This article was originally published on Gary North’s Specific Answers on March 1, 2017.
Whenever the government intervenes, there are winners and losers. Follow the money.
A popular slogan in favor of tariffs is this one: “Tariffs protect Americans.” It is an accurate slogan. The question is: “Which Americans are protected?” Another question is: “Who pays?”
In this world, you don’t get something for nothing. If some Americans are protected, then other Americans are paying to grant them this protection.
Who are the winners? Who are the losers?
The winners are a relatively small percentage of American workers who produce goods at higher prices with lower quality than imported goods offered to consumers. The only reason why these workers need protection is because they are not efficient workers.
Who judges efficiency? Consumers do. The heart of the free market system is this: people who spend money have final authority in the economy. This means consumers. Any attempt by the government to intervene in the economy to help special-interest groups always comes at the expense of consumers who would have bought whatever it was that competitors were offering for sale, but who are unwilling or unable to buy the goods because of some government regulation.
A tariff is a sales tax on imported goods. Therefore, the sales tax is discriminatory. It is not paid by everybody. It is paid by those members of the workforce who are facing foreign competition. It is also paid by exporters in the United States, because foreign buyers cannot get access to the domestic currency, precisely because foreign exporters cannot get buyers in the domestic currency. So, exporters are hurt and importers are hurt. This means that American consumers are hurt.
Defenders of tariffs basically do not understand economics. They really are economic ignoramuses. They do not understand economic cause and effect. They do not understand the fact that consumers are being hurt by the tariffs. They call for these discriminatory taxes, and they do it in the name of liberty. They do it in the name of fairness. Yet discriminatory taxation is inherently unfair.
Everybody wants somebody else to pay the tax. A tariff is a specific tax on imported goods, and it is an implicit tax on exported goods. Defenders of tariffs never talk about the fact that the tariffs are discriminatory against the exporters in their own country. They are intellectually incapable of following even a simple economic argument. They do not recognize that when foreign sellers cannot sell their products in nation A, exporters in nation A cannot find as many buyers in nation B as a result of the restricted trade.
This is basic economics. It has been basic economics ever since 1752 when the Scottish philosopher David Hume wrote his essay on trade. These people are not too bright. They really cannot follow basic economic logic. It is unfortunate, but most people are not too bright, and among those who are bright enough to follow an economic argument, they had never heard the argument.
Am I saying that all supporters of tariffs are economic ignoramuses? No, but most of them are. A lot of them are simply hired economists who are paid by labor unions and by inefficient American producers. In other words, they are on the take. They promote bad ideas to other Americans because they are well paid to do this.
The justification for tariffs in the United States was based on the fact that the federal government was restricted by the Constitution from taxing individuals directly. They did with respect to luxury taxes, primarily the production of liquor and cigarettes. They did this from the very beginning. But most of the revenue came from tariffs. This taxation structure protected the average American from intrusion into his life by tax collectors. That was the justification of tariffs, but it was always misused by special interests, most notably domestic sugar producers. That began in the 1790’s, and it has never changed.
Once the government announced the lie, which it was, that the 16th amendment had been legally ratified, the government was able to impose an income tax on American citizens. From that point on, tariffs lost their Constitutional justification. Once the federal government can get its hands on your bank account, tariffs are just another discriminatory tax — a tax that no longer provides political benefits for liberty. It imposes a tax on economically ignorant people who cannot follow economic logic and who therefore call for the tax despite the fact that they are discriminated against as consumers by the tax.
The vast majority of economists agree with my economic analysis here. This was Adam Smith’s position in 1776. This is the position of the Chicago School economists. It is the position of Austrian School economists. The major economist of the 20th century who favored tariffs was John Maynard Keynes. He reversed himself in 1931 and proposed a tariff.
The anti-tariff position is not taken seriously by people who believe that the civil government really has their best interests at heart and who also believe that they can be protected by the federal government. They pay dearly for their economic ignorance and for their naïveté regarding Congress and the federal government generally.
Unless you want to stand strong alongside John Maynard Keynes, I suggest that you abandon the idea that tariffs are a benefit to the United States or any other country and that they really do protect most Americans. Tariffs protect inefficient Americans who do not produce goods that meet the demands of American consumers. This is why these people call on the federal government to protect them — not against foreign exporters, but rather against Americans who want to do business with foreign exporters. They find it politically advantageous to blame foreign exporters, and they find it advantageous to remain silent about stealing from their fellow Americans who would like to purchase goods from foreign exporters.
— Gary North
Gary North has a Ph.D. in history from the University of California, Riverside (1972) and is Director of Curriculum Development, Ron Paul Curriculum (2013-present), and is the author of many articles and books. Read his full biography.