Former president and current Republican presidential candidate Donald Trump loves tariffs. In his 2011 book Time to Get Tough: Making America #1 Again, Trump included as part of his five-part tax policy “a 20 percent tax for importing goods.” During his first campaign for president, he called for a 35% tariff on cars and trucks imported from a proposed new Ford plant in Mexico and a 45% tariff on all imported goods from China “if they don’t behave.” Mexico is our largest trading partner, while China is third, contributing about 12% of total U.S. foreign trade.
Although Trump once declared that trade wars are good, and easy to win, the trade war that he instituted during his first term as president was a failure. As explained by Erica York, senior economist at the Tax Foundation: “Though intended to boost U.S. manufacturing and reduce the trade imbalance, (unsurprisingly) neither occurred. Americans almost exclusively paid the tariffs that the U.S. imposed on nearly $380 billion worth of imports. Businesses faced higher costs, making it harder to compete internationally. Foreign governments retaliated with tariffs on U.S. exports, and China halted its purchases of agricultural products altogether. Lobbying, along with political favoritism, mushroomed.”
Trump—who considers his China tariffs to be a key accomplishment of his first term—wants to double down on his destructive tariff policies. In an interview last year, he called for a “universal baseline tariff” of 10% on virtually all imports into the United States. Most recently, Trump has promised, if elected, to revoke China’s “most favored nation” trade status and impose a 60 percent tariff on all Chinese goods. Once again, Erica York comments:
The 2018 to 2019 trade war was immensely damaging, and this would go so far beyond that it’s hard to even compare to that. This threatens to upend and fragment global trade to an extent we haven’t seen in centuries.
Imports from China would depress significantly. Supply chains would fragment, investment plans would be disrupted, and trade would be diverted to third countries. A prohibitive tariff would create a void in trading opportunities with China that other countries would fill, leaving the U.S. excluded.
Adam Posen, president of the Peterson Institute for International Economics, called Trump’s trade proposals “lunacy,” and pointed out that “if a Trump administration were to put up much higher tariffs on imports from China, American companies would lose most of their market share in both China and many third countries.”
Economists and Tariffs
Economists, just like politicians, come in all varieties. Yet, if there is one thing that the vast majority of economists agree on, it is opposition to tariffs. There is, in fact, practically a zero-tariff consensus among economists and a united trust in the Ricardian theory of comparative advantage. As explained in a 1978 lecture by economist Milton Friedman (1912–2006):
With respect to the area of international trade, with respect to the question whether it is desirable for a country to have free trade or to have tariffs and other restrictions on imports and exports, in that particular area economists have spoken with almost one voice for some two-hundred years. Ever since the father of modern economics, Adam Smith, published his great book, The Wealth of Nations, in 1776, the same year in which the Declaration of Independence was issued in this country; ever since then the economics profession has been almost unanimous on the subject of the desirability of free trade.
This uniformity is even acknowledged by Oren Cass—the executive director of American Compass who believes not only in the primacy of domestic manufacturing but that America should adopt an industrial policy—in his opening essay (“Free Trade’s Origin Myth”) in a recent Law & Liberty symposium on the origins of free trade. Because of the ideas of Alexander Hamilton and Henry Clay, Cass maintains that “the American tradition from the founding was one of aggressive protectionism and support for domestic industry.”
The United States “transformed from colonial backwater to continent-spanning industrial colossus” during the late nineteenth century “behind some of the world’s highest tariff barriers.” But as economists are fond of pointing out, correlation is not causation. Cass’s premise is a classic case post hoc ergo propter hoc fallacy (after this, therefore because of this). He is also simply ignoring the other economic conditions prevalent during the late nineteenth century: low or no taxes, minimal or no regulations, a genuinely free market, no government subsidies, an almost nonexistent federal bureaucracy, and no special protections for labor unions.
