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President Trump’s constructive effort to bolster American economic freedom with his tax and regulatory plans is under threat. Not from Democrats, but from the president himself. That’s because the second chapter of his trade war is likely to undermine all of it.
People have more economic freedom when they are to make more of their own economic choices. Government can support these choices by evenhandedly protecting everyone’s right to own and use property. Or, it can limit choice through taxes, regulations, tariffs, and manipulation of the money supply.
Reams of research economic freedom with higher incomes, more investment, and faster growth. Trump that by cutting taxes and spending, trimming the regulatory burden, and unleashing restrictions on energy production, he can boost growth. Since these measures increase economic freedom, he is probably right.
Unfortunately, thanks to an aggressive new wave of tariffs, which directly limit Americans’ ability to make their own economic choices, these efforts could be in vain.
Like most wealthy nations, the United States has long permitted its citizens a fair amount trade freedom. According to the Fraser Institute’s index, U.S. trade freedom peaked in the 1990s at eighth in the world. It seemed that most had absorbed ’s argument that “Commerce is not warfare. Trade is an economic alliance that benefits both countries. There are no losers, only winners. And trade helps strengthen the free world.”
But as other countries permitted their own citizens to trade more freely, America failed to keep up. By 2000, we had fallen to 22nd place. Today, we rank 53rd in trade freedom.
Now a President believes that when Americans choose to buy products from other countries, they “lose TRILLIONS OF DOLLARS.” He has missed the first lesson in economics: voluntary exchanges are mutually beneficial.
Trump says the tariffs will be “WORTH THE PRICE THAT MUST BE PAID,” believing that American producers will gain even if consumers lose. In truth, both consumers and producers stand to lose when tariffs go up. U.S. households are predicted to lose as much as in 2025 as tariffs on Canada, Mexico, and China drive the prices of everyday goods higher. And even this only accounts for part of Trump’s plans. We know this, in part, because consumers paid for Trump’s .
But producers, who also buy tariffed products to conduct business, aren’t off the hook. By , Trump’s 2018 steel tariffs saved 1,000 steel producer jobs at the expense of 75,000 manufacturing jobs that rely on imported steel.
This explains why auto industry leaders are panicked. According to the CEO of Ford, new tariffs could “ in the U.S. industry” and give an advantage to automakers in South Korea, Japan, and Europe.
In the long run, the tariffs may even set the firms they’re supposed to protect up for failure. When shielded from international competition, producers turn their focus toward cozying to politicians and neglect consumers. This is why economists find that “rewards poor performance” and “reduces the incentive to innovate.”
Worse still, higher barriers to trade may undo the best parts of Trump’s agenda, sending taxes and regulations back up in the long run. That’s because trade freedom enables other aspects of economic freedom. In the 1990s, Economists Jeffrey Sachs and Andrew Warner communist countries to transition to freedom by liberalizing trade first. To compete globally, countries must ensure that property rights are secure, taxes are low, and regulatory burdens are light.
More recently, the economist Russell Sobel found that free trade policies are the “clearest and most robust ‘first mover’” when it comes to movement toward greater economic freedom. Countries that liberalize trade tend to follow up with tax and regulatory reform.
But the reverse is also true. When trade freedom is limited, other freedoms are endangered. Let’s hope Trump’s trade agenda doesn’t kill his tax and regulatory agenda.
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