., such as automotive plants, created thousands of American jobs.

Similarly, the rise of South Korea from a war-torn nation to an economic powerhouse was facilitated by its integration into the global economy. South Korea's success story includes substantial trade with the United States, benefiting both nations. American companies like Apple and Qualcomm have significantly profited from their partnerships with South Korean firms, resulting in job creation and technological advancements in both countries.

The European Union is another testament to the benefits of trade and economic integration. The Marshall Plan, an American initiative, provided aid to Western Europe after World War II, helping to rebuild economies and establish stable, prosperous democracies. This investment paid dividends for the United States through increased trade and stronger political alliances. The economic boom in Europe created new markets for American goods and services, further fueling U.S. economic growth.

Despite these success stories, protectionist policies often resurface in political rhetoric, particularly during election cycles. Both former President Donald Trump and current President Joe Biden have shown an affinity for protectionist measures, such as high tariffs. These policies are touted as ways to protect American jobs, but they often have the opposite effect. Tariffs can lead to higher costs for consumers and businesses, reduce export opportunities, and trigger retaliatory measures from other countries, ultimately harming the economy.

For instance, the tariffs imposed during the Trump administration on steel and aluminum imports were intended to protect American industries. However, they resulted in increased costs for manufacturers who rely on these materials, leading to higher prices for consumers and potential job losses in industries that use steel and aluminum. According to the Peterson Institute for International Economics, these tariffs cost the U.S. economy approximately 300,000 jobs.

Moreover, the notion that trade kills jobs ignores the dynamic nature of the economy. Technological advancements and innovation constantly create new industries and job opportunities. For example, the rise of the tech industry has led to the creation of millions of jobs that did not exist a few decades ago. Companies like Google, Amazon, and Facebook have become major employers, driving economic growth and innovation. These companies thrive on global markets, relying on international trade for both talent and customers. Not only that, trade allows countries to specialize in what they do best, leading to more efficient production and higher-quality goods and services. This specialization results in lower prices and more choices for consumers, boosting their purchasing power and quality of life. The increased competition also drives innovation, as companies strive to improve their products and services to remain competitive in the global market.

It is essential for the next U.S. president, whether Republican or Democrat, to recognize the importance of continuing America's tradition of global engagement. Retreating into protectionism and isolationism would be a grave mistake, undermining the progress made over the past eight decades. Instead, the U.S. should focus on policies that enhance competitiveness, invest in education and infrastructure, and support workers in transitioning to new industries.

Why fix what isn't broken? By maintaining an open and engaged approach to international trade, the United States can continue to thrive, creating jobs and opportunities for its citizens. After all, isn't it better to embrace the dynamic nature of the global economy rather than cling to outdated notions of fixed work? The bottom line here is that trade is not a zero-sum game; it's a win-win situation when managed wisely. As history has shown, global engagement has been a cornerstone of America's prosperity, and abandoning this path would only lead to missed opportunities and economic stagnation. So, why not keep the engine of progress running?