Dear Mr. M________:
Thanks for your e-mail.
You write “While free trade works when economies are fully employed, tariffs must be used when economies are depressed…. Why do you [Boudreaux] deny this necessity?”
I’m consumed now with other work, so I’ve not the time to reply as fully as I’d like. Here, though, are two quick points:
First, economists widely agree that prolonged high unemployment rates are not caused by international trade but, instead, by poor domestic policies. (There is, to be sure, much disagreement over just what those poor domestic policies are.) Prescribing tariffs as a remedy for high unemployment is like prescribing LSD as a remedy for broken bones: it might create the hallucination that a remedy is in the works, but it will in fact only inflict further harm on the patient.
Second, if the premise of your argument is correct, you should not stop with obstructing cross-border trade. You should propose also that, say, people be prevented, during recessionary downturns, from buying used cars (think of all the auto-factory jobs that would thereby be created); that people be prevented from preparing meals at home (think of all the restaurant jobs that would thereby be created); and that people be prevented from sleeping at home (think of all the hotel, motel, and B&B jobs that would thereby be created).
If (as I suspect) you believe that such additional restrictions on people’s freedoms are inappropriate, why do you suppose that restricting people’s freedom to trade with foreigners is appropriate?
Sincerely,
Donald J. Boudreaux
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{ 63 comments }
Did he say anything else? It seems to me that he assumes his premise.
He did ‘explain’ that, with unemployed American workers, restricting trade with foreigners will increase demand for American workers. It’s actually quite a common delusion.
Does he not understand how many “American” jobs are dependent on trade with other nations? I recently bought a Honda, I bought it used, but it was made at a factory in Ohio .If we impose a tarriff on “foreign” cars does that count Honda’s made in Ohio, but not GM vehicles made in Canada?
He also might want to check Mark Perry’s 8/21 blog entry about the failure to pass the FTA with Columbia and what a disaster that has been for American workers.
http://mjperry.blogspot.com/
“delaying the FTA is destroying jobs in America,” insisted Gabriel Silva, Colombia’s ambassador to the U.S. Noting that Colombia must import 70 percent of its corn and 95 percent of its wheat due to limited domestic production, he pointed out that “in 2008, U.S. farmers were the largest providers of agricultural products to Colombia. The U.S. had 46 percent of the Colombian food import market. That’s since fallen to 20 percent.”
Great points.
But, alas, protectionists are not known for their understanding of economics, or even of basic facts of trade.
If only some of the other pickup trucks available to rest of world wasn’t being forbidden or laden with high tariffs to protect domestic pickup trucks. Toyota has another type of pickup and Hyundai has one….. I would like the option of buying one without being penalized.
I would love to buy a Hilux.
Although they were good points, the argument for imports need not rely on jobs related to exports or jobs related to value added to the imports. If we had no exports and if we added no jobs related to the handling and distribution of imports, the amount saved from importing would still amount to a net increase in the wealth of the society. In arguing for imports, including points related to export driven employment, however well intentioned, are irrelevant to the determination of whether imports are good for an economy.
Imports should be studied from a consumer perspective. The consumer ‘savings’ represents the addition of wealth to the society, period. It then creates an additional demand for new or other goods and services, which create jobs of more value than those lost through competition, that didn’t exist prior to the act of importation. Factory shutdowns result in capital being invested in other things. Jobs aren’t lost rather than just changed.
The jobs created from importing are always difficult to identify, if not impossible, while, on the oher hand, jobs lost are easily identifiable. If one wants to base an arguments for free trade on identifying jobs that are affected by it, it will be an argument they are destined to lose.
Even if the trade with other nations was not disrupted by our tariffs AND, even if it led to a net increase in US jobs, (both big assumptions) It would still be a stupid idea because it forces people to waste money by buying more expensive goods, this lessens overall efficiency and therefore lowers overall wealth.
Everyone is the worse off for it.
And apart from the economic argument there is the argument that it is an arbitrary abridgment of our personal freedom to chose the things we want to buy.
I see why they think a tariff on say steel will help protect steel industry jobs. They can’t see that cheaper steel will allow those companies that purchase steel more resources to buy other things or invest in other areas and stimulate growth/jobs in those industries. Is there any concrete evidence that shows elimination of a tariff leads to higher unemployment in states, cities that have a high concentration of jobs in that industry? If industries are given warning about the elmination of tariffs they might be able to re-structure to remain competitive.
