Here’s a letter to a new correspondent.
Mr. Burr:
Thanks for your email. You write:
I am not an economist. It seems intuitive that tariffs would raise taxes. Simply stated, tariffs limit competition. Limited competition leads to higher prices. However, the real world is complicated. Is there ever a situation that you could foresee where you could support a tariff?
Yes. Tariffs might sometimes be appropriate for military purposes (although recognize that it’s far too tempting and easy to abuse this ‘national security’ exception to the case for free trade). But apart from a well-justified and crafted national-security tariff, I cannot imagine supporting any other tariffs.
As a source of revenue, tariffs are poor. See this explanation by Brian Albrecht.
As a source of economic ‘protection’ – which, overwhelmingly, is the chief reason tariffs are imposed and tolerated – tariffs are voodoo. While clever sophomores and pedantic professors, along with industry lobbyists, tirelessly tell tales of how, under just the right circumstances, restricting Americans’ access to goods and services from abroad will result in Americans having greater access to goods and services at home, these tales are nearly all internally contradictory, and absolutely all are empirically empty.
You are, of course, correct that the real world is complicated. But as Richard Epstein makes clear, the best rules for dealing with complex realities are typically simple ones. The complexity of the real world no more justifies giving government the power to superintend how we spend our incomes peacefully on goods that happen to be offered for sale by people holding foreign passports than it justifies giving government the power to superintend how we spend our incomes peacefully on goods that happen to be offered for sale by fellow citizens who have hazel eyes or are left-handed – even though it would be child’s play for an economist to construct a theory showing that, under just the right circumstances, we would be generally enriched if government restricted our freedom to trade with hazel-eyed or left-handed fellow citizens.
Indeed, the complexity of the economy is a reason to avoid tariffs. You show me a protectionist, and I’ll show you someone who ignores reality’s complexities. That someone naively believes that government officials can and will easily identify just which industries are ‘the industries of the future’ and just which jobs are best to protect and which are acceptable to destroy. The typical protectionist simple-mindedly sees only the most obvious effects of tariffs – protecting particular existing domestic industries and jobs – while overlooking follow-on effects, including the destruction of other domestic industries and jobs. The protectionist mindset ignores reality’s complexities, while that of the free trader appreciates these complexities and takes them fully into account.
Legitimate national-security concerns aside, the case for protectionism is rooted in the superstition that commerce that crosses political borders differs categorically from commerce that remains internal to political borders. Reality’s complexities do nothing to render this superstition anything other than the absurdity that it is.
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
