I periodically deal with people who generally sympathize with capitalism but nonetheless are supportive of protectionism.
In part, they incorrectly think that a “trade deficit” is a problem that must be fixed.
In other cases, they don’t understand the economic downsides of protectionism.
As I discuss the issue with them, I sometimes do a history quiz. I ask them a series of questions.
- Why did the Union impose a blockade against the Confederacy during the Civil War?
- Why did the British impose a blockade against the French during the Napoleonic War?
- Why did the United States impose a blockade against Cuba during the Cold War?
In every case, the answer is the same. The blockade was imposed to weaken a country by denying it the benefit of trade. Simply stated, a nation will be poorer if it can’t take advantage of the fact that it makes more sense to import certain items.
I’ve never seen a meme that effectively captures the above principle, but Professor Don Boudreaux shared this image earlier today.
Given Trump’s promiscuous imposition of tariffs, it’s certainly timely.
And it does capture the essence of Trump’s trade policy.
Yes, he’s hurting Mexico, China, and other nations that are being hit with tariffs.
But the United States is the main victim. Tariffs are taxes on Americans who want to buy foreign goods and services. Tariffs are taxes that create inefficiencies in the American economy. Tariffs are taxes that create special advantages of cronyists at the expense of fair competition.
P.S. The little girl in the picture also is the star of a meme about Keynesian economics.
[…] easing, trade liberalization) or fighting off additional bad interventions (Green New Deal, protectionism, Medicare for All, class warfare […]
[…] To be sure, China also is suffering. But hurting ourselves to hurt China is not a smart strategy. […]
The trade deficit is the result of the budget deficit. China has only a limited number of choices. (1) It can hold the dollars it gets from us by exporting goods to the US. (2) It can sell them on foreign exchanges (which means someone else holds them). (3) It can give them back to us by purchasing US goods. (4) Or it can buy US treasuries. Without option (4), it would not be able to avoid purchasing US goods for long. If it did, it would pay the price because holding US dollars is not an income producing strategy.
“Tariffs are taxes on Americans who want to buy foreign goods and services.”
This why I prefer tariffs to pretty much any other kind of taxes. I think any country is actually better off if they borrow less money to fund their consumption of imported goods. People should save more and consume less, especially in these days where most people live above the subsistence level and sure as hell are not borrowing money in order to purchase actual necessities.
If tariffs are raised high enough maybe we could abolish the evil wicked demon inspired income tax.