The Logical Case for Tariffs
Tariffs just need a sexy motto
“Free” certainly appeals to my American sensibilities, and the overwhelming majority of economists insist that free-trade is superior!
Tariffs have been thrust into the light in a most endearing way: a contentious presidential election — ensuring the matter of the tariff appears as partisan as possible at first sight (it doesn’t have to be).
A simple summary for the uninitiated: the tariffs of concern, are taxes levied on imported goods. This incentivizes the purchase of native goods and discourages the purchase of foreign goods. Tariffs used to protect industry or a job market, is the concept of protectionism. The opposite of a tariff is referred to as free trade. Protectionism and free trade are two opposing theories about the nature of international economic competition.
The free trade theory proposes that if wages are suppressed, production is cheaper, thus products are available to people with less time spent saving, who could otherwise not afford the products immediately – thus increasing “material wealth” (more things) faster than protectionism would afford (a time economy if you will).
I don't know much about tariffs, but I do know that when we buy steel abroad, the foreigner gets the money and we get the steel, but when we buy steel made in America, we get the steel and the money, too.
The above is a popular quote falsely attributed to Abe Lincoln, but explains the situation concisely!
The common argument is that tariffs protect manufacturing jobs, but the actual function is in recycling wealth back into the nation, which protects all jobs and creates new jobs. By recycling wealth back into the nation or region, jobs earn better pay via the combined recycling of wealth, and increased demand of labor.
Logic
“Make labor cheaper and everyone can afford things,” vs “make labor expensive and everyone can afford things.” Both arguments are basically circular, in opposite directions. The free trade direction is infinite, limited only by the number of people in the world. The protection direction is finite, which is precisely the feature. The difference between them is the time economy and negative externalities.
All agree that free trade provides an exporting nation increased total wealth via the sale of its goods. If giving American industry to China makes China wealthier, then keeping that industry in America recycles even more money to Americans to save, spend, and invest – making America even wealthier than if it gave part of its industrial production to China.
I wonder what free trade economists think happens to manufacturing when we run out of regions with cheaper labor to send our factories to? Would they be concerned with the economic stability of free trade, in a hypothetical earth consisting of an economy with the population and landmass the size of the USA, with her modern advancements and poverty variance? Of course not, but this is simply what’s being replicated by protectionism. The purpose is to place border-stops that limit the steep variance of global poverty, which is abundant, spread geographically, and not effectively reduced by one nation (or many).
The global population has very diverse needs and problems, resulting in differences in working conditions and Consumer Price Index (CPI). Different working conditions might mean that business culture in Honduras doesn’t exalt safety or pollution control as highly as the USA; an example of a CPI difference, is comparing a grocery bill in Honduras to the USA. These factors reduce the cost of conducting business in Honduras, relative to the USA.
The increased wealth of lower income brackets produced by recycling wealth into a nation’s economy, works in what could be envisioned as filling up a cup with water. The Water flows from the faucet into the cup; the cup acts as a tariff or border. Increase the border circumference to that of a fifty-five gallon barrel – filling this up takes a lot longer! This is akin to the delay of wealth-accumulation for American workers, via the amount of cheap labor being produced by other countries.
Most economists espouse a market driven increase in wages (or a government mandated minimum wage in response to their population’s market compatibility with said minimum wage — market driven-ish). It makes a lot of sense. When businesses compete for the labor supply, it drives up the cost of labor, leading to a population-wide raise in the cost of labor plus goods and services. A factory worker in this scenario may still be in the bottom 20th percentile of his regional economy, but benefits from increased total wealth circulation.
YES, factories in Taiwan, Zimbabwe, Honduras, etc, selling to the USA and other Western Nations, make themselves wealthier, and hopefully someday levelling the cost-of-living/labor-cost playing field, but, in the meantime, Americans have to compete with that labor, whilst living in a society with higher living costs than those exporting nations. The global poor populations continue to grow at far faster rates than wealthier nations, making a potential equal cost of living a pipe dream.
Negative Externalities
Driving down the value of jobs (giving our wealth to other nations) for the most vulnerable, increases social instability and stress for people who are often already least fortified to deal with uncertainty. What part of town has the highest crime rates? This doesn’t tell the whole story for crime in any society, but it’s a contributing factor like firing someone and draining their bank account is a factor for them becoming a homeless alcoholic. However, this doesn’t only affect the at risk members of society, it affects everyone who is on a payroll.
Let’s be honest; we ought not care as much about how many people get the better tv or cell phone in one year instead of three, as we do our at-risk and vulnerable populations having stability. Do we as a society owe it to consumers to have absolutely any want fulfilled with as little money-saving/time-spending as possible, rather than creating an environment to produce good and productive people of every economic strata?
PS: Free migration does the same thing as free trade.