Free Trade

Trump and Warren Love Protectionism, But It Hurts Workers While Boosting CEO Pay

A new study shows that tariffs and other anti-trade policies actually benefit executives far more than the average worker.


President Donald Trump and leading Democratic presidential candidates like Sen. Elizabeth Warren (D–Mass.) tend to agree that protectionism is in the best interest of American workers—but a new study suggests that it's actually business executives who pocket most of the benefits.

Brian Blank, an economist at Mississippi State University, studied the performance of more than 1,000 businesses that were beneficiaries of trade restrictions—including both tariffs and so-called "anti-dumping" laws—over the past 25 years. His research shows that the CEOs and other top executives are among the biggest winners of trade protectionism—when there are any winners at all.

Blank found that CEO compensation, in the form of both salary and bonuses, tends to increase in the wake of protectionist trade policies. Compared to CEOs of similar firms in non-protected industries, he found that CEO pay increases on average by about 17 percent due to tariffs and other duties.

"Furthermore, CEOs' compensation is $1 million higher than expected, suggesting the additional compensation is not explained by superior firm performance or other characteristics," Blanks writes.

Of course, it is not true that all executives and CEOs benefit from protectionist policies. Trade wars have far more losers than winners, and tariffs increase costs along the entire supply chain. Still, there can be direct benefits (at least in the short term) to industries protected from foreign competition. What Blank's research shows, however, is that even among the supposed "winners," workers lose.

In fact, tariffs and other protectionist policies tend to backfire by increasing the price of both domestic and imported goods. Those policies tend to reduce demand for tariffed goods and ultimately make domestic industries less competitive in the long run, says Dan Griswold, a senior research fellow at the Mercatus Center at George Mason University, the free market think tank that published Blank's study.

"It's a kind of devil's bargain," Griswold says. "It certainly benefits these companies in the short run to be able to raise prices, but what do higher prices do? They discourage consumption, and they force consumers and industries to look for alternatives. And over time, protected industries tend to price themselves out of the market."

That seems to be what's happened to American steelmakers since Trump's tariffs went into effect. There was an immediate spike in steel prices shortly after Trump imposed 25 percent tariffs on imported steel last year—but the higher prices slackened demand and triggered an industry-wide slowdown that has tanked American steel companies' stock value and forced layoffs.

In short, the steel boom that Trump promised isn't happening.

But the fact that Trump failed to grasp the potential consequences of his tariffs before imposing them is not really news at this point.

For Warren, however, Blank's findings have potentially more important implications. She presents herself as a policy wonk with a plan for everything, an advocate for American workers, and a critic of wealthy CEOs.

But she's also pushing for more trade restrictions, essentially arguing that what America needs is a more competent protectionist in the White House. She's calling for a new federal department to oversee her "economic patriotism" schemes, and her trade policy would effectively forbid the United States from signing new trade agreements with any country that does not share our high environmental or labor standards.

As Trump has done, you can expect Warren to push those proposals on the campaign trail by promising that she's standing up for American workers and bringing jobs back.

Blank's research, though, suggests that Warren's protectionist rhetoric and anti-trade policies would likely benefit the CEOs she vilifies more than the blue-collar workers she's trying to pull from Trump's clutches. And in the long run, those policies will hurt everyone.

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  2. Butt… Butt TRUMP will do it (protectionism of the Favored Ones) MUCH better, because Trump LOVES US ALL!!!

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    1. Fuck off Mary.

  3. Yeah, but those CEOs hire nannies and yard help, so in a way, they’re helping immigrants get jobs.

  4. “A new study shows that tariffs and other anti-trade policies actually benefit executives far more than the average worker.”

    Rewriting policy so as to help the innocent victims at the expense of your most hated villains may be fashionable in journalistic circles at the moment, but that’s about as anti-libertarian a way to make the argument as possible.

    It’s Marxist, not libertarian.

    Why not just point out the negative impact to consumers? If no tariffs made CEOs richer, would you support tariffs on that basis? The reason tariffs should be opposed is because they hurt the American consumer’s standard of living.

    Why isn’t that enough? Why does it have to be about billionaires?Whether billionaires get richer doesn’t matter at all. Why should it?

    1. It’s worthwhile trying to persuade people who aren’t libertarians not to do harmful shit to us, right? And since they’re not persuaded by things like natural rights, morals, or common sense, perhaps we can appeal to them through their irrational and misguided hatred for people with more money than them.

      1. Yeah, I’d agree here. In fact, this argument is important because their is a non-zero chance that one of the free range marxists running for the Dem ticket will be in the white house in 2021. I am doubting it, but there is a chance.

        In any case, several of those candidates like them some protectionist tariffs just as much as Trump, so pointing out how it helps the rich in addition to harming consumers is not a bad idea.

