Tariffs are Self-Defeating

In my previous post, I dissected why tariffs are an immoral policy tool. I believe when legislators are crafting public policy, they first need to justify their policy on moral grounds. The technical details that are necessary to achieve the goals of their policies should flow from that moral justification. So now that I’ve outlined why tariffs are unethical, I want to dive further into why they are self-defeating too.

Since Trump started his trade war, instead of anything beneficial coming out of it, other countries retaliated with tariffs of their own. This included China, Canada, and the European Union. Essentially all of the largest trading partners with the United States increased tariffs on U.S. exports, thus raising costs for their citizens and reducing the selling power of our companies.

What did President Trump think these other countries were going to do in response to our escalating tariff rates? It signals weakness if other countries don’t raise tariffs in response to ours since tariffs are seen as a direct attack on a foreign country. Their only option was to make their tariff rates higher as well. Actual free trade leads to a win-win situation and when you hamper those transactions you turn it into a lose-lose situation instead.

 Those outcomes alone are enough to discredit the pretense that tariffs are a useful tool for economic stability, but even worse is the distortion of the supply chain. I don’t know what Friedrich Hayek’s most famous quote is, but "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design” has to be up there. If you were to examine the supply chains that make up global trade, you would know that no government could’ve planned it as efficiently as the the market. It should be seen as a miracle that so many countries can be involved in the process of the creation of a single good (here is a link to the famous “I, Pencil” piece ✏ I, Pencil - Leonard E. Read | Animated version of great essay)

With tariffs however, these supply chains are now thrown into disarray. In response to supply chain uncertainty, manufacturers may relocate or switch suppliers. Relocation may be what Trump wants, but it will be costly and time consuming. During the relocation process how do we know that another company won’t just take its place? Managing tariffs often leads to more paperwork and longer inspections at ports, thus slowing the flow of goods. So in the end we have a slower, more expensive, and less efficient system and did we gain anything from it? I would argue “no”.