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Donald Trump's tariff policies reflect outmoded 19th-century economic thought. Yet he has persistently pushed the notion that free trade represents "a rip-off" of American producers and workers. Despite the reality that neither consumers nor workers benefit from restrictive trade, and it is estimated that 86 to 96 percent of levies on imported goods are passed on to Americans in the form of higher prices. Everything from beef to automobiles is more expensive, and inefficient United States industries are favored. Thus, consumers are not free to choose, and Adam Smith's Wealth of Nations is disrupted by protected cartels.
As a result, inflation increases, and consumers’ buying power is severely reduced. Despite the Supreme Court's 7-2 rebuke of Trumpian tariffs, the President pushes it with ideological zeal. As evidence to the contrary, Trump pushes his discredited ideas using not facts but with Truth Social wisdom. Moreover, he consigns years of sound Republican thinking to the wastebasket with empty phrases.
Trump's thinking reflects Democratic Party ideas from the 1980s before Bill Clinton embraced the North American Free Trade Agreement, or NAFTA. This was the era of the Rust Belt, when all unemployment was blamed on foreign competition, despite evidence that automobile imports increased during a period of tariffs in the sixties and seventies. Midwestern economies stagnated even as free-trade Southern and Western states prospered.
Perhaps Trump would be wise to consider the ideas of Milton Friedman, the Nobel Laureate who was the guiding intellectual star on the economy during Ronald Reagan's presidency. He disliked tariffs as an attempt to prop up bad decisions by poorly managed companies. Friedman clearly stated that "When government in pursuit of good intentions tries to rearrange the economy, legislate morality, or help special interests and cost some in inefficiency, lack of motivation and loss of freedom, government should be a referee, not an active player." Trump, if nothing else, is an active participant, calling balls and strikes in line with the team he is betting on.
And boy, does he like to pick what he perceives as winners. Trump and his family invest in the future, such as Artificial Intelligence and cryptocurrencies, while promoting the old industrial past. His approach is a crazy quilt in that he promotes AI, which is poised to cost jobs in the future. It is like paint dryers in the 19th century who lost their jobs because of quick-drying paint.
Protectionism also threatens the economy by increasing inflation and destroying markets. Farmers in 1873, 1893, and in the 1920s and 1930s were reduced to tenancy or driven out of business when retaliatory tariffs dried up their markets. Certainly, the Smoot-Hawley Tariff of 1931 exacerbated the Great Depression by reducing commerce; unemployment in 1931 was 9% after the tariff, 30% ruin all around.
This should be a warning to Trump that his policies are tempting the economic furies. His 50% tariffs on Canada threaten many American firms, including those that depend on commerce with our northern neighbor. Mark Carney, Canada's Prime Minister, is no fool and will try to pivot to Asia. Trump would be wise to pivot to Milton Friedman's ideas.