SO here are 9 fallacies on trade and tariffs:
1) Foreign countries pay US tariffs. This one should be obvious. Tariffs are taxes imposed when an item reaches US port. It is paid by the importer. Like literally every other business tax it is passed on to the buyer--the ultimate buyer, the consumer--in the form of higher prices.
2) We need to shield our industries from "unfair competition" from abroad. This gem has been used for decades, if not centuries. If you come up with a better way to produce, market, or sell a product is that "unfair competition"? Or is that competition? To the buyer it makes no difference as lower prices are lower prices. Shielding domestic industries results only in inefficient outmoded industries, as happened to the steel industry in the 1970s, which had received decades of government support.
3) Foreign countries "dump" their products on American markets to gain advantage. First, I doubt this is true. The U.S. has made claims about dumping for years but never won a case in an international court. Second, even if that is true it means that taxpayers in some other country, like China, are subsidizing products Americans are buying. Wouldn't you like someone to subsidize the products you buy? I sure would. Given how much aid the US has sent countries, it's the least they can do to give some of it back in the form of subsidized products. But as I say, I doubt this happens in reality.
4) The US would be better off if we made everything at home. I don't know why anyone would believe this. There was a time when that was true individually for most people. Everyone made all the goods they consumed on their own farms. People were poor and limited in what they could buy. Specialization meant each person concentrating on what he did best, selling the results of his labor, and buying the things he was not good at making. Standards of living improved the more this happened. It holds true for countries too: when we buy abroad goods that are cheaper than we can make at home we have more money left over for other things.
5) Trade deficits mean we lose money. Maybe the most pernicious lie in the bunch. When we buy something from another country we give them dollars and we get cool stuff like steel and solar panels. That country must eventually take those dollars and buy U.S. products. Eventually the trade evens out. This fallacy comes from the old days of mercantilism, where deficits were settled in gold. But the US has not settled accounts in gold since 1971.
6) If other countries impose tariffs on us, we need to do that to them. A weird argument from "fairness." Recall tariffs are taxes imposed on the importing country. If Japan wants to charge its citizens more for products that isn't our problem. We should not want to charge our own citizens more for foreign products. And if someone objects that we'll "lose" some market or other, there are always countries looking to buy American products based on whatever advantages American products offer. People like bargains.
7) IF we don't protect "X" industry we'll have trouble in war time. This has been the argument from the steel industry probably since just after WW2 when they began facing foreign competition. It wasn't true then and it isn't now. First, the likelihood we will fight a war like WW2 again is slim to none. Second, both Canada and Mexico are major steel producers, to say nothing of Brazil. Even a trans-Atlantic or trans-Pacific cutoff of trade would not affect our ability to get steel from Canada or Mexico. In any case subsidizing domestic industries, paid for by US taxpayers and consumers, is a bad deal.
We can increase employment by "buying American." In the 1950s the percent of American workers in manufacturing peaked at about 43%. Today it's just under 10%. But America produces more manufactured goods than we ever did before. It is efficiencies in the manufacturing process that have reduced labor needs. One estimate had it that every manufacturing job off shored resulted in 3 new American jobs. Spending more on labor than we have to by substituting expensive American labor for inexpensive foreign labor makes no more sense than heating your factory with dollar bills. GDP increases in two ways: larger population, or greater efficiency. American workers have added to their efficiency tremendously in the last 20 years, especially compared to workers in Europe. It's why our living standards are higher.
And in any case there are no "American products" beyond some very low tech cottage items. An American car contains about 40% components from Mexico and 20% components from Canada. It has crossed some border about 12 times before final assembly. This is done because it is the most efficient way to do it, keeping costs down.
9) We can fund the government entirely through tariffs and eliminate income taxes. True, only if you're bad at math. The US imports about $3.5T worth of goods a year. The federal government takes in about $2.2T in individual income taxes. What percent of $3.5T is 2.2T? That is the tax that would need to be applied to imports to replace the individual tax. That's about 62%. If you increased taxes on imports by 63% you won't be importing 3.5T worth any more either. You'd be lucky to import $1T. States imposing enormous taxes on cigarettes discovered this truism: raise the price of something even as addictive as cigarettes and you'll sell much less of it.
There are no good arguments for tariffs. And no country ever became wealthy imposing them.
Bill Bernstein, formerly of Nashville where he was owner of Eastside Gun Shop, now lives in Sumter, South Carolina. He is a scholar with a BA degree from Vanderbilt University and degrees in Classics from Corpus Christi College, Oxford, UNC-Chapel Hill, and University of Pennsylvania.
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