Robert P. Murphy: Import Tariffs
Are import taxes on foreign goods a good thing for a nation's economy and the society as a whole? The following is an excerpt from the book by Robert P. Murphy, "The Politically incorrect Guide to Capitalism," which talks about multiple negative side effects of import tariffs. Narrated by Perry Richards. Original video source LibertyPen YouTube channel.
(see video at the bottom of transcript)
When the US federal Government decides to save jobs in Detroit by putting tariffs on Japanese auto imports, what it really does is tax US consumers when they purchase a Nissan rather than a Ford. Supporters of tariffs, like labor unions, claim that the way to make the US richer is to raise taxes on Americans. Of course the taxes on imports make them less attractive, and thus boost business for Detroit producers. This in turn allows for more higher paying jobs in Detroit's factories. But this only proves that tariffs help the workers in Detroit. They still make the average American poorer. Because the gain in Detroit is more than off-set by the loss to everyone else.
To see this, suppose the government fined Americans $10 every time they ate dinner at home. Such a measure would certainly boost sales and wages in the restaurant industry. Yet does anyone think it would be a good idea for America as a whole? Would such a tax on home cooking make us all richer? Protecting jobs?
The superficial appeal of protectionist measures is that they obviously raise wages in particular sectors. Tariffs on Japanese cars really do help Detroit auto workers. And tariffs on foreign produce really do help American farmers. If the tariffs didn't help any special interests, the politicians would get rid of them. To many people the issue then seems to boil down to choosing between the workers, who enjoy higher wages, or the consumers, who suffer higher prices. Looking at the problem in this way, people naturally side with the workers, since work is more responsible and difficult, while consuming is transient and easy.
Even though it's understandable that people reason in this way, it's entirely wrong. The ultimate purpose of work is to produce something that will be used, or in economic terms that will be consumed. Without a stipulated goal, you can't even define what it means to do a good job. If Americans suddenly lost all interest in automobiles, it would be silly for Detroit workers to continue spending most of their waking hours in factories producing additional cars. By the same token, if everyone in the world heeded the warnings and gave up cigarettes, it would be a gigantic waste if governments instituted measures to protect jobs in the tabaco companies. So if American consumers prefer Japanese cars, then Detroit auto workers aren't using their labor efficiently, and should switch to some other occupation.
In a free market, where the government can't order people around, the only way for this to happen is for workers to get laid off or have their wages cut so much that they quit, and then seek out other employment on their own. Or, American auto companies need to do a better job, defined as producing cars that American consumers actually want to buy.
The popular obsession with the plight of the blue collar worker as opposed to the fickle consumer, is faulty for another reason. Not only do tariffs hurt consumers, but they also hurt workers outside the privileged industry. For example: when the US government slaps a tariff on Japanese cars, one effect is to raise the price American consumers must pay for a car. If they buy foreign, they pay the tariff. But even if they buy American, they end up paying more because Detroit firms can charge higher prices due to the tariff. So the tariffs would force a construction worker to pay more of his hard earned cash for a less reliable, less gas efficient car, just to shield auto workers from competition.
When the government slaps tariffs on particular products in order to protect some manufacturing jobs, this usually harms other manufacturing jobs. American car makers for example, suffered when president Bush instituted steel tariffs. Federal sugar quotas, which make the US price for sugar twice the world price, similarly drove Lifesavers to move its manufacturing to Canada, where it can buy sugar from all over the world.
As these examples demonstrate, tariffs don't merely hurt consumers. They also hurt American workers. This is particularly true when we consider American export industries. Loosely speaking, a nation pays for its imports with its exports. If Japan is to continue shipping automobiles and other products to the United States, it's people want something in return, such as Wisconsin cheese. Consequently, if the US government artificially reduces how many cars Americans can buy from the Japanese, then at the same time the US government indirectly reduces how much cheese the Japanese can buy from workers in Wisconsin.
So long as wages are free to reach their market clearing levels, workers can always find employment. The case for free trade really isn't about jobs per se, but rather about which jobs worker should have. Yes, a tariff can artificially expand employment in the privileged industry, but only by artificially contracting employment in industries that have foreign markets. The rearrangement of workers isn't merely awash though, because of the government's artificial restrictions labor is diverted from it's most efficient channels, and overall output is reduced. Although particular people can benefit from tariffs, on average, tariffs make everyone poorer.