Let us walk through the problem with protectionist import tariffs. But if you don’t have time for the snark, it goes as follows: raising tariffs on imported goods simply passes along that tariff to the consumer, while not providing the expected financial stimulus to domestic producers of those goods. Particularly in today’s regulatory system, which largely considers industry to be an annoying, yet barely useful, irritation. See here (via here) for what happened when President Obama tried to goose the domestic tire industry with a strong import tariff…
But that’s kind of boring when I put it that way, so let me be a little more lively:
You have a product. Let’s call it tires. America makes tires. Yay! But the People’s Republic of China also makes tires. For less. Boo! You want Americans to buy American tires. Good idea! So you slap a 35% tariff on Chinese tires. The Chinese tires now cost more. Huzzah! And then the Magic American Tire Factories appear out of nowhere and make tires and good jobs…
…What? What do you mean, there is no such thing as a Magic American Tire Factory? Are you sure? You’re sure. Well, all right. I guess that we’ll just have to build up our tire manufacturing infrastructure, then… wait, why are you laughing? Yes, I know that there’s tons of red tape, bureaucracy, taxes, seed money, environmental regulations, and general hatred of business coming out of the federal government these days. But the government wants more American tires, right?
Fine, I admit that all that tariff money is going to go right into the Treasury – and then will be prompting spent propping up entitlements for a little while longer. If we’re lucky. So it’s in the government’s short-term interest to have higher tariff revenues. But at least you get more American tires sold, right? No? Ah, in this specific case the market simply adjusted itself and other foreign tire companies took up the burden of selling Americans cheap tires. So, obviously, the answer there is to put a tariff on ALL foreign tires!
Why are you laughing again? …Oh, right. We still don’t have Magic American Tire Factories. It’ll probably take months for them to ramp up production enough to meet demand …not months? Years? Sometimes close to a DECADE, if things aren’t expedited? What do we do in the meantime?
We pay more for tires? Why am I paying more for tires? Yes, of course, if the American tire industry is already operating at something close to maximum capacity, raising the price of foreign tires won’t magically make more American tires appear. In fact, it’ll probably push up the price of domestic tires, given that the supply stays stable while demand kicks up a bit. Still, why should I pay more for tires? That tariff is the tire import companies’ problem! .
…Because they’ll just then pass along the import tariff to me? Can they do that? Look, I don’t have time to read a book on all the problems with government forcing a product to be sold at a specific price. Can you sum it up? “FDR’s meddling extended the Great Depression.” And “Nixon’s meddling made stagflation worse.” Understood. And I guess that’s why Smoot-Hawley was trending yesterday on Twitter for a bit during the debate, huh?
So it ends up that I have to pay 35% more for tires? …Yes, 35% and a bit, because of government. Fine. But what did I do to deserve paying more for tires?
Well, I wasn’t the only person who voted for that idiot.
And that’s the problem with protectionist tariffs.
PS: One last point: every dime you spend on more expensive tires is a dime that you can’t spend anywhere else. For many people, this is a feature, not a bug. Tariffs tend to attract the support of people who think that there’s just too much economic activity as it is.