Claire Conger

Free trade can be dangerous: It relies on maintaining the status quo.

Suppose you’re growing all the soybeans and the other country is making all the medical equipment, but then suddenly there’s a pandemic and that other country doesn’t want to trade away the medical equipment. You’re going to be stuck with ill-equipped health care providers and a lot of beans.

Is the solution to put a tariff on medical equipment in the hopes that equipment made in the home country can be competitively priced? That’s risky business. The tariff can be changed at any time, without notice even if you have a capricious president. Can a business plan long term under such uncertainty?

Anonymous argues against tariffs in his book A Warning. He uses sweaters made in India; your consumers pay more for sweaters with the tariff and more for the newly competitively priced sweaters made in the U.S. and so the consumers have less money to spend on other things.

Your consumers want to be warm, so they buy sweaters, but they no longer have money left over to buy, say, new glassware, forcing Corning to lay off workers in North Carolina. The glass makers go for the new jobs at the sweater factories—they don’t even have to leave North Carolina! But making sweaters is a lower paying job than making glass. Your tariff had the unfortunate and unintended consequence of lowering your people’s standard of living.

But you thought your tariffs would bring jobs home and raise your people’s standard of living.

In his September 21, 2017 opinion piece in the Washington Examiner, Tim Worstall argues against tariffs from a completely different angle. Correlations of economic growth and tariffs are specious if transportation costs are not also analyzed. Until recently, transportation costs, not tariffs, were the defining factor, but transportation costs have come down so much that we now have, for example, water bottled in New Zealand for sale in Trader Joe’s markets. Mr. Worstall interprets this to mean that tariffs would have to be ridiculously high to make a dent in the overall cost of trade, so high as to be unthinkable.

Maybe all tariffs really add is uncertainty.