In his response to Cass (“Why Economists Loathe Tariffs”), Brian Domitrovic of the Laffer Center provides some historical perspective on economists’ universal opposition to tariffs:
Antipathy to the tariff is “the date that economics brought to the dance,” so to speak. It would be impolitic for economics to jilt antipathy to the tariff, to accept the possibility of positive tariff rates, because the cause of free trade made economics what it is today. Economics first developed in the United States, as an academic discipline in the latter nineteenth and early twentieth centuries, as a scholarly initiative at the margins of the main institutions of American political and economic life. Its agenda was to bring greater intellectual substance and purity to political-economic policy. The great issue of the day was the tariff, and economics set itself up in opposition to it.
The problem with Cass and his ilk, like the proponents of national conservatism and economic nationalism, is that their calls for higher protective tariffs are purely political. They never call for a concomitant reduction in income taxes. Tariffs are solely for protection and punishment.
Free Trade
Trade is simply engaging in commerce. International trade is simply engaging in international commerce. Although it is common to hear people talk about the United States trading with China or Mexico or America having trading partners, foreign trade really just occurs when entities in one country engage in commerce with entities in some other country. Unless the government has complete control of the economy, which is not even the case in communist China, trade always takes place between individuals or businesses located in different countries, but not between the countries themselves. Although an individual or a business in one country may sell a good or service to the government of another country, that doesn’t mean that trade is between countries.
Transactions between parties residing in two different countries should not be regarded as any different from two parties in the United States engaging in commerce. That the two parties engaged in commerce are not located in the same country has no economic significance whatsoever. Two economic fallacies emerge when trade is thought of as between countries.
The first is the fallacy that trade results in some countries benefiting (winners) at the expense of others (losers). But trade is not a zero-sum game in which one country gains at the expense of another. Economic nationalist Donald Trump—whose ignorance and incoherence on economics know no bounds—claimed as president that his trade policies were necessary because America was “abused like no nation has ever been abused on trade” and that other countries “stole our jobs and they plundered our wealth.” In every exchange, both parties give up something they value less for something they value more. Each party to a transaction anticipates a gain from the exchange or it wouldn’t engage in commerce with the other party in the first place. International trade is therefore always a win-win proposition. It encourages efficiency in production and in the utilization of resources, gives consumers a wider variety of choices, keeps prices in check, leads to innovation, and fosters peace and goodwill.
The second fallacy is the bogus concept of the trade deficit, that is, the amount by which the value of imported goods and services exceeds the value of exported goods and services. But exports are not necessarily preferable to imports. Manufacturers who export goods should not be entitled to a protected position in a nation’s economy. And merchants who import goods should not be penalized for doing so. American manufacturers who send goods from one state or city to another and merchants who bring goods from one state or city to another are lauded for facilitating and expanding commerce. Those that send or bring goods from one country to another should be viewed likewise. There is nothing sacred about having a positive balance of trade. Indeed, as Adam Smith wrote in The Wealth of Nations back in 1776: “Nothing can be more absurd than the whole doctrine of the balance of trade.”
Free trade is the absence of any form of management or protectionism. This means not only no tariffs, quotas, barriers, sanctions, regulations, restrictions, or dumping rules but also no government subsidies, crony capitalism, export-import bank, or trade agreements, organizations, representatives, or treaties. Managed trade is not free trade and protectionism is central planning. Free trade just needs a willing buyer and a willing seller, each of whom benefits from engaging in commerce across international borders. All trade is fair trade.
Libertarians and Tariffs
Donald Trump may love tariffs, but libertarians loathe them. Yet, the libertarian aversion to tariffs is unique, and goes beyond that of economists who likewise loathe tariffs.
First of all, a tariff is a tax. It is simply a tax on imports levied on importers for the right to offer foreign goods for sale in a domestic market. The fact that a tariff only applies to imports and not to wages, capital gains, rentals, sales, services, property, particular commodities, or estates does not make it any less of a tax or a less onerous tax. All of these taxes—no matter what they are called or what good or service they are imposed on—involve the government taking money from people against their will and therefore preventing them from spending it as they see fit. When done by a private actor, this is termed theft. But as the late Austrian economist Murray Rothbard explained:
It would be an instructive exercise for the skeptical reader to try to frame a definition of taxation which does not also include theft. Like the robber, the State demands money at the equivalent of gunpoint; if the taxpayer refuses to pay his assets are seized by force, and if he should resist such depredation, he will be arrested or shot if he should continue to resist.
