Tariffs Are An Abomination: There Are No Good Arguments For Them

There are no good economic arguments in behalf of tariffs. They are an economic abomination. All capitalist acts between consenting adults (buying, selling, renting, lending, borrowing, gambling, gift giving), are mutually beneficial at least ex ante, and almost always but not quite, ex post as well. Tariffs are a tax which decreases such commercial and personal interactions, and thus reduce prosperity.

If they were economically beneficial, we should allow U.S. states to set up tariffs against each other’s goods and services. No, one reason America is economically great is because we benefit from a gigantic free trade area where specialization and the division of labor can run rampant. Yes, the economy grew during the McKinley Administration, but this was in spite of this type of taxation, not because of it. The economics of absolute and comparative advantage speak with one voice against such trade interferences.

However, there are several arguments in favor of tariffs from a non-economic perspective.

One of them is strategic. Given that other countries levy tariffs against us, and we want full free trade, one tactic is to end all of ours, and hope to embarrass them, or inspire them, into eliminating all of theirs. If there are two men in a rowboat and one of them, an idiot, shoots a hole in the bottom of it, should the other do so too? If not, the vessel will take in less water. But if so, possibly, that can convince the other occupant to stop shooting. In like manner, one way to get other countries to eliminate their tariffs is to threaten to raise ours against their exports to us. Will it work? That is a question purely of strategy, beyond the ken of the dismal science.

Another is the moral argument. Assume that China engages in slave labor, which we detest. A tariff against the imports of goods emanating from that practice might help to eliminate it.

Mr. Trump wanted to send criminals who were citizens of Colombia back to that nation. Its government refused to allow such a transfer. The Trump Administration threatened punitive tariffs against their products. They acquiesced. Assuming that this banishment was justified, better to use a tariff threat than bombing to this end.

Then there is the issue of defensive war. Even otherwise free trader Adam Smith supported protectionism for military hardware production, which in those days meant cannon, sails, boats, ropes, etc. But even with the items mentioned, there was no way to keep them from reaching the acquiring country owing to the basic truth that there's no accounting for the final destination of any good. Translated, we can buy what the enemy won't sell us from those the enemy will sell to.

Not unrelated to the foregoing is the fact that some nations are unwisely dependent upon others for weaponry. Israel, for example, heavily relied upon military hardware from the U.S. Under the Biden Administration, it was only forthcoming with serious strings attached, even though such purchases were previously contracted, and even paid for in full. Israel desperately needs a domestic munitions industry. A tariff against import of such goods would be uneconomical. How else, from a non-economic, point of view can such an “infant industry” be protected if not in this manner? Through subsidies!

Some free traders would object to such arrangements on the part of foreign nations. They sometimes call it “dumping.” When I first heard of this concept, it was hurled against Germans supposedly subsidizing the manufacture of Volkswagens and BMWs, and “dumping” them on our market. My thought is that this would be horrible, as it implies “dumping” these vehicles on us from airplanes, located 30,000 feet above us. That would truly be dangerous. But that is not at all what is meant by this concept. It only implies, in effect, that these foreigners are making us a gift of a part of the value of these vehicles. Gifts cannot hurt the recipient.

To summarize: tariffs are an economic disaster from an economic point of view. But there is sometimes a strategic and moral case to be made in their behalf.

Originally published here.

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