Steve Davies has conducted a veritable seminar on free trade over at his Facebook page. I encourage you all to read not only Steve’s original post but his many insightful and informed comments on that post.
Here’s a comment that I posted in response to commenter Larry Ramer who doesn’t understand Steve’s argument:
Mr. Ramer:
Commenting at Facebook, you object to Steve Davies’s defense of free trade. Central to your objection is your belief that, because many of the price hikes that consumers suffer as a result of tariffs are relatively small, tariffs cause no noticeable harm to consumers while, at the same time, tariffs allow domestic industries that are protected by the tariffs to expand and increase their outputs significantly.
Your argument contains many flaws. Here are just two, the first one economic and the second one ethical.
Your economic flaw: In order to expand and produce more, industries protected by tariffs must get additional resources – and the more these industries expand, the greater are the amounts of additional resources that they must get. These additional resources must come from other productive uses. If, as you presumably believe, the positive effects of the tariffs will be significant, then the amount of resources diverted to protected industries must be significant.
While it’s true that these resources will be drawn away from such a large number of industries that the negative impact on any one negatively affected industry is smaller than is the positive impact on the few positively affected industries, the overall negative economic impact will be large. The fact that the largeness of this negative impact is difficult to see when gazing only at any one negatively affected product is irrelevant given that many products will be negatively affected.
Your ethical flaw: Each semester I ask my students how they’d feel about legislation that arranged for me annually to be paid $325 million, with the proceeds coming from a $1 hike in the annual taxes paid by every man, woman, and child in America. I further ask my students if they would miss this $1. Each student admits that losing $1 annually would have no effect on his or her standard of living. “So,” I continue with my students, “because I’d greatly benefit from my additional $325 million in annual income while you’d not notice your lost dollar, shouldn’t Uncle Sam implement this policy?”
“No!” is their universal answer.
Obviously, my students understand correctly that this policy of enriching me at the expense of my fellow Americans would be unethical despite the fact that a one-dollar loss imposes no significant losses on anyone.
And so even if (contrary to fact) tariffs cause no inefficiencies in the ways that resources are used, your justification for tariffs – that the costs to each individual who pays them are small – is ethically unsupportable.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
