But the cost per job will be high: all imports will become more expensive, and this increase in the price level will filter through to the cost of everything Americans buy. In effect, the oligarchs will reduce direct taxation on themselves and increase indirect taxation on everyone – much like increasing the sales tax on all goods. Under any such proposal, the burden of taxation would be shifted from the better off to those with less income and little or no wealth.
And that may be just the start of the negative impact on most Americans’ wellbeing. If Trump increases tariffs on imported goods, some or all of America’s trading partners will most likely retaliate, by imposing tariffs on US exports.
As US export-oriented firms – many of which pay high wages – reduce output, relative to what they would have produced otherwise, the effect will presumably be to reduce the number of good jobs.
Some countries – such as China – may deploy other punitive measures against US firms operating on their territory. The net effect will again be to reduce employment, both worldwide and in the US. The world has had much experience with “trade wars,” and it has never been positive.
Why would a group of American oligarchs pursue such a disastrous policy? The Trump administration is taking shape as a coalition of businesspeople who wrongly believe that protectionism is a good way to help the economy and market fundamentalists who now dominate the Republican caucus in the US House of Representatives.
Before Trump’s rise to prominence, the House Republicans were developing a set of policies structured around deep tax cuts, sweeping deregulation (including for finance and the environment), and repeal of President Barack Obama’s signature health-care reform, the Affordable Care Act (“Obamacare”).
They were, however, resolutely in favor of freer trade – and the Obama administration’s plan was to enact the Trans-Pacific Partnership (TPP), a free-trade agreement with 11 other Pacific Rim countries, with substantial Republican support in Congress.
Trump’s election has not changed the core House Republican agenda – in fact, it has brought that agenda’s architects into government, at OMB, at the Department of Health and Human Services, the CIA, and other prominent positions, with more likely to follow.
As my colleague James Kwak explains in his new book Economism, their pro-market thinking has gone too far and is unlikely to lead to good outcomes.
Selling Trump’s signature issue – protectionism – to the House Republicans was not easy. But now they have started to think about an import tariff as part of their tax “reform” package, they will all start to get on board. And they will offer various strange justifications that deflect attention from the essentials of their policy: lower taxes for the oligarchs and people like them, and higher taxes – not to mention significant losses of high-paying jobs – for almost everyone else.
By Simon Johnson. This article was first published by Project Syndicate
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