        1. Won’t do that much good, though, since the only reason they attack the rich is so that the rich will pay protection money; You need the threat of enraged mobs to be plausible in order to collect your fee for keeping them at bay.

          The truth is they want income inequality to get worse: Poor people sell their votes cheaply, rich people have plenty of discretionary income to pay bribes and extortion, while the self-sufficient middle class are largely useless to them, too well off to be grateful for the dole, too poor to give your kid a well paid no-show job.

      2. Well put!

      3. “It’s worthwhile trying to persuade people who aren’t libertarians not to do harmful shit to us, right? And since they’re not persuaded by things like natural rights, morals, or common sense, perhaps we can appeal to them through their irrational and misguided hatred for people with more money than them.”

        Reinforcing Marxist logic by using it ourselves isn’t the answer, especially when the victims of tariffs can just as easily be shown to be Wal*Mart shoppers.

        The purpose of a libertarian and capitalist trade policy is not to maximize the salaries of rent seekers, who aren’t billionaires. It’s to minimize the costs to consumers.

        If people become zillionares by offering consumers more for less, then I hope we get more zillonares.

    2. Oh, so you’re starting to notice that everything needs a grievance spin? “If it bleeds or if everything is so terrible and unfair, it leads”!


  5. Why do I get the feeling he’s about to come out as a Sanders or Warren supporter at any moment?

    Maybe the solution is to soak the billionaires and redistribute their wealth via government spending, huh Boehm?

    If only there were someone in charge who really cared about the little people instead of the billionaires–is that what I’m supposed to think?

    1. Because he is terrible at economics.

      1. The stuff Boehm says is stupid shit that is so bad it hasnt even gotten him a job elsewhere.

        1. Journalists who can get a job CNN or NBC don’t write for Reason.

    2. I’d ask why, if tariffs help CEO pay so much…CEO pay exploded during the era of “free trade” and not years earlier?

    3. Not exactly a tough prediction considering he was blatantly and openly cheerleading for Sanders here four years ago.

      Of the many unconvincing fake-ass libertarians here at Reason, he’s one of the worst and has been from day one.

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  7. And what “protectionist policies” has Trump favored?

    (In case you’re confused: punitive tariffs on a single foreign nation are not protectionist.)

    1. E.U., Canada, Mexico, Russia, and it is not just tariffs, import duties and restriction of migration impact on the world economy.

      Trump is a protectionist. His view of economics is deeply flawed. The only political rivals who agree with him on this are Elizabeth Warren and Bernie Sanders.

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  10. “over the past 25 years”

    We’ve probably added 20 million immigrants in that time.

    Supply and demand. Benefits to Americans from tariffs will go to employers if the spigot of foreign labor is left on to supply all the demand they want, and Labor if the spigot is closed.

  11. EVERYTHING boosts CEO pay at this point. They’ve learned to successfully game the system so that their pay is no longer driven by normal market considerations. They each sit on each other’s boards of directors and sign off on each other’s abuses.

    1. The evening is not a zero sum game. Both CEOs and workers can benefit from growth.

      Its unilateral dropping of trade barriers, low skilled immigration/migration, and trading with authoritarian regimes that hurts Americans workers.

      1. The market only works when the population is fixed with no immigration or movement of labor, there are only high paid high skilled workers, and no trade with authoritarian regimes which is near everyone. So who is acceptable to trade with?

        See how that works at the grocery this week.

  12. So the business is making more money and rather than passing the boon of the tarriffs to their employees or lowering prices, they are keeping the money for themselves?

    I fail to see how libertarianism helps this excepting before, China got to keep that money for THEIR CEOs.

    Not a marxist or anything, but this argument just points out greedy people do greedy things.

    1. There is no boon of the tarriffs. Not one US company sees a dime of that. There is only increased cost to be passed along the chain until we pay for it at the cash register.

      What the CEO gets is irrelevant until it impacts on the guy who stocks the shelves or helps out at the register. Mostly they are paid in stock or options which is not money.

      Socialism is rising in popularity because it promises a ‘fair’ distribution of wealth. It can not deliver on that and never has. The closest you can get is something like an expanded welfare state which the dems are pitching now.

  13. No matter what people say, politicos aren’t stupid people. It is interesting then that they either don’t grasp or completely ignore that simple supply, demand, and price relationship we all learn starting in high school. They take actions as if they can just mess with one of those variables and not have it affect the others. Or perhaps they hope the others won’t be affected until well after they are out of office.

  14. But these CEOs spend money which helps the economy which employs more workers. This will “lift all boats” – Why the problem now with trickle down economic$?

  15. What is most important in the world of CEO

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