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Optimal Schmoptimal

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Here’s a letter to a new reader of Café Hayek:

Mr. Sanchez:

I’m well aware of the so-called “optimal tariff.” Indeed, in the heading to the version sent out by e-mail of my letter [2] – my letter to which you object – I explicitly asked not to be reminded of the optimal tariff because, frankly, that obscure notion doesn’t apply to Trump’s tariffs.

Forget that, especially with information constraints and political realities being what they are, the optimal tariff is a theoretical curiosity and not an actual phenomenon. Instead recognize that Trump & Co. explicitly justify their tariffs, not on revenue-raising, but on protectionist grounds – as tools to buoy the employment of manufacturing workers, to decrease U.S. trade deficits, and to pressure foreign governments to lower their tariffs.

Although Trump occasionally boasts of the amount of revenue his tariffs bring in, this boasting merely reveals the man’s appalling ignorance of trade. (Remember that the amount of revenue raised by ideal protective tariffs is zilch!) Nothing Trump has ever uttered about tariffs gives off as much as a whiff of suggestion that he is even aware of optimal-tariff theory, much less that his tariffs are designed with this theory in mind.

To assume that by imposing tariffs Trump aims to carry out in the real world optimal-tariff theory makes no more sense than to assume that by holding-up banks a robber aims to carry out in the real world optimal income-distribution theory.

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

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