The Unintended Consequences of Trade Protectionism

By Jeffrey Dorfman

Jeffrey Dorfman

Jeffrey Dorfman

The International Trade Commission has ruled that imported solar panels from China and other countries were injuring U.S. manufacturers, which will provide President Trump with the opportunity to impose tariffs in order to protect American solar panel producers from this “unfair” foreign competition.

However, to protect the jobs of Americans who manufacture solar panels, the President would have to endanger the jobs of a larger groups of Americans: those who install the solar panels at our homes and businesses. Thus, solar panels are a perfect illustration of the dilemma inherent in opposing free trade.

Justin Worland reports in Time magazine that solar panel manufacturers employ about 8,000 Americans while another 240,000 U.S. jobs are related to selling and installing those solar panels. The companies involved in that end of the business are opposed to any tariffs because more expensive solar panels will likely mean fewer people wanting them installed. In fact, the industry is warning that 88,000 jobs are at risk if action is taken to save the 8,000 jobs manufacturing solar panels in the U.S.

This type of situation where saving some jobs comes at the cost of other jobs is not unusual, but rather is the standard in international trade disputes. American lumber producers complain about cheap Canadian lumber imports, but Home Depot, Lowe’s and the construction industry all gain jobs from that cheaper lumber. President George W. Bush provided protection to U.S. steel producers, but at a cost of perhaps 200,000 U.S. jobs in steel consuming industries such as auto manufacturing.

This tradeoff within the U.S. economy cannot be avoided. Placing taxes on imports means higher prices to consumers of those products, whether those imports are used as inputs to make something else or consumed directly. Higher consumer prices mean fewer sales. Fewer sales mean lost jobs for producers and retailers who suddenly face higher costs in their businesses. Further, even consumers who still buy the imported or import-containing products pay more for them, leaving less money left over for other purchases. That means even more lost jobs scattered throughout the U.S. economy.

Nothing in life is free; so goes a famous economic homily. Tariffs on imported goods can help American companies that compete with those importers and save some jobs. However, saving those jobs is not free but comes at the cost of a potentially larger number of lost jobs precipitated by the higher prices ushered in by those supposedly job-saving tariffs.

While U.S. trade law allows a president to protect an industry facing economic injury from unfairly subsidized imports, the law also provides the president with wide latitude on what, if any, action to take. The International Trade Commission has the job of determining if a domestic industry is the victim of unfair trade practices, not of finding what is best for the national economy as a whole; that is the president’s job.

So while President Trump may be inclined to, and some of his advisors may recommend, providing protection for American solar panel producers, if he really cares about jobs for American workers, he will allow free trade to continue. It may be easy to see the concentrated jobs at risk at a few solar panel manufacturers, but, as in most trade disputes, far more jobs are at stake in the rest of the economy.

Yes, free trade produces both winners and losers, but at least with free trade we get more winners than losers. Protectionism most commonly costs our economy more jobs than it saves. That hardly seems like a winning economic policy.

This commentary by Jeffrey Dorfman, a professor of economics at The University of Georgia and a Senior Fellow at the Georgia Public Policy Foundation, was first published by Forbes on September 24, 2017 and is reprinted with permission. The Georgia Public Policy Foundation is an independent, nonprofit, state-focused think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (October 6, 2017). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.

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