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Free Minds & Free Markets

Tariffs Are Self-Imposed Sanctions

We restrict trade to punish our enemies. Why would we do the same to ourselves?

Sometimes, when the leaders of a foreign country do something very naughty, the other nations of the world get together and punish them. Assuming bombing isn't on the menu, a popular way to administer a political spanking is to dramatically curtail the export of certain goods to the troublemakers. The thinking is that if you want your enemies to suffer, you should deny them the incredible gains in productivity and prosperity made possible by comparative advantage and division of labor operating on the global scale.

In other words, the penalty for behavior beyond the political pale—such as the development of a new nuclear arsenal, the use of chemical weapons, genocide, or widespread nationalization of industry—is to be cut off from trade. Slowing or eliminating the flow of cheap foreign raw materials, manufacturing equipment, and finished goods makes it harder and more expensive for a country's domestic industries to function.

In Cuba, for example, the U.S. sought for decades to inspire homegrown rebellion against pro-Soviet Communism by artificially imposing a shortage of basic supplies and creature comforts. The same is true in Iran, where the U.S., along with other nations, has imposed various sanctions since the revolution in 1979—alternately holding out the possible future lifting of those restrictions as a carrot in negotiations over the country's nuclear program, and wielding tougher injunctions as a stick. In Venezuela, when a belligerent authoritarian socialist took power, the world moved swiftly to limit commercial intercourse with that nation.

This strategy goes all the way back to Thomas Jefferson, who presided over the Embargo of 1807, which prohibited U.S. ships from trading in foreign ports in an effort to punish the British and French for their bad habit of grabbing Americans off civilian vessels and impressing them into Europe's understaffed wartime navies.

How odd, then, that protectionists seek to create the same conditions at home—artificial scarcity or elevated prices for certain imported goods—as a way to stimulate the domestic economy and punish our economic enemies. President Donald Trump and his anti-trade allies in the administration and on Capitol Hill are using the very same weapon they have been brandishing at Iran and Cuba to shoot ourselves in the foot when it comes to China.

Trump kicked off our current trade war in early 2018 by imposing tariffs on washing machines and solar panels. While the sanctions were aimed at China, they wound up hitting other suppliers of those products as well—along with U.S. consumers.

In March, Trump announced massive new tariffs on foreign steel and aluminum. Though the sanctions were initially intended to apply across the board, the president's rhetoric made clear the target was Beijing. The choice of steel and aluminum allowed the administration a flimsy national security justification as cover for its actions—America needs tanks, after all, and cheap Chinese steel might out-compete American industry to the point that our ability to manufacture war materiel could be fatally undermined!—and consequently a defense for why the move wasn't processed through the World Trade Organization (WTO).

The WTO, already pushed to the brink by constant Chinese flouting of the rules, may well have sustained a mortal blow when America's tariffs were announced. Trump's decision prompted a flurry of direct lobbying by other countries for exemptions—obtained, at least temporarily, by Canada and Mexico, with hints of others to come—rather than calls for the international body to arbitrate, as it has done in past conflicts over trade rules. The WTO is a deeply flawed body, but a decline in its influence is not likely to increase the flows of goods across borders—a major engine of wealth creation in the decades since its creation.

"We're on the verge of a painful and stupid trade war, and that's bad," Sen. Ben Sasse (R–Neb.) said in a statement following the announcement. He was right. China responded to the steel and aluminum tariffs with taxes of their own on American soybeans, chemicals, and tech. That, in turn, prompted the Trump administration to release a list of 1,300 additional Chinese products that would be subject to increased levies—an eclectic grab bag that included everything from textiles to human blood, from pasta-making machinery to grenade launchers.

As Reason columnist Veronique de Rugy pointed out in The New York Times in April, Beijing does routinely violate trade agreements—by subsidizing steel production, for example. "It's true that those subsidies artificially lower the price of steel imported by America and might hurt some American steel mills and workers," she wrote. "But this effect is the same as it would be if Chinese steel makers had a genuine efficiency advantage over our producers." In either case, cheaper steel is a boon to everyone other than the rival steel producers.

"When you're already $500 billion down, you can't lose!" the president has tweeted. But the $375 billion goods deficit with China—which forms a major part of America's $800 billion overall trade deficit—is not a sign that something is wrong. It's simply an indication that imports currently offer a combination of price and quality that Americans prefer.

