The modern rise of economic nationalists in the west has led to renewed calls for regulations and trade restrictions. The US, for example, has recently imposed tariffs on foreign products, causing worldwide political turmoil and imposing burdens on businesses and the national economy.
There has been a long and strenuous debate within the modern political sphere on the effectiveness of tariffs. One common claim is that anticompetitive industry subsidies by other nations weaken national industries. Progressives have also supported some form of protectionism, in an effort to have their localised superfluous regulations enforced, claiming poor foreign wages putting labourers out of work. The Austrian school has throughout the times continued and reintroduced various arguments.
For one, tariffs are by nature uncompetitive. From the perspective of the consumer, they do not promote an increase in quality or a decrease in price, but rather, encourage inferior products or the taxed, more expensive foreign products. For example, a tariff on cars would do nothing to improve cars, but rather increase their respective price. Hence, the consumer would end up buying a product that is more expensive or of lesser quality than in a freer economy.
In a wider perspective, taxes and tariffs do not contribute to the nations’ economy. On the contrary – they decrease the purchasing power of the consumer, resuscitating and supporting failing markets. Sure, some individuals may be employed in the affected market, but they are redirected from being employed in other, flourishing fields of the economy; a classic example of Bastiat’s popularized theory of unintended consequences; policies commonly only take into account what is seen, and not what is unseen..
In the argument of foreign subsidies, such as the Chinese steel industry, there are clear national damages to the economy. Internal misuse of capital, redirected from stronger industries to support the weaker ones, will lead to overall higher prices and malinvestment. This will yet benefit foreign industries, providing cheaper products and increasing local spending power. Any tariffs will hence do more harm than good to national economies.
One must not look far and wide in the Austrian literature to find supporting statements.
Henry Hazlitt, in his book “Economics in One Lesson”, explains the argument of employment well within the example of the sweater industry:
Americans would be employed in a sweater industry who had not previously been employed in a sweater industry. That much is true. But there would be no net addition to the country’s industry or the country’s employment. Because the American consumer had to pay $5 more for the same quality of sweater he would have just that much less left over to buy anything else. He would have to reduce his expenditures by $5 somewhere else. In order that one industry might grow or come into existence, a hundred other industries would have to shrink. In order that 20,000 persons might be employed in a sweater industry, 20,000 fewer persons would be employed elsewhere.
Continually, many protectionists remain within the international applications of it, and ignore that it is just as true for localised borders. Just as the US may be disadvantaged against Mexico due to lower incomes, so will New York to Alabama, Germany to Croatia, Munich to Dresden, and so on. Murray Rothbard points out the absurdity of the protectionist logic in his article, “Protectionism and the Destruction of Prosperity”:
So why not restrict and even prohibit trade, i.e. “imports,” into a city, or a neighborhood, or even on a block, or, to boil it down to its logical conclusion, to one family? Why shouldn’t the Jones family issue a decree that from now on, no member of the family can buy any goods or services produced outside the family house? Starvation would quickly wipe out this ludicrous drive for self-sufficiency.
The consequence of this is that tariffs are both a risk and destructive to the consumer and worker. Protectionism is nothing more than the support of special interest groups in the name of patriotism and inefficient producers at the cost of successful industries, firms and consumers.
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Sources:
Against Trump’s Tariffs
6 Reasons Why a Trade War with the Chinese Is Pointless
Murray Rothbard, Protectionism and the Destruction of Prosperity
Henry Hazlitt, Economics in One Lesson
Image : Pixabay
The article was first published in German at PEACE LOVE LIBERTY.
