Economists agree: Tariffs will hurt our growth. It’s time to settle trade disputes

Let’s find something we can agree on.

Despite historically low rates of both unemployment and inflation, economists and pundits abound with suggestions for what’s needed to help the economy. News reports continue to declare “uncertainty” with financial markets being “volatile.”

Why can’t we agree on whether or not our economy and economic outlook are good or bad? The question of declining international trade appears to be the problem.

In economics, disagreement occurs when there are differences in scientific judgments or differences in values. Just as in the physical sciences, economists will disagree about the validity of an economic theory or interpret data differently. Additionally, economists differ because they have different values – preferring, for example, a greater distribution of income over a more efficient marketplace.

But there is more agreement among economists than people think – particularly on international trade.

Early this month the Securities Industry and Financial Markets Association released its biannual survey of professional economists. Ninety percent of these economists lowered their economic growth forecast primarily because of new tariffs levied on products from China and elsewhere. A large majority (69 percent) also forecasted higher prices as result.

Economists have known for centuries the benefits of trade. In Adam Smith’s seminal book, An Inquiry into the Nature and Causes of the Wealth of Nations, he wrote of the benefit to rich and poor alike through specialization and trade, and against the restrictive trade policies of his time. Similarly, David Ricardo’s 1817 book Principles of Political Economy and Taxation outlined the theory of comparative advantage, which supports greater trade and argues against tariffs and other restrictions.

Trade makes everyone better off because it allows people to specialize in those activities in which they have advantages in both skill and costs. All trade restrictions act like a tax on consumers, and thus the reason those economists surveyed think our economy will slow.

The widespread agreement on trade gave us the World Trade Organization (WTO) as a means for settling trade disputes. Early this year the United States used this international body to settle a dispute with China on agricultural tariffs.

Perhaps a turn to the WTO rather than the ongoing bilateral talks will settle the issues President Donald Trump thinks we have with China. Economists may disagree over fiscal and monetary policy, but will join hands to negotiate for more trade rather than imposing new tariffs.

Peter Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. pcrabb@nnu.edu

This story was originally published June 24, 2019 at 3:31 PM.