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What About Losers from Tariffs?

Here’s a letter to a Cafe Hayek reader:

Mr. Tony Tran

Mr. Tran:

Thanks for your e-mail in which you ask if “free-traders have better arguments [for free trade] than [that] everyone will be richer in the long run.”  You continue: “People want protection against certain losses now. Today’s losers from trade are not comforted by the future gains trade might possibly bring.”

I don’t doubt that many people are too willing to ignore, or to discount too heavily, trade’s future benefits.  But it’s a mistake to suppose that trade is unique in obliging some workers at any particular time – and all workers over a long-enough span of time – to adjust to changes in the ways that consumers spend their money.  If the unemployment that steelworker Jones will suffer today because of more trade is a sufficient reason for government to restrict trade, then so too is the unemployment that baker Smith will suffer today because of more dieting a sufficient reason for government to restrict dieting.

There’s yet another reason why your argument fails.  The same tariff that protects American steelworker Jones from “losing” today from trade also inflicts losses on both American consumer Williams and on American worker Adams.  The tariff obliges Williams to pay higher prices for goods whose domestic suppliers are now protected from foreign competition and, thus, results in Williams consuming or saving less than she would without the tariff.  The tariff makes Williams poorer.

The tariff also destroys Adams’s job.  Perhaps Adams works in a slaughterhouse in Nebraska that produces beef for export.  With foreigners now, because of the tariff, earning fewer dollars, foreigners buy fewer American exports.  Or perhaps Adams works in a Ford factory in Michigan.  With the price of steel now made higher by the tariff, Ford produces fewer new cars.  Or maybe Adams manages a clothing store in Miami.  Because the tariff obliges consumers to pay higher prices for goods made with steel (and with steel substitutes), consumers have less money to spend on new clothing.

The bottom line is that tariffs that protect some people from being “losers” from trade necessarily cause other people to be losers from tariffs.  It is simply an error to suppose that tariffs are a means of reducing the number of people who today suffer economic losses.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030