Tariffs Make Governments Bigger and Consumers Smaller

Op-Ed: Some bad ideas, despite centuries of consistently negative consequences, come back to haunt the human race over and over again. The economic warfare of “protective” tariffs is one such bad idea that belongs in the dustbin of history, yet incoming president Donald Trump has given it a veneer of patriotic polish, while trotting out all the tired pro-tariff cliches that have been proven so wrong for so long.

When a bad idea appears to have eternal life, you can bet its life support is coming from two major factors: (1) widely accepted myth and (2) powerful special interests.

The tariff myths are many, but the least obvious – and most pervasive – is the belief that tariffs are assessments levied against foreign countries, their producers and foreign-made goods. But in truth, foreign producers aren’t the ones paying the cost. Who foots the bill for an American tariff on a foreign good? YOU DO. It is in essence a consumer tax that lands squarely on your family budget, and reduces the buying power of every American’s wages. You are forced to either pay the extra sticker price of the foreign good or the higher cost of the “protected” American product.

I call it The Tariff Racket, because in the long run, the only one that comes out ahead is the government itself. Think about it. Say you’re about to buy a foreign product that normally costs $100, but thanks to the Trump 25% tariff, you are now paying $125 for the same item. The producer still gets $100. The government gets the $25. You get the same product at an inflated price. Now think of this on a worldwide basis, as a hundred or more trading countries patriotically retaliate with tariffs of their own. What you have is a massive wealth transfer from the people to their governments. Consumers get smaller. Governments get bigger. That’s the net effect of so-called “protective tariffs.”

Another prevailing myth is that American jobs and wages are protected by imposing tariffs. But in reality, tariffs merely prop up companies that are already noncompetitive compared with foreign counterparts. Struggling businesses that need protection are, by definition, businesses that are less efficient, less productive, and less capable of creating more jobs and higher pay on their own. The labor and capital that sustain these industries could doubtless be put to better entrepreneurial use. But instead, these powerful special interest lobbies demand – and get – tariff protection that shields them from healthy market competition. We all lose.

Let them explain to us how an American who saves $5,000 buying a foreign car, or $500 buying foreign electronics is hurting his country. Is driving a Subaru really unpatriotic? Or does basic economics teach us that free trade benefits everyone? That $5,000 the consumer didn’t have to spend on a car will in turn be spent in local stores and restaurants, buying American made goods and American grown food. Meanwhile, the income other countries receive from American purchases comes back to us in the form of foreign investments that help relieve the recession-producing impact of massive federal borrowing.

Actually, America’s tariff train wrecks date back to our early days under the Articles of Confederation, when politically powerful merchants convinced their state legislatures to place heavy tariffs on competing goods from neighboring states. The nation faced internal strife and economic paralysis – cured only by the interstate commerce clause of the new Constitution. Yet America hadn’t yet learned that international free trade was just as essential to our future prosperity. The disastrous Smoot-Hawley tariff bill in 1930 resulted in 25 major trading partners retaliating, creating a much deeper and longer Depression.

I grant that tyrannical regimes that make slaves of their citizens, steal our patents, launch cyber-attacks on our shores, invade our borders and threaten our national security present serious challenges. But we must remind ourselves that tariffs always heighten international tension and conflict. Trade wars precede shooting wars, and in the wise words of economist Ludwig von Mises, “when people and goods cross borders, armies do not.” That’s probably the most important argument of all.

President-elect Trump has a lot of good ideas, but tariffs are not one of them.

A former Bozeman small businessman, Roger Koopman is president of Montana Conservative Alliance. He served four years in the Montana House of Representatives and eight years as a Montana Public Service commissioner. Koopman has worked on the congressional staffs of Ron Paul (R-TX) and Steve Symms (R-ID.)