Here’s a letter to a new correspondent.
Mr. N__:
Thanks for your email in which you write: “Foreigners making it harder for us to export to them hurt us, which is good reason for us making it harder for them to export to us.”
Your position is understandable. Even Adam Smith recognized its kernel of validity. But that kernel is too tiny to serve as a practical justification for policy.
Start by recognizing that it’s inaccurate to say that foreign trade barriers hurt “us.” These barriers hurt some of us, but not all of us. They mostly hurt those of us who choose to supply goods that are produced more efficiently in larger rather than smaller volumes – that is, at larger rather than smaller scales. The harm inflicted by foreign trade barriers on those of us who do not choose to own or to work in such industries are, at most, tertiary and too minuscule to matter.
So then the question becomes: Will we benefit if our government retaliates against these foreign tariffs by imposing its own tariffs – which are, after all, punitive taxes on our purchases of imports? In theory, it’s possible that such “retaliatory” tariffs will pressure foreign governments to eliminate their tariffs and, thus, make everyone – and especially foreigners – better off.
I write “especially foreigners” because the bulk of the harm of protective tariffs, in practice, is suffered by the people of the country imposing the tariffs. It follows that the bulk of the benefit from the removal of tariffs is enjoyed by the people of the country that removes the tariffs.
Even if our tariffs successfully pressure foreign governments to remove their tariffs, it’s still unclear that our tariffs worked to our benefit. The reason is that our tariffs, for as long as they are in place, inflict unambiguous harm on us: We pay more as consumers; many of our producers pay more for inputs; and our resources are diverted from industries in which we have a comparative advantage into industries in which we have a comparative disadvantage – all of which reduces our rate of economic growth. (In addition, the willingness of government to use tariffs in this way diverts entrepreneurial attention into rent-seeking efforts.)
These self-imposed costs must be weighed against the benefits that some of us will enjoy if our tariffs persuade other governments to lower theirs. While it’s possible that the cost-benefit calculation works in favor of such retaliatory protectionism, the likelihood in practice that it will do so is vanishingly small. All trade policy is destined to be propelled, not by apolitical science but instead by special-interest politics. Further, even if by some miracle special-interest politics were eliminated, there’s no practical way for politicians to know when the (always speculative future) benefits of raising tariffs here at home will exceed the (always real and current) costs here at home. Such a determination would require detailed knowledge not only of the political decision-making of foreign governments, but also of how both domestic and foreign industries would change in scale and scope as a result of the tariffs and their removal. No human beings can hope to possess such knowledge.
The bottom line is this: Because no producer has a right to any minimum amount of guaranteed sales, and because there’s a powerful presumption that every income earner does have a right to spend his or her income in whatever peaceful ways he or she chooses, our government is justified neither in economics nor in ethics to violate the rights of some of us in attempts to drum up sales for others of us.
The strength of this conclusion only grows by recognizing that the principal beneficiaries even of successfully deployed retaliatory tariffs are not us – we are the people who pay most of the costs of such tariffs – but foreigners. It’s amusing that so many supporters of Trump’s tariffs imagine themselves as “putting America first” when, in fact, these supporters endorse policies that put non-Americans first by obliging Americans to pay for trade restrictions that benefit mostly foreigners.
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
