The great libertarian economist Milton Friedman would have a lot to say about President Donald Trump’s tariffs if he were around today, and all of it would be cautionary.

To point out the obvious: yes, a tariff on foreign steel will help American steel workers. The debate lies in whether or not there will be more jobs lost in other sectors of the economy that are dependent on cheap steel, which must be the case, simply because the relative size of the steel industry to steel-consuming industries. There are 140,000 steel workers in America, but 6.5 million employed by steel-consuming manufacturers.

Anyway, here’s what Friedman had to say back in 1978, two years after winning the Nobel Prize in economics.

FRIEDMAN: Let us suppose for a moment that the Japanese flood us with steel – that will reduce employment in the American steel industry, no doubt. However, it will increase employment elsewhere in America. We will pay for that steel with dollars. What will the Japanese do with the dollars they get for the steel?

…they’re gonna use those dollars to buy goods and services. They’re gonna spend it. In the process of spending them, they may spend them directly in the United States, and that directly provides employment in the United States. They may spend them in Brazil or in Germany or in China or anywhere else – but whoever gets them, in turn, is gonna spend them. So the dollars that we spend for the steel will find their way back to the U.S. as demand for U.S. goods and services.

You will have less employment in the steel industry; you will have more employment in the industries producing the goods we export. Overall, total employment will not be affected. But overall, the American consumer will be benefited because he will get the steel more cheaply and the goods made from the steel more cheaply than he otherwise would. That’s the benefit to the American consumer.

According to the Heritage Foundation’s Daily Signal, “the job losses will be direct and indirect, as price hikes will hit American companies that buy international steel to make screws, wires, and machines, Laura M. Baughman, president of the Trade Partnership, said Friday during a Heritage Foundation event. The Trade Partnership anticipates a net loss of 146,000 U.S. jobs.”

As we reported last week, George W. Bush passed tariffs ranging from 8-30% on steel in 2002, which were later repealed, and for good reason. A study by the Peterson Institute for International Economics found that when you take into account increased prices of steel, American consumers paid $800,000 for each job “saved.” Meanwhile, the study “estimated that the steel tariffs caused at least 45,000 job losses in no fewer than 16 states, with more than 19,000 jobs lost in California, 16,000 in Texas and about 10,000 each in Ohio, Michigan and Illinois.” Other studies have put that figure as high as 200,000 jobs lost.

For some perspective on how inefficient it is to pay $800,000 for a “saved” job, Obama’s 2009 stimulus bill cost “only” $278,000 for every job it saved.

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