The moral premise of protectionism is even worse than its disastrous results. Protectionism assumes that Americans are superior to everyone else and our interests as a collective must trump the individual rights of an American to engage in business with anyone he pleases.
Best comment of the day!
I agree, great comment. The superiority point is excellent. Except that protectionism hurts some Americans to provide an undeserved benefit to other Americans.
In fact, I think it’s more accurate to say that protectionism assumes that politically connected Americans are superior to everyone else, including ordinary, unconnected Americans. Talk about class warfare.
I thought it would have been hard to improve on James’ comment, but your little tweak was exactly on the money.
As with sugar, the result of tariffs is that large numbers of people are forced to pay a small sum ($2-5 per year) more than without a tariff. No big deal, right? It is to the very small number of sugar producers – millions of dollars. Nice work if you can get it.
I knew a fella a few years back who was a lobbyist for sugar beet farmers. He had a nice house and sent 4 kids to private school – not envious, I’m just sayin’…
Protectionism is not an American phenomenon.
DUh! But Liberty is supposed to be an American value.
Smoot-Hawley
Within the last month, there was a story regarding the wealth discrepency between whites and minorities following the great recession. There is also the massive unemployment difference between whites and minorities. Whould this person then suggest that the solution to these problems is to keep whites and blacks from trading?
I am guessing not, but I am sure he doesn’t know why.
Since everyone around here loves reasoning by how ‘fair’ everything should be, why don’t we match their tarriffs? If China has a 25% tarriff, we do the same. They drop it to zero, we drop it to zero, but they go first. No more of this unilateral disarmanent.
We’ll stop hitting ourselves in the head with a hammer when you stop hitting yourself in the head with a hammer, but not before! Yes, a brilliant idea indeed.
Invisible Backhand,
You really ought to familiarize yourself with at least the rudiments of economics so that you’ll avoid offering arguments that have been exposed as fallacious, or even downright silly (such as the one you offer here), countless times by generations of scholars.
A tariff is a tax on domestic consumers of imports and hence – as (the not at all free-market-oriented economist) Abba Lerner demonstrated beautifully in the in 1930s – simultaneously a tax on domestic producers of exports. If in response to a foreign-government’s tariffs Uncle Sam raises the tariffs it imposes on Americans, American exports (not just imports) will decline even farther than they would decline as a consequence of the foreign-government’s self-destructive trade policy.
Even if I grant your apparent mercantilist premise that the value of trade is measured by the the value of exports rather than of imports, how in the world does Uncle Sam help Americans by imposing a tax that reduces both U.S. imports AND exports?
It increases domestic production, consumption, employment and GDP?
No it doesn’t. Not in practice. Not in theory.
Harley Davidson, 1983
” After an investigation by the US International Trade Commission, President Reagan imposed in 1983 a 45% tariff on imported bikes and bikes over 700 cc engine capacity.”
http://en.wikipedia.org/wiki/Harley-Davidson#Restructuring_and_revival
Invisible Backhand:
What’s the point of your reference to the Harley-Davidson trade-restriction case? Do you suppose that, because Reagan imposed those restrictions, that somehow the case for free trade is inconsistent? (Reagan was a politician, nothing more.)
Or do you suppose that economists deny that it’s possible to keep a firm or industry alive through trade restrictions? If so, you are utterly unfamiliar with the literature.
The fact that no one knows concretely, or can point to, what domestic industries were harmed by the Harley-Davidson restrictions – which domestic industries or firms never got started, or didn’t expand as much as they would otherwise have expanded – doesn’t mean that those losses aren’t real. Nor are the consumer-welfare losses concrete in the way that Harley-Davidson’s benefits are concrete; but these losses are very real.
Put differently, the fact that the tariffs helped Harley-Davidson (an utterly unsurprising outcome), does nothing whatsoever to show that these tariffs helped the overall economy.
By the way, my colleague Dan Klein, when he was still a PhD student at NYU, did a very nice analysis of the Harley-Davidson tariffs:
http://www.cato.org/pubs/pas/pa032.html
Wiki?!? Really?!? Do you have something a little more concrete?
FUUSOBS!
How dare yew not happuhlee pay $17,000 for a Harlie, insted uv $13,000 for a Honda that iz fastur and more reeliubuhl! You shud not bee alloud too own a motersyccle that iz reelyubuhl! Yew can bye a knew Harlie evry five yeers!