The theory, of course, is that if Americans discover foreign goods have become more expensive, they will switch to those items' now-cheaper domestically produced counterparts, supporting homegrown industry. In fact, prices go up across the board (since, in the absence of price competition from abroad, American manufacturers have no incentive not to keep their prices high), and American consumers are forced to settle for fewer or lower quality versions of basic household goods.

Another argument offered by supporters of trade sanctions is that they will reduce our economic dependence on Chinese holders of U.S. public debt. And the fact that Americans buy goods made abroad with U.S. dollars does enable foreigners to buy American Treasury bonds and the like. At the beginning of 2018, China held $1.17 trillion, or about 11 percent of the total. (By contrast, nearly 60 percent was held by Americans.) But the fact that China has U.S dollars is not to blame for the national debt—that sin rests firmly with America's government, which spends more money than it takes in.

Quite often, of course, economic sanctions backfire when used as an instrument of foreign policy, causing the targeted country's restive populace to blame oppressive outsiders for their economic woes, rather than their own government's intransigence. This has arguably been the case in Cuba, Iran, and Venezuela at different points in time. Even Jefferson ultimately backed off of his embargo when it resulted in a lot of deprivation for American consumers, a loss of lucrative foreign trade routes for American merchants, and not much trouble at all for his European bugaboos.

But when it comes to self-imposed trade restrictions, that backlash is a feature, not a bug: It's Beijing's fault, the logic goes, that the U.S. has been forced to heavily tax imports. If only the Chinese would play fair, this wouldn't be necessary. Yet that thinking is just as backward as blaming America for the failings of Venezuelan socialism or Iranian theocracy.

Next year, when your washing machine starts making a weird kathump kathump sound on the spin cycle and you find yourself balking at the cost of a replacement, don't blame China. Blame Trump.

Photo Credit: AnthonyRosenberg/iStock

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  • Just Say'n||

    You tried to thread the needle there as best as you can, but by conceding that tariffs are OK to use against rogue nations you've basically destroyed any argument opposing the tariffs levied against China. I don't think any sane person can say that Russia's international actions are deserving of sanctions, but not China.

    It's either all tariffs are bad or they're not, because foreign policy can always be used as an excuse

  • sarcasmic||

    Tariffs are a government imposing sanctions against its own people. They aren't levied against China. They are levied against Americans who buy stuff from China. Protectionism is equivalent to a government imposing an embargo on its own people. It is a country waging war against itself.

  • gaoxiaen||

    +1 Nobel Prize

  • Citizen X - #6||

    Yeah but CHINESE COMMUNISS

  • loveconstitution1789||

    Don't forget the North Korean COMMUNISS.

  • Just Say'n||

    Agreed. That's why it makes no sense to advocate for trade sanctions against Russia while being opposed to tariffs against China. Such a position literally makes no sense, yet some have argued that

  • loveconstitution1789||

    Russia is linked to TDS for Trump stealing the election from Hillary.

    China makes all the cheap garbage hipsters in cities buy. Therefore the hipster are fine with China limiting American goods into China but call it "an act of war" if the USA uses tariffs to convince China to free up their trade policy.

  • Mark22||

    Tariffs are a government imposing sanctions against its own people. Protectionism is equivalent to a government imposing an embargo on its own people. It is a country waging war against itself.

    Tariffs, protectionism and embargoes both increase domestic prices, but many other policies increase domestic prices. That doesn't make them all equivalent.

    The objective of these steel tariffs is to raise US steel prices to the level they would be if the Chinese government didn't subsidize their steel production. You can argue about whether it accomplishes that or goes to far, but that kind of intervention is not protectionism or an embargo.

  • Chipper Morning Baculum||

    Yep, bad KMW. Tsk, tsk. Sanctions are always bad. Tariffs are always bad. The end

  • loveconstitution1789||

    Yeah, you're right. Even if a temporary push of sanctions and tariffs prevent war with a madman with nukes.

    I tend be a very black and white kind of guy and diplomacy between nations is rarely black and white.

  • sarcasmic||

    Protective tariffs are the equivalent of a government imposing sanctions against its own people.

  • loveconstitution1789||

    So are taxes. Its why you try and keep low or non-existent.

  • Mark22||

    Protective tariffs are the equivalent of a government imposing sanctions against its own people.

    Well, if you want analogies: Chinese steel subsidies and dumping are the equivalent of the Chinese bombing US steel manufacturing plants. Shouldn't we do something about the Chinese bombing US steel manufacturing plants?

  • IceTrey||

    A low tariff such as 1% could fund the government of Libertopia. Would that be so bad?

