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You are here: Home / Departments / Free Market Watch / Just Because It’s Bipartisan, Doesn’t Mean It’s a Good Idea

Just Because It’s Bipartisan, Doesn’t Mean It’s a Good Idea

May 1, 2018 By Michael Shaus Leave a Comment

During the tumultuous presidential primaries in 2016, one candidate promised to impose huge tariffs on Chinese goods, “until they stop dumping steel into the United States,” thus restoring the American steel industry to its former glory.

The candidate I’m thinking about was actually the self-described socialist senator from Vermont, Bernie Sanders — but it just as easily could have been Donald Trump. In fact, Trump himself described his trade views as being “very similar” to those of Sanders’.

Indeed, protectionist tariffs on foreign goods — in an effort to “fix” the trade deficit — seems to be one small area where a Vermont socialist and New York capitalist largely agree.

And they aren’t alone. For decades, a common notion floating around Washington, D.C., has been that trade deficits are in dire need of “fixing” for the sake of domestic job growth.

But, as Milton Friedman once pointed out, such thinking is precisely “upside down.”

“The gain from foreign trade is what we import,” explained Friedman. “What we export is a cost of getting those imports. And the proper objective for a nation, as Adam Smith put it, is to arrange things so that we get as large a volume of imports as possible, for as small a volume of exports as possible.”

In short, trade deficits — where a nation imports more than it exports — should be considered a natural consequence of a flourishing economy.

In our private lives, we understand this dynamic instinctively. It’s why we work so hard to accumulate wealth throughout our lives — so we can enjoy a “trade deficit” within our own household.

Households routinely consume goods from the grocery store, Amazon, Walmart, Ikea and other retailers and service providers. These consumables we purchase are our household imports — and it is only common sense that it benefits us, as consumers, when our household imports are in excess of what we’re required to “export.”

That is to say, when we have more goods and services coming in, rather than going out, our standard of living increases.

Given this context, would anyone argue that households should not strive for wealth sufficient to achieve that goal? Would anyone seriously argue that households begin backyard farming, leather tanning and mechanical production, so as to reduce their trade deficits with local grocers and retailers?

Of course not.

As with households, so with nations: When a country’s wealth and purchasing power are high, it is entirely natural for trade “deficits” — more goods imported than exported — to increase.

It’s a symptom of our success as an economic force.

The D.C. narrative on trade, however, doesn’t just misdiagnose trade deficits as a “problem” in need of being fixed. It also risks the very prosperity and purchasing power that has made the American consumer king and our standard of living so high.

Paying the tariffs pushed by Sanders and Trump will primarily be U.S. consumers, businesses and entire American industries, not foreign nations.

In addition, as with any tax, there will be “unseen” consequences.

Certain imported goods will cost more, reducing the American consumer’s standard of living. Domestic manufacturers of certain goods will undoubtedly decide to move their production offshore to avoid the import tax on raw steel and aluminum, costing American jobs. The added cost of these import taxes will more than offset whatever benefit the remaining domestic companies could have seen from the recent GOP tax plan.

Yes, there will of course be some “winners” from this classic Washington protectionist trade policy. But it will be at the expense of American consumers and sound, legitimate businesses.

Union bosses, steel executives and industry lobbyists support the concept of tariffs for a reason, and it’s not because they have the interests of American consumers at heart. While the rest of the economy will now be subject to needlessly higher costs, these supporters will pocket direct benefits.

As in most targeted tax schemes, tariffs are nothing more than a way to “protect” a politically connected industry from the free-market decisions of consumers.

Bernie Sanders, like countless politicians before him, was wrong when he proposed massive import taxes on specific goods from specific nations.

So too is Donald Trump.

Michael Schaus is communications director for the Nevada Policy Research Institute.

Filed Under: Free Market Watch Tagged With: Las Vegas business, Michael Schaus, Nevada business, Nevada Policy Research Institute

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