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Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson University College of Business & Behavioral Science, and a former executive director of the Federal Trade Commission.
Joe Biden and Donald Trump agree on at least one thing. I know what you’re probably thinking: a little more consensus might be good for the country. But when we’re talking about both major presidential candidates calling to limit the flow of goods to U.S. consumers, shouldn’t we be worried? Each has been touting trade policies that could lead to even higher prices, another challenge to an already stressed Federal Reserve, and slower growth for the country.
Couched broadly in terms of countering China’s aggressive efforts to stimulate its industrial economy, Biden and Trump want wide-ranging higher tariffs on that nation’s electric vehicles and other products. Relatedly, both express concerns about maintaining American manufacturing muscle for national security purposes and gaining a more favorable outcome from the ongoing leadership struggle among the world’s great powers.
The fact that we’re now hearing essentially the same protectionist appeals from the presumed candidates from both major political parties is new and worrisome.
That’s not to say that calls from one candidate or another to pull up the gang plank, raise prices, and reduce the movement of goods and people from elsewhere to our shores are unfamiliar. It’s especially common when aspiring political candidates try to outdo each other before an election. When it comes to where goods and services will be produced, union workers and most other people generally prefer less competition from abroad.
Here’s where economics and politics diverge. Nationalism may attract a meaningful political following, but higher tariffs mean higher prices for the directly affected goods and even more widespread price effects later. A substantial, conclusive body of research tells us as much. Along with the higher prices on imported goods, we should be aware that tariffs are shown to lead to slower economic growth. This is the last thing we should want for an economy that’s been skirting a recession.
So, what about ordinary consumers? Don’t they matter?
Somehow the voices of inflation-weary American consumers no longer seem to be heard when Chinese goods enter the picture. Moreover, lots of people who lack economics degrees understandably don’t realize what protectionism does to their pocketbooks. Neither major political party apparently cares about telling them, or protecting the ability of these individuals to, unencumbered by a Big Brother government, make real marketplace choices about which cars to buy, which shoes to wear or which services to obtain.
Instead, our politicians speak as though the decisions we make while shopping for ourselves and our families are mostly about favoring one country or another. Even after years of supply-chain interruptions, high inflation and resulting high interest rates stretching millions of budgets, they strangely refuse to recognize that international competition helps the American voter and consumer, or that there is something American about being free to choose.
Yes, there are global issues to worry about, and some consumers may willingly show a preference for the national origin of the goods they buy. More often than not, though, they are choosing between products and prices. If, then, there is to be a major political debate regarding whether to discourage the movement of goods and services across national boundaries by artificially raising those prices, consumers need to hear all of the facts and have a voice in the matter.
At one time, in a program I coordinated as its executive director, the Federal Trade Commission actively intervened in proceedings before other federal regulatory agencies to advocate for consumers. Where is the FTC now, when their voice is needed?
An analysis of consumer wellbeing — yours and mine — should also accompany any White House effort to mandate price increases. After all, the Fed’s constantly discussed, ongoing effort to put a squeeze on inflation, which has been aptly described as a tightrope walker’s challenge, is far from over.
Any further emergence of higher prices becoming embedded in the Consumer Price Index could send a troubled signal to the Fed and cause it to renew its commitment to higher interest rates. This and any tariff-induced slowdown could finally tip the scales toward recession.
With the economy still in limbo, we consumers deserve a real choice about what happens next.
