On Thursday, March 8, President Trump imposed a tariff on all imported steel and aluminum. The contradictory decision came after expressed concerns regarding the sustainability of these industries, particularly in regards to the inputs for the military. While there are some legitimate concerns about national security, especially when it comes to the efficiency within the military and global trade is a by no means a simple game, protectionism never truly works how it is supposed to.
Nobel Memorial Prize Winner for Economic Sciences Milton Friedman said it best:
“When government—in pursuit of good intentions—tries to rearrange the economy, legislate morality, or help special interests, the cost come in inefficiency, lack of motivation, and loss of freedom. Government should be a referee, not an active player.”
In this instance, President Trump’s decision to impose a protectionist policy does exactly that. I have no doubt that the administration was acting with a genuine concern. However, as most professional economists agree, when it comes to free trade, letting international markets compete freely within the boundaries of their own comparative advantage will lead to the most efficient allocation of resources for both parties. The cost and benefits of any economic decision must be weighed carefully, regardless of how vocal, or politicized each issue may be.
The steel industry has been struggling since the 1970’s and it is perfectly understandable for the industry to ask for protective policies: it is in their best interest. This does not mean however, it will be in the best interest the entire economy. Industries and consumers excluded from the protectionist policies will be billed the full cost of protectionist polices. Again, Friedman engages in a fantastic discussion about the nature of protectionism and the steel industry in the video below:
The beauty of international free trade is in the nature of the exchange itself, and the relationships it builds. When steel is produced by the most efficient supplier, the U.S. avoids externalities such as pollution, but even more importantly: the investment from foreign consumption of the goods we do have a comparative advantage in, will propel the efficiency of those industries further, enhancing our ability to compete in industries we already have a strong foundation in.
The Trump administration is wrong to deliver these protections to the steel industry: the aggregate cost on both consumers and industries unprotected is to high to give just a chance for success an industry that has been struggling for more than 40 years. Let the free market work as it is intended to perform: to wave the banner of free enterprise when it comes to taxes, government intervention, and regulation, while simultaneously abandoning it for protectionism is not only inconsistent, but also perilous.