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What True Free Traders Understand

Here’s a letter to Warren Gibson:


Thanks for your e-mail in which you generously propose that advocates of retaliatory tariffs really might be true free traders if they are motivated by the following line of reasoning: “Country A imposes unilateral tariffs to the net detriment of all. Country B threatens retaliatory tariffs, or actually imposes them. Country A sees the error of its ways and agrees to rescind its tariffs if B will do the same. They return to the original no-tariff situation.”

What you describe, of course, is indeed the standard argument for retaliatory tariffs. And rejection of this standard argument for retaliatory tariffs is precisely the single biggest feature that distinguishes true free traders from faux free traders. The reasons we true free traders reject this standard argument for retaliatory tariffs include our recognition that:

(1) the bulk of the harm caused by foreign-countries’ tariffs fall on the citizens of the foreign countries that impose the tariffs;

(2) the bulk of the harm from the home-country’s retaliatory tariffs fall on the citizens of the home country;

(3) the prospects (a) are slim that foreign governments will lower their tariffs in response to any unilaterally imposed retaliatory tariffs by the home-country government, and (b) are high that such retaliation will result in an escalating trade war;

(4) history shows that the most likely way to persuade other governments to lower their tariffs is through bilateral or (even better) multilateral trade negotiations rather than through the unilateral imposition of retaliatory tariffs;

(5) even if the home-country’s retaliatory tariffs prompt foreign governments to lower, or even to eliminate, their tariffs, any resulting gains in the home country (a) will not necessarily be larger than the costs that the home country suffered during the time when its retaliatory tariffs were in place, and (b) are – as Adam Smith argued – unlikely to be enjoyed by the same individuals in the home country who bore the bulk of the costs of the home-country’s retaliatory tariffs;

and most importantly to me,

(6) it is unethical to violate the rights and obstruct the peaceful commerce of innocent home-country citizens simply to increase the potential size of the market for those home-country producers who stand to gain if foreign governments reduce their tariffs. True free traders are appalled by the prospect of holding the economic fortunes of innocent people hostage in order to improve the economic fortunes of others, even when these others happen to be fellow citizens of those who are held hostage.

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