  • Jerryskids||

    Comparative advantage applies to trade embargoes as well, if we can hurt the Chinese more than we hurt ourselves we win! This assumes that "we" refers to the American government and "ourselves" applies to the American consumers. There's no price we aren't willing to pay if ourselves are the ones footing the bill. Trump's slogan is "Make America Great Again", he didn't say anything about Americans. Unless you count the remark about grabbing them by the pussy and how they'll just let you do that when you're a star, then you've got a pretty good idea of his disregard for people not named Trump.

  • Shirley Knott||

    There is no 'we', there is no 'us'. Most specifically, there is no 'we' who foots the bill.
    Speaking of 'American consumers' in the aggregate obscures everything that matters in constituting the aggregate. Individuals trade, aggregates, as such, do not.
    All tariffs are bad, for they always, inherently, damage the consumer and his/her interests qua consumer.

  • gaoxiaen||

    +1 Corn Laws

  • loveconstitution1789||

    Tariffs are bad even when they are the sole cost to fund a tiny government?

    Temporary Tariffs are bad to nudge Communist trading partners to lower their trade restrictions to allow more free trade?

    Sorry, but tariffs are not the problem. The fact that the USA has heavily managed trade rather than free trade is the problem.

    How do we get to more free trade with more nations?

  • sarcasmic||

    Temporary Tariffs are bad to nudge Communist trading partners to lower their trade restrictions to allow more free trade?

    "Nothing is so permanent as a temporary government program."

    Milton Friedman

  • loveconstitution1789||

    Absolutely true.

    Also true is that Communist China is free to trade to the USA as much as they want while the USA is not free to trade as much as Americans want.

  • sarcasmic||

    I don't know what that means.

    The point is that when a government takes actions to restrict the ability of the people of a foreign nation to engage in trade, it's an act of war. When a government does the same thing to its own people, it's still an act of war. Calling it "protectionism" doesn't make it any less so.

  • loveconstitution1789||

    Yes you do know what it means. You just don't like it.

    Tariffs are not an embargo, goober. An embargo of a nation is casus belli for war.

    Slapping import tariffs on Chinese goods is not an act of war.

  • sarcasmic||

    No, I don't know what you meant. Sorry.

    Protective tariffs are a government imposing sanctions against its own people. Tariffs on Chinese goods are a penalty imposed upon Americans who want to buy Chinese stuff. They aren't imposed on China. They are imposed on Americans.

  • loveconstitution1789||

    I can't help you if you don't understand English.

    American taxes are imposed on Americans too.

    Tariffs, like taxes are tacked onto the price of the products and services people purchase.

    The USA does not have free trade, which is the best, so all we are discussing is how best to manage managed trade.

  • Mark22||

    Tariffs mean that Americans will pay a little more, nothing else.

    These kinds of tariffs mean that Americans will pay as much with the tariff as they would have paid without tariffs if China was actually a free market. What's your problem with that?

  • Mark22||

    All tariffs are bad, for they always, inherently, damage the consumer and his/her interests qua consumer.

    You know what's even worse than paying a few dollars more for your car? Having US politicians bought off by China and having the US military be dependent on Chinese steel exports.

    Achieving the lowest possible prices on consumer goods isn't the sole objective of US foreign or trade policy.

  • loveconstitution1789||

    This strategy goes all the way back to Thomas Jefferson, who presided over the Embargo of 1807, which prohibited U.S. ships from trading in foreign ports in an effort to punish the British and French for their bad habit of grabbing Americans off civilian vessels and impressing them into Europe's understaffed wartime navies.

    How odd, then, that protectionists seek to create the same conditions at home—artificial scarcity or elevated prices for certain imported goods—as a way to stimulate the domestic economy and punish our economic enemies.

    Just like the USA not being able to protect itself from hordes of immigrants, KMW does not think the USA should have been able to protect itself from foreign nations that attacked out ships and pressing our sailors into foreign service.

  • loveconstitution1789||

    I guess KMW did not see where tariffs relating to products from allies will have their implementation delayed.

  • gaoxiaen||

    Jesus Christ, hasn't anybody read "Free to Choose" by Milton Friedman?

  • Cy||

    Slave labor is Ok as long as shit is cheap! It's a nice opinion to have when you're not the slave.

  • Sevo||

    "Slave labor is Ok as long as shit is cheap! It's a nice opinion to have when you're not the slave."

    When you finish with that straw man, why not try something that's in the article?

