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The State Has No Business Drumming Up Business

Here’s an open letter to Cafe Hayek commenter Dan Jennings:

Mr. Jennings:

Commenting at my blog on a point that David Henderson made about Trump’s tariffs, you wrote this: “Yet, if the game plays out as a shrewd business game of getting players to concede their tariffs, it will have been worth it.”

Everyone agrees that a lowering of tariffs globally would be desirable for everyone. But for three reasons I disagree with your comment. The first reason is practical; the second is economic; the third is ethical.

The practical: history shows that governments typically respond to other governments’ unilateral tariff hikes with tariff hikes of their own. For all of their flaws, multilateral trade negotiations – not unilateral tariff hikes – are practically the best means of persuading other governments to lower their tariffs. Don’t forget that tariffs have been falling worldwide for decades now.  If Trump persists in his bullying, the result will almost certainly be a slowing, and perhaps even a reversal, of this happy trend.

The economic: because tariffs, at bottom, are punitive taxes on domestic buyers – and because government grants of these special privileges incite domestic firms to spend more resources lobbying for more such privileges – it is likely that the bulk of the economic burden of tariffs falls on domestic citizens. That is, it is likely that the bulk of the economic burden of Trump’s tariffs will fall on Americans.

The ethical: it is unethical for the U.S. government to hold American consumers hostage in a ‘game’ designed to drum up more sales for American businesses. It might well be true that, say, Boeing not only would sell more airplanes if foreign governments lowered their tariffs but would thereby be able to take advantage of larger economies of scale. If you agree that this prospect is insufficient to give to Boeing the ethical right to obstruct the purchases of others Americans, by what logic do you conclude that Trump has the ethical right to obstruct these purchases?

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