I go over why tariffs hurt everyone.

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Transcript

Why Tariffs Hurt Everyone

Tariffs have been a popular topic because many incorrectly perceive them to be a benefit to Americans.

Tariffs are a tax levied on imported goods where the purchaser pays the tax to the importing country.

For example, if Chinese steel is sold to a US customer, the US customer would be paying the price of the steel plus a 25 percent tax to the US government if the US government imposed a 25 percent tariff on all Chinese imported goods.

The core problem here is that the government, by levying a tax on imports, is adding costs to goods and distorting signals for productivity.

The tax cost makes the good, such as steel, less affordable, depriving purchasers of more purchasing opportunities.

Some will try to say that this is good because it means a person can just buy American products instead.

However, if someone is buying from outside the US because it is cheaper, and the good is relatively the same quality, then the buyer, if choosing an American-made good, is still paying more than they would have if not for the tariffs.

Paying more for the American product means the buyer now has less money in their wallet than they would have if they could have bought the product from outside the US.

Some will try to argue that this is good for American manufacturing because it then causes people to want to build in America.

The problem is that this distortion improperly signals inefficient business construction because, instead of focusing on other industries where Americans can be more competitive, the tariffs push investments into building in America at a greater cost.

So now, there is a greater cost to Americans for the goods, and there is a greater cost in establishing new firms that would not exist if not for the state taxes.

Some will try to say that this is necessary because other people around the world are in poorer conditions and may even be engaged in slave labor.

But tariffs do not free people from enslavement, nor do they then help poor people around the world have work opportunities.

Tariffs deny work for others, others who would otherwise be engaged in providing goods for Americans.

This “fixed pie” mindset is also a misconception when it comes to understanding total imports and exports.

That the United States may import many goods does not make the US a debtor nation to others.

The reason why goods were purchased in the first place was because they were valued by Americans.

Those holding US dollars outside the US now can signal their value back by making purchases as well, whether it is goods and services or their own investments.

Even if a foreign government imposes their own tariffs, all they would be doing is shooting themselves in their own proverbial foot by taking money out of the productive sector and handing it to the government where it will be wasted on non-market choices.

Adding tariffs in retaliation is only furthering that harm, as it is again giving more money to the government and denying people the opportunity to save more money for themselves to use on other purchases.

The people who benefit the most, but only in the short term, are those who have businesses being artificially protected by state theft.

Their business may get a boost from people choosing their goods over imported goods, but that action comes at a net loss to the consumer in their ability to achieve more with their money.

The worst part about tariffs is that the effects of tariffs are relatively inescapable.

As the government usually applies these taxes on entire countries or entire sectors of goods, it is difficult to escape the economic consequences of these higher prices as there is a high level of effective application at customs.

Regular people pay the price in higher costs, especially with raw material costs that spread across a host of different finished products, from technological components to energy.

And these costs are felt pre-production, unlike income taxes, which only apply after productivity has taken place.

In other words, tariffs increase cost at onset and distort production signals toward inefficient construction, leading to nation-wide losses in productive growth.

Global comparative advantage is a boon for all because everyone around the world can benefit from efficiencies in production and resourcing based on different geographies and cultural interests in production.

When the government gets in the way of free trade, the government aggregates for itself more wealth while harming the public with higher prices and market signal distortions.

This is why tariffs hurt everyone.

If we want to see a more prosperous future, the path forward isn’t to add more state interference, theft, and cronyism.

The path forward is to deregulate and get the government out of the way of the market so that people can be productive and be rewarded for their productivity.

Anything less, is just state theft.

Sources

The Political Economy of Protectionism
https://mises.org/mises-wire/political-economy-protectionism

The Case Against Protectionism
https://fee.org/articles/the-case-against-protectionism/

Debunking Protectionist Myths: Free Trade, the Developing World, and Prosperity
https://www.cato.org/economic-development-bulletin/debunking-protectionist-myths-free-trade-developing-world-prosperity

Trump Tariffs: Tracking the Economic Impact of the Trump Trade War
https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/

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