Kevin Hassett forgets Econ 101

On ABC's This Week, I watched the following exchange in a discussion of President Trump's trade policies: 

HASSETT: Let's think about it just the way we would do it in Econ 101. If I buy a Mercedes, then it goes into consumption. 

KARL: Yes. 

HASSETT: So, you know, I – the, say, $100,000 for a Mercedes goes into consumption, but then it comes out of imports and so it has no effect on GDP. And a lot of times when we think about the welfare of Americans, we're thinking about GDP per the number of Americans, per capita. 

If you buy a Buick, then it goes into consumption, but it doesn't come out of imports. And so it goes into GDP. That's why – that’s what the “d” is, it’s domestic production. And so, if you want to increase the welfare of Americans, then it’s better to have the stuff produced here. And that’s a very, very simple fact that the president is pushing very hard.

No, Kevin, that's not the way we do it in Econ 101. What happens when Americans switch from buying German cars to buying American cars is that these consumers supply fewer dollars in the market for foreign-currency exchange. As a result, the dollar appreciates. That appreciation makes U.S. goods more expensive compared with foreign goods, reducing U.S. exports and raising other U.S. imports.

Trade restrictions do not increase GDP. Indeed, by interfering with the international marketplace and the forces of comparative advantage, they reduce productivity and thereby GDP.

Please, Kevin, stop invoking Econ 101 to support President Trump's trade policies. It misleads the public, and it insults those of us who have spent our lives teaching (and writing textbooks for) Econ 101.