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No Retaliatory Tariffs

Here’s a letter to a new correspondent:

Mr. C__:

Thanks for your e-mail and please forgive the tardiness of my reply.

About my recent Wall Street Journal letter opposing protectionism, you ask if I “make an exception for government to raise tariffs to respond when another country artificially restricts its imports from us.”

No. I make no such exception, and my reasons are many – both economic and ethical. Here’s just one of the economic reasons.

It’s true that, as was pointed out by Adam Smith, in principle our government’s occasional use of ‘retaliatory’ tariffs might benefit us by prodding our trading partners to trade more freely. But in practice this exception to a policy of free trade is destined to be abused. This is so because almost any foreign-government policy – not just overt protective tariffs and subsidies – can easily be portrayed as creating ‘unfair’ advantages for foreign firms that compete against ‘our’ producers.

Are a foreign-government’s environmental regulations less onerous than ours? “Yes! Unfair subsidies!” scream producers in our country. Is a foreign government perhaps less solicitous of labor unions than is our government? “Yes! Unfair subsidies!” Are employers abroad saddled with fewer workplace-safety regulations than are employers here at home? “Yes! Unfair subsidies!” Is a foreign government’s corporate-tax structure less progressive than is ours? “Yes! Unfair subsidies!” Does a foreign government spend fewer resources than are spent by our government to protect intellectual property rights? “Yes! Unfair subsidies!”

And the temptation for such abuse is as irresistible as it is abundant. This reality is made all the more certain by the unfortunate popular habit of presuming that whatever gains we Americans reap from international trade are measured by our exports, while our imports are treated as costs that we must unfortunately incur for the privilege of exporting.

Three conditions would simultaneously have to hold in order for me even to consider endorsing the occasional retaliatory tariff. These three conditions are (1) government officials are apolitical angels; (2) government officials possess reliable knowledge of just when retaliatory tariffs would ‘work’ and when these tariffs would instead be interpreted by foreign governments as belligerent shots fired in a trade war; and (3) the popular mind finally breaks free of the ages-old fallacy that we import in order to export (rather than, as is in fact the case, we export in order to import). Because I foresee not even one, and much less all three, of these conditions coming to hold, there is no practically sound case for trusting government with the power to use retaliatory tariffs.

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

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