The First Law of Economists: For every economist, there exists an equal and opposite economist.
The Second Law of Economists: They’re both wrong.
-Economist, David Wildasin
It has been accurately noted in a number of different contexts that economists don’t agree on much.
Consider the example of the Obama Administration’s nearly 1 trillion dollar economic stimulus package, passed in 2009 during the darkest days of the Great Recession. You can find well known economists who think that the spending package was far too big. You can also find well known economists who believe that it was far too small. Too big? Too small? At least no one says that it was just right.
There is one area of economic policy where the First Law of Economists doesn’t hold: international trade. In a 2009 survey by the American Institute of Economic Research, 83 percent of economists agreed that the U.S. should “eliminate remaining tariffs and other barriers to trade.” Only 9.8 percent disagreed. Since 2009, the numbers have been even more one sided. In a 2012 survey of economists by the University of Chicago, 98 percent of respondents agreed that Americans are better off as a result of the North American Free Trade Agreement (NAFTA). In the University’s October 2016 survey, 100 percent of respondents agreed that a plan to levy import tariffs in order to increase U.S. production is a bad idea. One hundred percent. In the March 2018 survey, 100 percent of respondents stated that U.S. tariffs on steel and aluminum will not improve Americans’ welfare.
The reason for unanimity is that the economics of free trade are simple. And the evidence is both dramatic and clear.
In terms of economics, international trade is not a zero-sum game with a winner and a loser. Rather, international trade is a series of voluntary exchanges that make each side better off. American household consumers value an LG washing machine more than the 650 dollars that are required to purchase one. American consumers and the South Korean appliance company are both made better off by every single purchase. We can impose a tax on imported washing machines, like the 50 percent tariff passed by the Trump administration in January, in order to steer consumers in the direction of American made machines. But the effect is to increase the price of all washing machines. This makes American consumers worse off and makes the entire U.S. economy smaller.
Even if our goal is simply to protect Maytag and other American appliance manufacturing workers from foreign competition, we’d actually do less damage to the economy by simply writing the Maytag employees a check. There are much more efficient ways to redistribute income than import taxes.
Tariffs and other trade restrictions harm the U.S. economy.
If you think that Trump’s posturing on trade is simply the Art of the International Trade Deal and the various trade restrictions are merely temporary measures meant to extract advantageous terms during trade negotiations, consider the various ways that Trump’s trade policies have already harmed the United States.
One year ago, the Trump Administration withdrew the United States from the Trans Pacific Partnership (TPP), an international trade agreement which included 12 different countries and Japan. In December of last year, Japan reached a free trade deal with the European Union that eliminated 95% of all tariffs. European agricultural producers gained access to Japan’s highly lucrative agricultural markets, while U.S agricultural producers remain shut out.
In January, the Trump administration imposed a 30 percent tax on imported solar panels. In response, American solar company SunPower was forced to layoff 3 percent of its workforce. SunPower’s CEO reports that tariffs will cost the company $50 million in 2018 and $100 million in 2019, due to the increased cost of foreign made components which are used in American-made solar panels. The Solar Energy Industry Association estimates that 23,000 American jobs will be lost in all. “There’s no doubt this decision will hurt U.S. manufacturing, not help it,” said Bill Vietas, who heads Cincinnati-based RBI Solar.
On March 8, the President signed a 25 percent tax on imported steel. Prices for American-made hot-rolled steel increased by 4 percent on that day alone. Prices are up 35 percent since Trump’s election. According to industry analysis, while steel and aluminum tariffs seek to protect 140,000 U.S. steelworkers, they threaten 6.5 million workers in steel dependent industries. Due to increases in the prices of aluminum and steel, Swedish manufacturer Electrolux, Europe’s largest home appliance manufacturer, suspended it’s planned $250 million Tennessee plant expansion. Volvo is reconsidering the scope of its planned expansion of a South Carolina plant. Trump-authored trade restrictions could result in the loss of 2,000 U.S. auto manufacturing jobs in Volvo’s South Carolina plant alone.
According to analysis by the non-partisan Trade Partnership, the new tariffs can be expected to create a net loss of around 146,000 American jobs across various steel and aluminum using sectors. This estimate does not include the effect of retaliation by U.S. trade partners, which will surely effect industries well beyond those using steel and aluminum. In fact, the situation will be worse. The 30 percent steel tariff passed by George W. Bush in 2002 and abandoned in 2003 reduced U.S. jobs and GDP. One study estimates that the impact of Bush era tariffs was a loss of 200,000 American jobs.
We might forgive George W. Bush for his steel tariffs. In the early 2000s, a mere 83 percent of economists held that trade restrictions are bad. Donald Trump apparently seeks to defy all economists.
As discussed in our U.S. Forecast essay, the real shame for the U.S. economy is that things were just starting to look up.
 For more fun at the expense of economists, be sure to check out Economists Dissing Economics: https://unlearningeconomics.wordpress.com/2014/08/23/economists-dissing-economics/