Hurray! A Blockade!

The “Buy American” mentality is dangerous nonsense. Tariffs, intended to encourage domestic production, actually do more harm than good to an economy. To show why, let’s look at American tariffs on steel imported from China. When the United States places a tariff on imported Chinese steel, American consumers face higher prices and Chinese steel producers make less money because they are selling us less steel. In turn, the Chinese are going to buy fewer American products, further hurting the American economy.

It also hurts American producers in other industries. Workers in American industries that use steel suffer job loss due to the increased cost of production.  The only group that benefits—and benefits only in the short-term— is the domestic steel industry, but their gains come at the expense of other American producers, American consumers, and Chinese producers.

Some might object to the point that the Chinese will in turn use the profits from selling steel to the United States to purchase American goods. Instead, some claim that the Chinese might just sit on the dollars. Yet if the Chinese send us goods and in exchange receive rectangular pieces of cotton fiber whose only value lies in the fact that they can be exchanged and refuse to use those dollars, they would be ripping themselves off.

Others believe that if the United States receives cheap imports from other nations, our domestic industries suffer. According to this logic, if the Chinese lost their minds and started sending us free tons of steel and refrigerators with pretty red bows on top of them with no strings attached—well, except for the pretty red bows—then they would be hurting us! Yet, by definition, if people from other countries send us 10,000 tons of free steel, we will be wealthier by 10,000 tons of steel, causing an increase in our standard of living.

There’s also the argument that tariffs are particularly beneficial for agrarian economies attempting to industrialize.  First of all, no magic line that separates “agrarian economies” from “industrialized economies” exists. Fifty years from now, for instance, people might look back at 2016 and say, “We shouldn’t have tariffs now that we are industrialized, but they were beneficial back in 2016.”

The agrarian argument also places power in the state to decide when we are industrialized enough to end tariffs and allow free trade. How is the state supposed to know if we have too many farms and too few factories? If the farms are too small? If they don’t use the right combination of capital and labor? These decisions should be left to the free market, where the collective decisions of billions of people engaging in voluntary transactions through the profit-and-loss nexus and the use of price signals peacefully create a wondrous spontaneous order from the bottom-up.

A tariff also means that state revenue is going to increase, so our wise overlords will have more money with which to turn previously stable foreign states into terrorist wonderlands and flash-bang infants when they raid the wrong house after they heard that someone in the neighborhood has a joint. There’s also of course the deadweight loss of taxation and the money siphoned off to pay the salaries of IRS employees.

One final example: You are the admiral of the Rothbardian navy and you are at war with Ancapistan over a dispute regarding whether fractional reserve banking should exist in a stateless society.  Being the skilled admiral that you are, you order your ships to completely blockade the island nation of Ancapistan.  When you report this to the warlord and wonder how many medals he’ll give you for your stupendous service as an admiral, you are shocked to find the warlord furious.  “Have you lost your mind, admiral!?  You’re going to make our enemy insanely rich and skyrocket their economic growth!  Thanks to your blockade, you’ve just boosted every single one of our enemy’s domestic industries!”  You are then court-martialed and hanged.  That’s what you get for serving a warlord who doesn’t understand comparative and absolute advantage.

About The Author

This article by Gor Mkrtchian has been slightly modified and was originally published by the Yale Free Press.

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