Syned,
Yasafi Muirduck, MD
Oh and jusst becuz I call yew names and cuss at yew all thu tyme duzznn’t meen Iy’m luzing thu deebate! Yew lowzee sobs!
I can tell you of one American manufacturer harmed by that motorcycle tariff.
In 1985, I was ready to buy my first quality turntable. I also wanted a new motorcycle. At the time, in all price ranges they were able to compete in, Acoustic Research made some of the finest turntables in the world. But because of the higher tariff I was forced to pay for that Honda, I couldn’t afford the AR turntable, and had to settle for the Belgian-made Thorens, which was considerably cheaper than the least-expensive AR.
Last I checked, higher prices lead to less consumption. But if you remove that assumption…
Invisible Backhand:
If you genuinely suspect that trade restrictions “increase domestic production, consumption, employment and GDP,” do you argue that – as I note in my letter – prohibitions, or tariffs, on the sale of used cars would likewise “increase domestic production, consumption, employment and GDP”? How about a prohibition, or tariff, on household preparation of meals?
“What’s the point of your reference to the Harley-Davidson trade-restriction case?”
I was answering your question:
“how in the world does Uncle Sam help Americans by imposing a tax that reduces both U.S. imports AND exports?”
I pointed to a case where a tariff did in practice increase domestic production, consumption, employment and GDP.
Your other points are hypotheticals. Hypotheticals are imaginary monsters. You’re so frightened of imaginary monsters you don’t notice your house is burning down.
I suggest you need to read the Parable of the Glazier again. You’re making your claim only on the basis of what is seen. If you can establish that the government improved domestic production and consumption of motorcycles (what is seen) without larger adverse trade-offs (what is unseen), then and only then would you have a point.
“I pointed to a case where a tariff did in practice increase domestic production, consumption, employment and GDP.”
No you didn’t.
Regards,
Ken
“Your other points are hypotheticals. Hypotheticals are imaginary monsters. You’re so frightened of imaginary monsters you don’t notice your house is burning down”
From the Wiki article you linked there is nothing about increases in consumption, GDP or employment, but there is this tibit:
“Many components such as brakes, forks, shocks, carburetors, electrics and wheels were outsourced from foreign manufacturers …”
Perhaps you can explain to me which cars are imports, Toyota Trucks made in Texas, Honda’s made in Ohio or GM’s made in Canada.
IB,
Does that mean that if I stop looking at you, you will stop existing? I so wish I could believe that.
All you need to know about this particular looney is summed up in this
exchange”
John S. August 20, 2011 at 1:03 pm
Krugmanian logic: Beating one dead horse didn’t work. Let’s hitch up an entire team of dead horses and flog them good and hard this time!
Reply
Invisible Backhand August 20, 2011 at 2:24 pm
I notice a tendency towards simplistic absolutes in your thinking.”
If he can’t understand that, you know he has a broken brain.
Even tho Don took care of it for me, I’ll just shorten it up. The 25% tariff the Chinese government has in place PUNISHES the Chinese.
If the people of china are taxed by their government in a way that harms their ability to purchase goods at a low price it does not follow that we will be better off by following the same bad policy.
If there is a large difference in comparative advantage then the likelihood is that the tariffs will not result in an increase in US production, but rather in production from a third nation with similar comparative advantage as China.
Furthermore, tariffs hurt all US business in that they must purchase parts and raw materials at higher prices, this further erodes their competitiveness in the global market.
also, I was momentarily possessed by an entity that made me misspell ‘tariff’.
that seems a minor demon compared to the one that made you think you understand trade.
every single tariff creates a dead-weight loss for the imposing nation.
this is 100% true.
this graph show why it must always be so:
http://mjperry.blogspot.com/2011/03/econ-101-protectionism-for-dummies.html
for every dollar you give to a protected industry, consumers lose more than a dollar.
there is no way that such a policy can create jobs or property in a net sense.
the N jobs saved at harley are obvious, but the jobs lost to the economy will always be N + X where X >0.
no other outcome is possible.
hiking prices does not increase real GDP. some of that hike goes offshore. thus, you get a real loss. as someone said above, “retaliatory” tariffs are just punching yourself in the face because your trading partner has done so.
Yep.
I don’t think Invisible Brain is capable of understanding anything you and Don are saying. The other day he provided a link to an online shrine he built to Don and Russ. The kind of shrine that stalkers build just before they try to murder the objects of their obsession. Creepy.
