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Who’s “Protected” By Tariffs?

01 Oct 2018

This afternoon I’m prepping for our Intermediate Microeconomics class, and I’m re-reading Hazlitt’s Economics in One Lesson.  I choose to assign this book because in the complexities of economic theory that a standard Intermediate Microeconomics course entails, we must not lose sight of the essence of economics, seeing the unseen.  Thus today’s chapter is in the title, and certainly apropos given Mr. Trump’s new NAFTA deal.  This lengthy quote from Hazlitt’s wonderful book, available online for download, should start us off:

A mere recital of the economic policies of governments all over the world is calculated to cause any serious student of economics to throw up his hands in despair. What possible point can there be, he is likely to ask, in discussing refinements and advances in economic theory, when popular thought and the actual policies of governments, certainly in everything connected with international relations, have not yet caught up with Adam Smith? For present-day tariff and trade policies are not only as bad as those in the seventeenth and eighteenth centuries, but incomparably worse. The real reasons for those tariffs and other trade barriers are the same, and the pretended reasons are also the same.

In the century and three-quarters since The Wealth of Nations appeared, the case for free trade has been stated thousands of times, but perhaps never with more direct simplicity and force than it was stated in that volume. In general Smith rested his case on one fundamental proposition: “In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest.” “The proposition is so very manifest,” Smith continued, “that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common-sense of mankind.”

From another point of view, free trade was considered as one aspect of the specialization of labor:

“It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his
own clothes, but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbors, and to purchase with a part of its produce, or what is the same thing, with the price of a part of it, whatever else they have occasion for. What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.”

But whatever led people to suppose that what was prudence in the conduct of every private family could be folly in that of a great kingdom? It was a whole network of fallacies, out of which mankind has still been unable to cut its way. And the chief of them was the central fallacy with which this book is concerned. It was that of considering merely the immediate effects of a tariff on special groups, and neglecting to consider its long-run effects on the whole community.

Thus it still is today.  Mr. Trump is rearranging the terms of trade in areas that will benefit a very specific set of groups (e.g., United Auto Workers’ members) at a harm to the broader population (e.g., the consumers that will have to pay higher automobile prices.  The problem is that what is folly for a family, and folly for a nation, is not folly for a politician that wants to ensure his re-election.  Contra the progressive dream world (that Mr. Trump is president only because of Republican racism/sexism and Russian intervention), Mr. Trump’s edge is decidedly that former union Democrat who resonated with his charge that trade policies have gutted manufacturing jobs, and that Democrats’ (and establishment Republicans’) globalist vision was what needed to be rejected.  This, in my mind, is why he won the states that Mrs. Clinton took for granted (Wisconsin, Michigan, Ohio & Pennsylvania).  Mr. Trump is taking care of the constituency that elected him, provided concentrated benefits to a few, at an expense of dispersed costs to the many.  No matter how you slice it, I still think that taking from one group to give to another is theft, whether you do it by government policy or by the point of a gun.

And as Mr. Hazlitt would remind us, there is a broken window here.  The monies that US citizens will have to pay for higher-priced cars will come at the expense of other workers in industries that are not politically connected, and that by virtue of their not needing protection, have shown that they are efficient and effective servants of US consumers.  So these new arrangements will systematically take resources that would have gone to more efficient producers, and transfer them to less efficient (but more politically connected) producers.  That is not making America great again–that is making America weak again.