Here’s a letter to the Wall Street Journal.
Editor:
Factual and economic flaws mar Paul Rahe’s argument that, in a world subject to war and other disruptions, tariffs can protect an economy’s resilience (“There’s a Case for Tariffs,” April 16).
Factually, it’s untrue that the pandemic showed that, with free trade and global disruptions, “supply chains collapse. Then nearly everything comes to a halt.” Although America’s economy was indeed severely damaged during the pandemic, the culprits were price controls and lockdowns. Yet despite these obstructions, as Scott Lincicome explains, “a December 2020 U.S. International Trade Commission report found that U.S. manufacturers and global supply chains responded quickly to boost supplies or make new drugs, medical devices, PPE, cleaning supplies, and other goods, and that the pharmaceutical, medical device, N95 mask, and cleaning products (including hand sanitizer) industries were particularly ‘resilient’ (in the ITC’s own words).”
Economically, tariffs cannot increase the domestic capacity to produce particular goods without decreasing the domestic capacity to produce other goods. Because private businesses themselves have strong incentives to accurately assess the risks of global disruptions and optimally diversify their sources of supply to minimize supply-chain troubles – a reality overlooked by Prof. Rahe – tariffs likely create excess capacity in protected, politically powerful industries as they drain resources away from other, politically weaker industries. This political determination of which industries are ‘essential’ and which aren’t weakens the economy’s ability to respond effectively to global shocks.
Finally, Prof. Rahe bizarrely switches gears at the end to justify tariffs as a source of revenue. Whatever the merits or demerits of using tariffs to raise revenue, because revenue tariffs work best the fewer are the imports they block, such tariffs are a poor tool for protecting critical industries from import competition.
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
