Here’s a letter to National Review.
Editor:
John Puri superbly reveals core flaws in Michael Brendan Dougherty’s argument that tariffs will not raise prices in the long run (“Tariffs Still Raise Prices, Even If They Fall,” October 15). But one other flaw warrants identification, namely, even if the prices of domestically produced substitutes for tariffed goods eventually fall to their pre-tariff levels, the prices of other domestically produced goods and services must rise.
The prices of the outputs of protected firms can, in the long run, be kept at pre-tariff levels only if these firms increase their outputs by the amounts by which imports are kept out of the country. But to expand their outputs, these firms must draw resources away from other domestic industries. As these other industries lose resources, their outputs will fall. And as their outputs fall, the prices of these industries’ outputs will rise.
In short, to the extent that tariffs cause the outputs of protected industries to rise – and, hence, to moderate their price increases – the prices of the outputs of non-protected industries will rise.
There’s no escaping the fact that, because protectionism restricts domestic citizens’ and producers’ access to goods and services, protectionism causes prices to rise.
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
