US President Donald Trump has kicked off a tit-for-tat tariff war, claiming that foreign tariffs against American goods harm America and that American tariffs against foreign goods are essential to rebuild America’s manufacturing base. Frankly, it’s hard to keep track of all the reasons he instituted his “Liberation Day” tariff binge, except that the supposed benefits of tariffs are a life-long core belief that he refuses to reconsider. So, what are foreign countries to do? I have a very simple answer that is beneficial to the citizens of foreign countries targeted by President Trump’s tariffs—do what he asks!
Trade Interference Harms One’s Own Citizens
Yes, eliminate your tariffs against American goods. In fact, eliminate tariffs completely and become a free trade nation. That does not necessarily mean President Trump will actually back down on his tariff binge, but what he does or doesn’t do on the tariff front is irrelevant, because tariffs—and all other forms of government interference in trade, such as quotas and subsidies—harm the citizens of the nation that imposes them. Eliminating all forms of interference in trade is beneficial to the citizens of the country that declares unilateral free trade, despite what other nations do.
Tariffs Create a Net Loss to the Tariff Enacting Country
One common claim to eliminating tariffs, even against free trade nations, is that tariffs will help rebuild America’s manufacturing base. That is not a valid argument, even if true, because using government coercion to direct capital and labor to favored segments of the economy must come at the expense of the rest of the economy. As Professor Don Boudreaux of George Mason University has stated many times in his daily Café Hayek blog, the real purpose of production is consumption, and consumers are better off using their scarce resources to obtain the goods they desire at the quality and price they desire. It is not to make the auto industry or steel industry bigger and more profitable, for increases in production and jobs in those industries come at the expense of the consumer. This is an a priori conclusion, meaning it is a conclusion arrived at by pure, rational deduction.
One example should suffice to illustrate the point. If you can buy a foreign-made car that is superior in price and/or quality to an American-made car, your satisfaction is increased, otherwise you would not have purchased the foreign made car in the first place. If you are less concerned about your personal finances and gain more psychic satisfaction in knowing that you are paying for an American-made car that costs more or is of lower quality, then that personal satisfaction is sufficient to overcome your financial loss.
Retaliatory Tariffs Are Irrational
What if, after eliminating tariffs on American goods, the US doesn’t eliminate its own tariffs on foreign goods? Should foreign countries retaliate? No. First of all, the citizens of foreign countries will be harmed, per the reasons explained above. Secondly, no nation has a right to the patronage of another. If America’s government discourages purchases from a foreign country, it harms itself without incurring real harm on foreign countries. Even though the businesses of the foreign country do not achieve world market share as anticipated, this is not real harm. As explained by Professor T. Patrick Burke in No Harm, Ethical Principles for a Free Market, both countries are left in the same position as previously. It is no different than a person deciding to purchase a good from seller A even though seller B has superior quality goods at a cheaper price. Seller B has no recourse to force anyone to buy his product. In the case of a nation’s trade policy the coercive power of the state’s tariff is aimed at impoverishing its own citizens while leaving unchanged the citizens and businesses of foreign countries. Those citizens and businesses must look for trade elsewhere in the world.
My advice to foreign countries pondering how to respond to President Trump’s tariff binge is to do as he asks and become a free trade nation. No country needs the approval of others to adopt free trade. No harm and much benefit can accrue to the citizens of either country.
