Mr. Oren Cass
American Compass
Oren:
Bryan Riley, warning of one of the many dangers of tariffs, tweeted that foreign governments responded to Trump’s tariffs with retaliatory tariffs that harmed American farmers. You then – thinking that you’ve caught Bryan and other free traders in a logical contradiction – tweeted in response:
Fun quirk of the free-trade talking points is that tariffs are counterproductive and you pay them yourself… but also, don’t impose them because you’ll face retaliatory tariffs that you’ll have to pay.🧐
Alas, you believe you’ve uncovered a logical contradiction only because you don’t understand economics, or you choose to slay a straw man.
When we free traders point out that Americans pay for tariffs imposed by the U.S. government, we do not mean that the negative consequence of these tariffs fall exclusively on Americans. Instead, we mean that these tariffs raise the prices of the tariffed imports and of their domestically produced alternatives. (They have other negative consequences in the U.S., but let us here ignore these.) This point should be obvious, as the very purpose of protective tariffs is to raise prices that consumers pay for protected-industries’ outputs, for only by raising these prices do tariffs encourage protected industries to produce more outputs and expand their workforces.
As obvious as this reality is, we free traders must repeatedly remind people of it because protectionists illogically assert that the costs of U.S. tariffs fall exclusively on our foreign trading partners, falsely implying that U.S. tariffs do not raise prices paid by American consumers – that U.S. tariffs cost Americans nothing – that U.S. tariffs are a free lunch enjoyed by Americans at the sole expense of foreigners.
Yet to note that American tariffs necessarily raise prices paid by American consumers in no way implies that these tariffs do not also cause foreign producers to lose sales in America. Of course tariffs have this effect, and I challenge you to identify even a single serious student of international trade who denies that this effect is real. If those foreign producers who lose export sales have political clout in their countries, they often succeed in convincing their governments to impose retaliatory tariffs on goods exported from America. And while the bulk of the harm of those retaliatory tariffs are borne by the citizens of the countries that impose them, those tariffs have the same negative effect on American exporters as the American tariffs have on foreign exporters. This is the negative effect that Bryan correctly and appropriately identified.
Sincerely,
Don
P.S. An economically more advanced argument would feature the distinction between deadweight-loss triangles and tariff-revenue rectangles. Even if every cent of the revenue generated by the U.S. tariff is paid by American consumers, foreign exporters nevertheless lose sales in America – lost sales that prompt them to lobby their governments for retaliatory tariffs.