  • Cy||

    Are you denying that there are slaves in our modern world? Are you denying that their labor or products of their labor are cheaper than what a free person would charge? Your solution to free these slaves is to enrich their owners through "free trade?"

  • Sevo||

    "Are you denying that there are slaves in our modern world? Are you denying that their labor or products of their labor are cheaper than what a free person would charge? Your solution to free these slaves is to enrich their owners through "free trade?""

    No, I'm denying you the chance to divert the subject into meaningless bullshit as you are attempting to do.
    You have no idea what is made by 'slave labor', and making things more expensive to the consumer would have no effect anyhow.
    Suggestion: Admit you don't know what you're talking about and shut up.

  • Cy||

    Accuse me of a strawman and then tell me to shut up. You must be one of those 'betters' that the left keeps whispering about. I realize morals are hard for some people to understand, it's sad that your views on "free trade" and your morals don't align. Maybe I'm wrong. Maybe you're all for "Free trade" with slave owners.

  • Sevo||

    "Accuse me of a strawman and then tell me to shut up."
    Yes; it wasn't an accusation, it was a statement of fact.

    "You must be one of those 'betters' that the left keeps whispering about. I realize morals are hard for some people to understand, it's sad that your views on "free trade" and your morals don't align. Maybe I'm wrong. Maybe you're all for "Free trade" with slave owners."
    Maybe you're just a fucking imbiecile.
    Check that: Nothing "maybe" about it.
    Fuck off, imbecile.

  • Mark22||

    When you finish with that straw man, why not try something that's in the article?

    The fact that China is a totalitarian state that's hostile to the US is not in the article, but it's a fact. That's exactly the issue here and it's the reason why the article is so naive.

  • Sevo||

    "The fact that China is a totalitarian state that's hostile to the US is not in the article, but it's a fact. That's exactly the issue here and it's the reason why the article is so naive."

    One more straw-man hero.
    Fuck off, imbecile.

  • Hank Phillips||

    Protective tariffs used to be the either-or alternative to the Communist Manifesto income tax, remember?

  • JoeBlow123||

    Free trade makes everyone richer. But do we want China to be richer? Will China use their wealth to bully Americans and our friends in the future?

    This is the problem. Free trade is great when issues are not zero sum; everyone wins. When it is with a rival or enemy, all your are doing is making your rival or enemy more rich; this is zero sum. It is my belief that we should be forcing China to choose to be our friends, making gestures to open up their economy more to the world and modernize their institutions, or to isolate them and expose them for what they are, totalitarians.

  • Sevo||

    JoeBlow123|5.2.18 @ 1:49AM|#
    "Free trade makes everyone richer. But do we want China to be richer? "

    Yes, we want prosperity; your bullshit preiictions aside.

  • markm23||

    If the Chinese people are no longer worried about where their next meal is coming from, they'll be less tolerant of governmental oppression, and that's a good thing. The question is whether an increase in overall prosperity will translate into more wealth for the masses, or just make the 0.01% even richer...

    But as far as the effects in the USA go, cheap goods provided by foreigners definitely make most of us wealthier. There are a few that are adversely affected, but we've long had programs to retrain and help workers displaced by foreigh competition.

    The effect on our capability to produce the goods needed for a major war is less clear. We definitely could not make WWII's tanks and ships from the remaining domestic steel production, but we're not going to re-fight WWII. We win wars now, nearly bloodlessly on our side, with small but very high quality forces. It doesn't take a lot of steel to equip them, and suspending civilian automotive production would free up more production than would be needed. If you want to worry about military readiness, look at at products that are more difficult than steel, such as IC's, advanced aluminum and titanium alloys, or carbon-fiber composites.

  • Mark22||

    How odd, then, that protectionists seek to create the same conditions at home—artificial scarcity or elevated prices for certain imported goods—as a way to stimulate the domestic economy and punish our economic enemies.

    It's neither of those. Steel and aluminum production capacities are important for the military, that's why we need to maintain them domestically.

    Furthermore, our enemies are in a different position from us; usually, they are neither a social welfare state nor can they easily replace production of many goods domestically.

  • Sevo||

    Mark22|5.2.18 @ 9:08AM|#
    "It's neither of those. Steel and aluminum production capacities are important for the military, that's why we need to maintain them domestically."

    And there is nothing which suggests they aren't already sufficient.
    Racist twits find all sorts of lies to promote their crap.

  • Freedum_Fried||

    Thank God the bad old days of Tariffs are behind us!

    Its so much better paying personal income taxes, plus I feel more secure with the government knowing so much about mine and everyone else's personal business.

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