Trade Wars Put Prosperity in the Cross Hairs
[This post first appeared in the June 12, 2018, issue of The Lighthouse, the weekly newsletter of the Independent Institute. To stay current with all of Independent’s work to boldly advance free societies, enter your email address here.]
Near the end of last week’s G-7 Summit, President Trump, a long-time opponent of trade agreements who believes trade deficits are a sign of national victimhood, did the unexpected: He told his counterparts that the group should consider scrapping all import tariffs and export subsidies. His remark seems akin to when President Reagan proposed that the United States and the Soviet Union scrap all their nuclear weapons—a quip that expressed a far-off aspiration more than a meaningful near-term target to begin working toward. The reality is that Trump’s tariff hikes on aluminum and steel imports, which went into full effect on June 1, have prompted even so close a trading partner as Canada to announce retaliatory tariffs on U.S. goods. Whatever his latest rhetoric, Trump has thus helped show that—just as economists feared—the idiocy of trade protectionism is contagious.
What’s a trading partner faced with hostile tariff hikes to do? Writing in Forbes, Independent Institute Research Fellow Art Carden offers this advice: “The right response for Canada, Mexico, and the European Union to American tariffs would not be to retaliate with tariffs on American goods, but to look for ways to make it less beneficial for firms to seek tariffs in the first place.”
In other words, policymakers in Ottawa, Mexico City, and Brussels would do better for Canadians, Mexicans, and Europeans by figuring out how best to raise the costs or reduce the potential benefits to special interests who lobby for trade restrictions. The same advice also goes for U.S. policymakers wishing to genuinely serve the American people: Don’t fight in a trade war, because an eye for an eye makes both parties blind (or, in this case, poorer). “Every dollar of additional income to a tariff-protected firm is a dollar that comes out of American consumers’ pockets,” Carden concludes.
- The Right Response to Trump’s Tough Trade Talk? Ignore It, by Art Carden (Forbes, 5/31/18)
- Tariffs Are Bad Policy, by Darren Hudson and Benjamin Powell (The Hill, 4/24/18)
- Book review: Edward Tower on The Fair Trade Scandal: Marketing Poverty to Benefit the Rich, by Ndongo S. Sylla (The Independent Review, Winter 2016)
Carl P. Close is Senior Editor and Research Fellow at the Independent Institute and Assistant Editor of The Independent Review. He is also co-editor of the book The Challenge of Liberty.