Protectionism's Opposite Effect

Job creation is a perpetual theme in American politics. So it’s not surprising that the topic is once again in the limelight. As part of Donald Trump’s pledge to return American jobs from abroad — a key promise, understandably, for many of his supporters — he plans to impose protective tariffs on imported goods, including a 35% tariff on cars from Mexico and a 45% tariff on all products from China. Is this a good idea?

Theoretically, higher prices for foreign goods will increase demand for U.S. products and, consequently, create jobs here at home. Nice theory, but reality doesn’t support it.

Instead, protective tariffs have historically cost American jobs while inciting retaliatory tariffs by foreign powers and increasing consumer prices.

Consider, for example, the tariff increase Barack Obama imposed on Chinese tires in 2009. While Chinese tire imports dropped by 30%, U.S. manufacturers didn’t automatically pick up the slack. As Forbes reports, from 2009-2011, “30 percent more tires were imported from Canada; 110 percent more from South Korea; 44 percent more from Japan; 152 percent more from Indonesia; 154 percent more from Thailand; 117 percent more from Mexico and 285 percent more from low volume provider Taiwan.”

“But jobs were created,” some will say. Perhaps, but there’s more to that story.