Here’s an e-mail to someone who wonders why economists oppose tariffs given that (1) government needs revenues, and (2) taxing consumption is economically superior to taxing income.
Mr. E__,
I agree that, if we must have taxes, consumption taxes are better than taxes on income or on other productive activities such as capital accumulation. And tariffs are indeed sometimes taxes on consumption – but only sometimes. Approximately half of U.S. imports are raw materials or intermediate goods used to produce outputs in America. It’s not clear that such tariffs are best described as falling on consumption.
More generally: economists’ opposition to tariffs is opposition to tariffs levied for purposes of protection, not for purposes of raising revenue. The economic objection to tariffs – the economic case for free trade – is rooted exclusively in the recognition that artificially raising the prices of imported goods and services does not, contrary to protectionist myth, improve the living standards of people in the home country. Tariffs meant for revenue purposes are a categorically different animal. Revenue tariffs, quite unlike protective tariffs, achieve their goal only insofar as they do not obstruct imports.
Interesting analyses can (and should) be done – and debates had – about the merits of relying more heavily on revenue tariffs. (After all, such tariffs were, until 1914, a major source of U.S. government revenue.) Some economists will endorse this greater reliance on revenue tariffs while others will oppose it. But nearly every economist, regardless of how he or she comes down on the merits of revenue tariffs, will oppose – rightly so, in my view – protective tariffs.
In summary, economists’ objection to tariffs is more accurately described as objection to protection – and objection to protection does not imply objection to using tariffs to raise revenue.
Don Boudreaux
George Mason University
