Executive Briefings

Economists: Making Products in the U.S. Won't Be Cheaper

President Trump met with business leaders last week to present a plan for keeping jobs in the United States. He offered a carrot - a dramatic cut in taxes and regulations - as well as a stick - a substantial tax on companies that decide to send their factories offshore.

Whether companies follow suit will depend on how they weigh the benefits Trump is offering with the potential higher costs of keeping production in the United States. But in Trump's statements, he claimed that the move would have no cost at all - a statement that rankled some economists.

“There will be advantages to companies that do indeed make their products here,” Trump said. “And I've always said, by the time you put them in these massive ships or airplanes and fly them and — I think it's gonna be cheaper.”

Economists disagreed. Although some said the policy could benefit some American workers by creating jobs and in turn expanding the U.S. economy, most said it would also impose a greater cost on companies, who would in turn pass those costs on to consumers. Either consumers would buy goods made in the United States, which would be more expensive because of the higher cost of American wages, or they would buy foreign goods that would be pricier because they had been subject to an additional tax.

“Companies of course have these international supply chains because it makes it cheaper for them to produce their products. So almost inevitably, if you don’t let them do that, their products will become more expensive for consumers,” said Stan Veuger, a resident scholar at the American Enterprise Institute. “For sure it’s going to increase prices.”

Read Full Article

Whether companies follow suit will depend on how they weigh the benefits Trump is offering with the potential higher costs of keeping production in the United States. But in Trump's statements, he claimed that the move would have no cost at all - a statement that rankled some economists.

“There will be advantages to companies that do indeed make their products here,” Trump said. “And I've always said, by the time you put them in these massive ships or airplanes and fly them and — I think it's gonna be cheaper.”

Economists disagreed. Although some said the policy could benefit some American workers by creating jobs and in turn expanding the U.S. economy, most said it would also impose a greater cost on companies, who would in turn pass those costs on to consumers. Either consumers would buy goods made in the United States, which would be more expensive because of the higher cost of American wages, or they would buy foreign goods that would be pricier because they had been subject to an additional tax.

“Companies of course have these international supply chains because it makes it cheaper for them to produce their products. So almost inevitably, if you don’t let them do that, their products will become more expensive for consumers,” said Stan Veuger, a resident scholar at the American Enterprise Institute. “For sure it’s going to increase prices.”

Read Full Article