The Resurgence of Tariffs

President Donald Trump imposed a 25% tariffs on Canadian and Mexican imports and a further 10% tariff on Chinese imports, to take effect on Feb. 1. In doing so Trump built on tariffs he put into effect during his first term—tariffs that President Joe Biden largely kept in place or added to. This resurgence of tariffs provide a good reason for revisiting economic history and what the science of economics tells us about international trade.

Economists, going back to Adam Smith and David Ricardo, are virtually unanimous that free trade benefits consumers and the overall economy. But there exist special interests who would gain in the short run from protectionist barriers. And there is a large segment of the public that doesn’t understand the arguments for free trade. Not surprisingly, there are politicians who are all too willing to gain votes by catering to protectionist interests.

People, farms, firms, and factories in America should be able to trade freely with people, farms, firms, and factories across international boundaries. You should, for example, be able to buy shoes made in Ethiopia. Economist William Niskanen stresses the moral case for free trade: Individuals have the right “to make consensual arrangements across national borders.” Without governmental interference, such voluntary interaction is harmonious and mutually beneficial. People don’t trade unless they believe they will be better off afterwards.

Much international trade can be explained by comparative advantage. Economist Donald J. Boudreaux explains that “the chief nontrivial insight” found in the idea of comparative advantage is that an economic concern’s “technical ability to produce a product” is, by itself, “irrelevant” for resolving whether “that entity should produce that product itself” or “acquire that product by first producing something else and then trading that something else” for the desired product.

Trade barriers are put in place by politicians and bureaucrats who use the machinery of government to disrupt voluntary trade and grant privileges to special interests at the expense of consumers and the general public. Jobs that are protected from the gales of competition are jobs in stagnant industries that are under no pressure to improve and innovate. Free trade provides the best deals for consumers and encourages the economy to grow.

These politicians and bureaucrats—who could be aligned with either Democrats or Republicans—cloak their bestowing of special privilege in the rhetoric of public benefit. They are sometimes successful because they are concentrating on getting their privileges, while much of the public’s attention is elsewhere.

What are some of the frequent rhetorical stratagems of the advocates of protectionist privilege?

They say that new-born industries need hot-house protection. They claim that their country needs to be strong or dominate in allegedly key industries. They claim to have special insight into what the national interest requires—and it turns out to require protecting these special interests. As James Bovard puts it, so-called “fair trade” means “subjugating” the wishes of consumers to those of government officials and the special interests they are helping.

They say that high tariffs will bring in an abundance of tax revenues—forgetting that a Laffer Curve exists for tariffs. As economic historian F. W. Taussig pointed out in 1888, if a government raises tariffs, thereby building up protected domestic businesses, then products of these domestic businesses will replace imports, and revenues from tariffs on those imports will fall.

Advocates of protection claim they worry about the “balance of trade.” Milton Friedman, Nobel Laureate in economics, clarified that a “favorable balance of trade” actually means “exporting more than we import,” sending “abroad goods of greater total value than the goods we get from abroad.” He asks, “In your private household,” wouldn’t you prefer “to pay less for more” rather than the other way around, yet that is what would be called an ‘unfavorable balance of payments.”

Yet despite rhetorical ploys like “balance of trade” and despite the special interests putting considerable time and money into obtaining privileges, we have enjoyed epochs of relative free trade.

Why have these free trade periods come about? It is because civically-active people have held—call it what you will—ideals, philosophies, or ideologies that support freedom of trade and acted on behalf of those ideals.

This could be part of a generalized love of liberty—as was the case for 19th -century American abolitionist free-traders like essayist and poet Ralph Waldo Emerson, crusading journalist William Lloyd Garrison, influential minister Henry Ward Beecher, poet and newspaper editor William Cullen Bryant, and Sen. Charles Sumner of Massachusetts—who believed that free trade was of a piece with the emancipation of the enslaved. Likewise, many immigrants who fled to United States after the European revolutions of 1848—like Carl Schurz, a German immigrant and later Senator from Missouri—saw freedom as one entirety.

The leaders of 19th-century free trade movement in Great Britain—like Richard Cobden and John Bright—held that there were moral truths underlying freedom of commerce. Cobden said that “the free trade principle” should act as “a principle of gravitation” in the moral realm. Because of this, the British free traders could see that landed aristocrats (“bread-taxers”) harmed the poor by means of barriers to imported grain that thereby raised the price of bread. Economic historian Murray Rothbard calls the British effort “a mighty ideological movement that got rid of this web of privilege.” Economist Mark Brady says that these 19th-centry free traders in Britain were an exemplar of a successful social movement built on “uncompromising dedication” to a clear goal, “sheer hard work,” and “innovative” publicity.

After the Second World War, civically-engaged people around the world recognized that the high tariff walls that divided Europe of the interwar period had slowed recovery from the Great Depression and had fed the ferocious nationalism that resulted in world war. Trade wars can all too easily lead to shooting wars. Recognition of these facts has impeded protectionism.

What is needed today is a revival of the ideals of free trade and a recognition of the perils of protectionism. We need accessible columnists like Milton Friedman and Henry Hazlitt in yesteryear’s Newsweek magazine. Until he retired just recently, Paul Krugman persuasively defended free trade in the New York Times. We need more podcasters like Russell Roberts who use their imaginations to debunk the claims of protectionism. Roberts even wrote a novel in which a ghostly Ricardo debunks protectionism while haunting an American manufacturer. We need witty satire like Frédéric Bastiat’s “Petition of the Manufacturers of Candles”—candlemakers who in their famous fictional plea sought to block out the sun to protect their industry. Bastiat showed that protectionism was laughable.

Jagdish Bhagwati, the top trade economist of our era, has often said that he believes in the Dracula Effect—namely that just as Dracula is defeated by the light, so wrongheaded views about trade can be overturned by shining light on them. What free trade needs is articulate proponents and—as the pain of protection sinks in—a mass movement that protests Washington’s interfering trade blockades and defends the right of consumers and businesses to buy what they want and buy as cheap as there is.