Here’s a letter to The Hill.
Editor:
Caroline Freund’s defense of tariffs features at least two significant errors (“How Trump’s tariffs could actually work,” August 15).
Her first mistake is to claim that “economists prefer free trade because it is the best policy for global welfare.” This claim is misleading. While it’s true that economists recognize that the freer is trade the greater is global welfare, the core case for free trade is that it’s a boon to the home country. Pick up any economic textbook – or any other defense of free trade by competent economists from Adam Smith to Jagdish Bhagwati, from David Ricardo to Douglas Irwin, from Frédéric Bastiat to Arvind Panagariya – and you’ll find that the authors emphasize that, contrary to the assertions of protectionists, free trade enriches the home country regardless of other countries’ economic policies.
It is simply untrue that the case for free trade is one in which the economic welfare of the home country is sacrificed in order to increase the welfare of foreigners.
Ms. Freund’s second error is to assume that the large size and wealth of the U.S. market makes it so desirable to foreign producers that they are willing to pay to retain access to this market by absorbing the costs of high U.S. tariffs, an absorption that would show up as falling import prices. The U.S. is indeed an unusually desirable place to sell – a reality that attracted unusually large numbers of merchants, domestic and foreign, offering to sell in the U.S. market. This competition ensures that prices yield no exorbitant profits for the sellers. As such, foreign producers aren’t willing (or able) to pay what Ms. Freund, like Mr. Trump, regards to be an entrance fee to the U.S. market.
Foreign sellers already pay, as it were, a ‘fee’ to sell in the U.S. – that fee being in the form of accepting competitive low prices for their wares. These sellers will not be double-charged.
New data support my point: U.S. import prices rose in July by 0.4% (and the prices of manufactured goods and other nonfuel imports rose by 0.9%).
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
