Here’s a letter to a new visitor to Café Hayek.
Mr. B__:
Thanks for your e-mail.
You argue – as even many economists do – that a potential benefit of protective tariffs is that these measures might pressure foreign governments to remove their trade barriers, at which time our government will remove its tariffs. The resulting freedom to trade will expand the market for domestic producers’ outputs and, in turn, increase the wealth of the nation and the world.
This happy result is undeniable as a logical possibility. Yet in practice it’s too fanciful to take seriously. The historical record of these “retaliatory tariffs” is, at best, spotty. The means that has proven to be most effective at securing long-term global tariff reductions is multilateral trade negotiations, such as occurred under the GATT (later the WTO) and NAFTA. An administration that rejects this tried-and-true method – as it also complains about economically meaningless bilateral trade imbalances – cannot be taken seriously when it attempts to justify its unilateral tariffs hikes as a means of achieving future tariff reductions.
But there are two other reasons to reject the use of retaliatory tariffs as a means of achieving globally freer trade. First, history is clear that government is too likely to be guided in its tariff-making, not by the public interest, but by special interests. Assertions that tariffs are useful tools to achieve globally freer trade are smirking and false PR meant to deceive the public into tolerating interest-group privileges.
Second, what’s the limiting principle? Foreign governments impose all manner of policies – internal policies with no protectionist intent – that slow their economies’ growth and, thus, diminish their citizens’ abilities to purchase American exports. These purely domestic policies include high internal tax rates, absurd green-energy mandates and prohibitions, crushing occupational and “worker-protection” restrictions that ossify labor markets, overly generous welfare programs, and misguided antitrust interventions (of the same sort, by the way, that the Trump administration, mimicking the Biden administration, is now foisting on the U.S.).
The role played by trade restrictions in determining foreigners’ ability and willingness to purchase American exports is relatively minor compared to these internal policies. Should our own government restrict our ability to spend our incomes as we choose for as long as other governments impose policies that impoverish their citizens? I think not.
Here’s the bottom line: It is both unethical and uneconomic for the U.S. government to impose restrictions on Americans’ freedom to trade in order to potentially drum up a bit more business for some American exporters – restrictions that, in practice, are likely to launch a trade war by inciting foreign governments to raise their trade barriers rather than to lower them.
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
