Here’s a note to a commenter at my Facebook page.
Mr. Reviere:
Commenting on Facebook, you write:
Tariffs are taxes intended to create an incentive within the supply chain to rebase in the US as much as is economic for investors to do. Deal with that. Where the supply chain can’t or won’t move, it’s just a tax, one of many tax choices….
But someone has to address this ‘for our side’, because you can bet your cotton socks that someone is doing it in every other country. So you are stuck with the need for a regulator in the US, simply because they already have their counterpart in every other country.
The premise of your comment has several fundamental flaws.
First, you presume that the amount of economic activity that occurs within a country without tariffs is suboptimal. But how do you know? What source do you have that reveals this alleged information to you? More to the point, what source do you suppose government officials have that reveals such information to them? The fact is, neither you nor any politician or bureaucrat is justified in presuming that the pre-tariff amount of economic activity in the U.S. is suboptimal. Further, economic theory and history give us good reason to believe that economic activity under a regime of free trade is much more likely to be close to ‘optimal’ than is any pattern engineered with tariffs and other interventions.
Second, you ignore the fact that no sources of supply can be ‘rebased’ in the U.S. without destroying some other sources of supply currently ‘based’ in the U.S. If, for example, tariffs cause Americans to produce more steel, the resources used to produce this additional steel must be diverted away from other U.S. industries, causing outputs in these other industries to fall. Do you have any idea which particular U.S. industries will shrink as a result of whatever economic ‘rebasing’ is achieved by Trump’s tariffs? Of course you don’t, because no one does or could possess such knowledge. This reality, in turn, means that your implicit presumption that tariff-induced ‘rebasing’ will be economically – or even militarily – worthwhile is unwarranted.
Third, while you correctly note that other countries have government officials who fancy that they know how to use government power to override market forces in order to improve their economies’ performance, you incorrectly presume that these officials get it right. The economic interventions of government officials abroad, no less than the economic interventions of government officials here, are distorted by political considerations and, worse, also by the inescapable ignorance of such officials of the myriad economic details and trade-offs that they’d have to know if their interventions were to have any prospect of success.
The economic interventions of foreign-government officials weaken, rather than strengthen, their economies. You therefore err in asserting that we must have our government officials commit the same folly.
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
