US trade protection will end up hurting low-income Americans

THE Trump administration is contemplating different methods of trade protection. Whether through tariffs or a border tax, trade protection is a consumer tax. The tax distorts markets to persuade consumers to buy more expensive domestic goods they do not want, instead of cheaper imported goods they do want.

A trade protection tax may protect jobs in inefficient domestic industries. Those jobs are paid for through a lower real standard of living (the cost of the tax). From a presentation perspective, a trade protection tax can be made to look attractive. The benefit of "1,000 American jobs saved" is more tweetable than the cost of "0.2 per cent increase in prices". Economically, the costs nearly always outweigh the benefits, but in a world of hashtag economics, reality often loses out to fake news.

A consumer tax has the potential to redistribute living standards. Different people buy different goods and services. Thus, different people will be affected in different ways by a consumption tax. Looking at trade in value added data and different consumption patterns, economists can get a sense of which groups in America suffer most under a trade protection tax.