President Trump’s tariff blitz has shocked and alienated almost all students of economic science, but he seems to have a loyal following of support among the electorate. Students of economic science have a rich history of theory to support their opposition to tariffs, such as David Hume’s Price-Specie Flow Mechanism, David Ricardo’s Law of Comparative Advantage, and Jean Baptiste-Say’s Law of Markets.
The Economic Linchpins of Free Trade and Free Markets
Hume explained why, in a sound money system—such as a gold or silver standard—a nation’s imports and exports can never get out-of-hand, because prices must adjust downward when specie leaves the country to pay for imports and upward when specie floods the country from export sales. Then imports cease in the former case and exports cease in the latter case. David Ricardo explained why specialization—due to the Law of Comparative Advantage—is an endless process for the betterment of mankind. The larger the area where specialization is allowed to work, the wealthier are its inhabitants. Say’s Law of Markets explains why production must precede consumption. Or put another way, production is the essential path to consumption. I think we all know that before we can consume we must produce something that the market desires. Welfare does not change this fact. In a sound money environment one’s welfare is paid by the production of others. In an unsound money environment the process is the same, although it is hidden by the loss of money’s purchasing power.
Protectionism Has No Theory
Compare these long-accepted economic theories to the lack of any theory put forward by the protectionists (besides repeating age-old fallacies and errors). Within a week’s time, protectionists claim that tariffs will generate more tax revenue (including the absurd claim that the tax revenue will be paid by foreign exporters), protect and/or repatriate manufacturing jobs to American shores, punish trading partners who don’t “play by the rules,” make America more self-sufficient in key industries, act as a negotiating tool to get lower or no tariffs, and not cause prices to rise. Whew! That’s quite a lot of promises, and they conflict with one another. For example, will tariffs generate tax revenue or cause production to be repatriated to America? You can’t have it both ways. The lack of an economic theory is not irrelevant. Ludwig von Mises wrote an entire book—Theory and History—about the importance of theory to economic science. Without a theory, there is no claim to cause and effect, only a jumble of incidents from which to cherry-pick to support an unfounded claim.
Not Working in a Protected Industry? Then Pay Up, Buster!
Probably the most galling claim is that the protectionists want to force the rest of the population to buy only American products in order to benefit stockholders and workers in key industries. There is no recognition that this claim cannot be fulfilled unless whatever benefit accrues to key industries must come at the expense of everyone else. In other words, protectionists tout the concentration of benefits and keep quiet about the diffusion of cost. But the costs are there, even if widely diffused.
Protectionism really isn’t a theory of betterment for all but a claim that certain people in certain occupations are special. They must be paid more handsomely than the market—meaning you and me—wishes to pay. Of course, we all know that Big Business and Big Labor will be the beneficiaries of tariffs. If you’re not a stockholder or employee of Big Business and you’re not a member of a powerful labor union, pay up, buster! This is nothing more than outright cronyism and flies in the face of the claim that America is a nation of free and equal men under the law. It is no exaggeration to state that tariffs violate the very meaning of what it means to be an American, but are a reversion to the class inequality of the Old World.