I notice from my copy of World Tariff Profiles 2010 a very long list of countries impose this ‘dead weight loss’. Now, I could believe the World Trade Organization, or I could believe some fringers with a blog.
http://www.wto.org/english/res_e/booksp_e/tariff_profiles10_e.pdf
This picture will help you see just how fringe you are:
http://i.imgur.com/oBhsU.png
“Protectionism assumes that Americans are superior to everyone else…”
But apparently not superior enough to everyone else that Americans can make things better/cheaper than everyone else.
Magnesium
I do not understand the morality, ecominimcs aside, of forcing me to spend my hard earned money with vendor A when vendor B gives me more value.(same is true if government artificially inflates vendor B’s prices) If vendor B is one of Krugmans aliens, and all they want to do is trade with us then me and my family are better off. I guess I need to be shown the error of my logic by those who favor tariffs or retstrictive trade policies.
But according to Krugman logic going to war with said Aliens is a much better policy.
Would someone mind giving a non-economist an example of Prof. B’s statment that a tariff on domestic consumers of imports is the same as a tariff on domestic producers of exports? I think I get it but I’m not comfortable defending it yet. Examples usually help to visualize it and then better understand it. I read through Lerner’s Symmetry Theorem, which I suppose he’s referring to, but I’m not 100% clear. Thanks.
I’ve got other work to attend to, so I’ll be brief. The simplest way to see this relationship is to imagine the U.S. imposing import tariffs so high that Americans import nothing. How much would Americans then export?
A longer explanation is required for a world that uses some international money (such as gold), but in today’s world it’s easy to see that, if the U.S. imports nothing, foreigners earn no U.S. dollars. With no U.S. dollars earned from selling stuff TO Americans, foreigners have no dollars to use for buying stuff FROM Americans.
Gracias! Sorta like the Laffer Curve.
Hmmm…. Not quite like the Laffer Curve (although I might be missing something). Or, well, like the Laffer Curve in the sense that it reveals as real what is initially implausible.
Sorry, separate point I was making. Like the Laffer Curve from a government revenue standpoint. In the sense that if income taxation were at 100%, government revenue from the tax would be $0 since no one would work. With your extreme example where import tariffs are so high, say 100%, government revenue from the tariff would be $0 since Americans would import nothing.
Don: “and that people be prevented from sleeping at home (think of all the hotel, motel, and B&B jobs that would thereby be created).”
And that people be prevented from buying a previously-owned home and buying only new construction (think of all the home builders, sub-contractors and building supply jobs that would be created).
…and send in the yard sale police. How anti-American to have a yard sale and deprive so many producers of new products!
Yep again! The possibilities for restricting people’s freedoms in ways that impel them to hire more workers (who sell their labor in markets) are enormous! We could also, for example, tax people who exercise and eat healthy diets, for such activities, while good for the individuals who practice them, are bad for society writ large because those activities enable their practitioners to avoid visiting physicians and health clinics, and from using as many pharmaceutical products as they would if they all sat on their couches 24/7 and ate potato chips washed down with whiskey.
I volunteer to be legislated into sitting on my couch all day eating chips (heck, I’ll go one step further and make it a nice unhealthy pizza) and drinking whiskey (Balvenie Doublewood please). Shoot, I’ll patriotically do my part and light up a cigar too! I’d much prefer that to the current legislation that takes forces me to work 60 hours a week to support the poor choices of others.
Yep!
My favorite arguments are:
Restricting trade is a Act of War, why would you want to do this t yourself?
Imports are purchased in U.S. dollars, which have to be returned at some point in order to realize their value.
Now if you do form letters for the top ten economic fallacies, think of the time you would save.
Here is a case of tariffs playing a role in causing losses for some for the sake of profiteering for another… Magnesium.
http://machinedesign.com/article/magnesium-tariffs-harm-us-die-casters-says-nadca-0121
http://www.cato.org/pub_display.php?pub_id=13605
Free trade
Damn Bubba, that is a good letter!
The It seems obvious that people prefer to get more with less effort, and when this preference gets enacted in protectionist trade policy, we find that some people will get more for less by forcing others to get less for more.
Excellent letter, Don! Recently, I listened to similar nonsense with the new label of “economic nationalism.” Same old stupid controlling nonsense packaged with a new label.