An Austrian Economic Critique of Donald Trump

Image Credit/ The Mises Institute

Austrian economist, Henry Hazlitt, may have passed away in 1993, however, his ‘one lesson’ still holds intellectual power today, despite not being appreciated by all. Many on both the left and the right have at times found themselves ignorant of such a lesson when discussing policy, and such an ignorance can be found in Donald Trump in regards to trade. Donald Trump has always believed that protectionist trade policies would lead the nation into economic prosperity by cutting out foreign goods in order to stimulate U.S. jobs. It makes sense in theory, if we were to impose a tariff on foreign beer, the foreign companies would have to increase their prices thus making more Americans buy domestic beer and stimulating ‘our’ companies. This all seems well on the surface, as many government policies usually do, however one must consider Henry Hazlitt’s one lesson in economics.

For those unfamiliar, Hazlitt’s one lesson in economics is thus: “The art of economics consists in looking not merely at the immediate hut at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups” (Found in Hazlitt’s Economics in One Lesson).

The question then becomes ‘how can we apply this to Trump’s trade policies?’ The answer is in the consumer. We as consumers all look for lower prices and higher quality, even if these criteria are met through foreign goods. Sometimes foreign goods provide us with either/or, such as fake rolex watches from China, which have a lower price but lower quality, or high quality chocolate from Switzerland for a higher price. Due to the subjectivity of value, more choices are good for consumers. With foreign goods, more competitors enter the market trying to provide higher quality goods for a lower price in order to compete with American products.

Now, if an American company is unable to compete with the foreign goods that consumers value more, that company will go out of business. Trump is quick to look at this group and only this group, however, he ignores that the masses, in the form of the consumers, will benefit. It is no different than an American company beating out another American company, however, we are more hesitant to look at these as equivalences because of nationalistic tendencies. It could be argued that free trade could be  nationalistic due to the benefit it has on the consumers which are American, though.

Going with the one lesson, we must also consider the long term effects of a tariff. Suppose a tariff on foreign beer forces consumers to buy domestic beer at an otherwise higher price. The long term effect would be that the consumers affected by this tariff then would spend a larger sum of their income on beer rather than other products that they value. Initially this might be a small difference, for instance, if the foreign beer would’ve been available at $8 while the domestic beer is available at $12, what results is that the consumer has $4 less to spend on whatever else they value. Now, while this initial $4 might mean a cheeseburger or some ice cream, the $4 would add up over time assuming the consumer continues to purchase the domestic beer. For instance, if the consumer buys beer weekly, 4 weeks would equal $16 and so on.

Thus, Donald Trump is looking at the issue of trade rather narrowly in that he is not considering who is affected and the long term effects of his trade policy ideas. It is easy to get carried away by the emotions of ‘protecting American companies’ but when we really consider the idea that American consumers benefit by allowing for foreign competition, the emotional rhetoric seems like meaningless noise. For the emotionally concerned, I would point out to the great increases in standards of living that we are seeing as a result of a more global scale capitalism. Through the competition to deliver products for the highest quality for the lowest price, many have benefitted in the world, and while conditions still remain horrendous for many, conditions overall are improving nonetheless. Why punish those who are able to out compete American companies when such competition is improving the standard of living for many who could not have even fathomed such a thing?

We often run into the issue of considering globalism through one lense. However, there is economic globalism and political globalism. Political globalism refers to global institutions like the European Union, NATO, and the United Nations. Many fear these institutions but will also group in economic globalism along with the mix which is a false equivalence. Economic globalism is a result of a voluntary spontaneous order and the division of labor on an international scale. It does not imply a world government but another form of order internationally, capitalism.

While you can, enjoy your Swiss chocolate, your German sausages, your Sri Lankan tea, your Ethiopian Coffee and your Chinese watches. It is our subjective values that help determine what should and shouldn’t be produced, which producers should and shouldn’t be in play. If you prefer a foreign product over an American one, don’t feel any guilt for indulging. Globalism, in an economic sense, is not something to fear but rather something to be embraced.

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