The libertarian view of taxes is not that taxes should be fair, adequate, sufficient, constitutional, uniform, flat, simple, efficient, apportioned, or low. The libertarian view of taxes is that taxation is government theft and violates the non-aggression principle. To say that taxation is not theft is to say that the government is entitled to a portion of every American’s income or a percentage of every transaction that is made.
Tariffs are supposed to protect certain domestic industries from foreign competitors by raising the prices of imported goods or to punish foreign countries for any number of reasons: “unfair trade practices,” human rights abuses, currency manipulation, or an unfavorable balance of trade. But this comes at the expense of the American people who, as a consequence of tariffs, have to pay higher prices for imported goods and higher prices for domestic goods (raising the prices of imports opens the door for American companies to raise prices), as well as less consumer choice and fewer exports of finished goods (because of the higher prices of imported raw materials). Those who clamor for more or higher tariffs are calling for a tax on themselves. Although a tariff is an indirect tax, it is a tax nonetheless.
Tariffs are paid to the customs authority of the country imposing the tariff by the importer of foreign goods. They are not a tax on the foreign seller of the goods. Foreign firms don’t pay tariffs for the privilege of selling their goods in the U.S. market. And neither do foreign governments pay tariffs into the U.S. treasury, as Trump has so ignorantly implied. American consumers ultimately pay tariffs just like they would pay more in taxes if the income tax or payroll tax rates were increased.
It is libertarians alone who are consistently opposed to any and all taxes. Economists may uniformly oppose tariffs, but they certainly don’t uniformly oppose the income tax. They have generally made peace with the income tax as an alternative to the tariff.
The second reason why libertarians loathe tariffs is that tariffs violate personal and commercial economic freedom. Tariffs violate the natural right of entities to buy goods from whomever is selling them and the natural right of entities to sell goods to whomever is buying them, without interference by the government in either location at prices mutually agreed upon between buyer and seller no matter where they are located.
The freedom of individuals to engage in commerce is just as fundamental to a free society as the freedom to worship, speak, travel, publish, marry, own property, accumulate wealth, and form peaceable associations. The freedom of businesses to engage in commerce unhindered by government taxes, rules, and regulations is likewise fundamental to a free society, and should not be dependent upon political preferences, national interests, the public good, or utilitarian considerations. No business should have to win government approval for the right to sell goods and services in any domestic or foreign market.
Most arguments for free trade miss the real issue. Although the benefits of free trade are incalculable and can never be quantified in a spreadsheet, the foundation of free trade is freedom. Just as free trade does not depend on trade organizations, trade treaties, or trade agreements, so trade should not be free because of the theory of comparative advantage, because it is efficient, or because it meets a certain set of arbitrary conditions. And neither does it matter whether other countries reciprocate, subsidize their domestic production, or engage in currency manipulation. Government should never interfere with personal choice, voluntary exchange, freedom of contract, property rights, commerce, or free enterprise. It should not be the goal of U.S. trade policy to promote exports over imports. In fact, there should be no U.S. trade policy or Office of the U.S. Trade Representative in the first place.
It is libertarians alone who are consistently opposed to all forms of government intervention in the marketplace. Economists who oppose tariffs and make eloquent defenses of free trade may at the same time be in favor of any number of government interventions in the free market: regulations, subsidies, antitrust laws, price gouging laws, minimum-wage laws, predatory pricing laws, limits on days and hours of operation, mandatory family leave, antidiscrimination laws, usury laws. They might even be ardent defenders of the welfare state.
Libertarians should be universally and uninhibitedly for free trade. Trade restrictions of any kind are a violation by government of personal and property rights. Any and all trade restrictions should be abolished, unilaterally and immediately. Economists and libertarians may both loathe tariffs, but that doesn’t make economists libertarians.
This article was originally featured at the Future of Freedom Foundation and is republished with permission.
