I get that subsidies are bad because the govt takes money from you but with a tariff the price of imports is higher and you buy locally.
Won’t local producers use that extraa money and spend it at home rather than foreigners who spend it in their countries.
It may benefit the local competitors to the overseas product that is victim to the tariff, but only at the expense of the consumers who now must pay more for a good. Now consumers have less money to spend on other products and it just goes downhill from there.
By the way, you should read Hazlitts Economics in One Lesson. That’s where I learned.
Why do you want to use the government to force people to pay more for an item?
Many local producers will have a much harder time exporting their products to the other country which will likely implement retaliatory tariffis.
Local consumers will have less to spend on other local producers’ goods.
The only benefit will be to the local producer which the tariff is designed to protect.
Net loss for local society and a lose/lose proposition for countries involved.
Why would you want to use government to force people to pay for undesired protection?
BA-ZING!
Offtopic.
Why should matter, to the sovereign consumer, where the goods came from? Tariffs infringe on his choice and decision making process artificially by limiting his options to what is being protected.
What can I say? I’m a radical, I strike at the root.
The point of a tariff is to increase the price of imported goods, in any given industry, to that of the domestic goods (without the tariff the domestic industry would contract and be replaced by more efficient foreign firms, leading to lower market prices). To illustrate the effects of trade tariffs I’ll quickly go over the Bush steel tariff (30% constant tariff). Partial equilibrium analysis easily demonstrates both the negative and positive consequences of the tariff: The first effect is a reduction in consumer surplus: Price shifts from P*=x/ton to P2= x+T/ton (P* meaning equilibrium price, P2 means price after tariffs). The increase in price yields lower consumer surplus since consumers are paying more than they would have paid if the market was not disturbed by government interference. The second effect is an increase in producer surplus: An increase in the market price increases the profit margin for local firms unaffected by the trade barrier. The third effect is an increase in government revenues, as imports are taxed. The fourth and final effect is known as dead-weight losses: The trade barrier makes the steel industry larger than it should be, resulting in a misallocation of fops towards unwarranted economic activities, in this case the steel industry. The removal of the tariff would mean lower prices, higher consumer surpluses, cheaper production costs for the entire economy (since steel is needed for a lot of shit), and more capital and labor opened up to other, actually profitable sectors.
The costs clearly outweigh the benefits.
But foreigners will get dollars for sale in the USA and they have to spend them on something. They have to import something in return from the USA. So there is also an exporter that is suffering from the tariff.
Exactly. I like what Milton Friedman had to say about imports:
“What would the people who sold us goods do with the money? They’d get dollars. What would they do with the dollars? Eat them?!”
Aren’t dollars used in several countries now? So the money wouldn’t necessarily be spent back in the US. I think that’s kind of a weak argument.
The killer quotes that won me over are:
1.
[Milton Friedman; The Case for Free Trade]
2.
[Hans-Hermann Hoppe; Democracy: The God That Failed, pp. 153-154]
3.
and the reductio ad absurdum, which I find hilarious to read:
[Hans-Hermann Hoppe; Democracy: The God That Failed, p. 153]
Having some sort of barriers (say 10% import duties) to trade makes the range of products produced in each country more diverse because the chances of foreign companies being able to dominate your internal markets is reduced. In many ways this is bad because it reduces economy of scale and hampers the competition process. However, reduced trade would reduce the world’s susceptibility to global crashes like the one we’re having now. If countries are relatively less interdependent then a crash in one country is less likely to induce a crash in others.
In general the more free and cheap trade is between countries the more homogeneous the worlds goods will become. The whole world will drive Japanese cars, use American microprocessors, Chinese toys etc etc (as is largely seen today). But with some measure of resistance to trade than you may see Canadians driving Canadian cars and British driving British cars (not so largely seen today). Whether you think homogeneity is a good or a bad thing is for you to decide, but I think homogeneity and the ease of trade are inextricably linked.
Nonsense, reducing international trade cycle volatility isn’t difficult at all, just stop inflating. International trade, specialization, and economies of scale allow for greater production efficiency, and technological progression (which is the single greatest determinant of growth). Trade barriers always lead to reductions in consumer surplus’ and dead-weight losses. The whole world doesn’t drive Japanese cars (as if Japanese cars were homogeneous themselves), they drive German, Swedish, Italian, American, Japanese, Korean cars ect, ect.
I don’t claim tariffs are the only or even the best way to reduce the likelihood of worldwide crashes. But a reduction in likelyhood is a consequence of higher tariffs.
Also, I do not deny the downsides of tariffs.
There are varying degrees of natural resistance to international trade. i.e. transport costs and transportation times. So bread for example has huge in-built trade barriers - its too expensive to transport quick enough in relation to its inherent price. Cars have a perhaps intermediate level of resistance and then computer CPU’s have almost no resistance at all because they don’t “go off” and the transportation cost/inherent cost ratio is tiny. Now lets write a chart of what fraction of the home market for bread is taken by home owned producers in a variety of countries:
UK 99%
US 99%
France 99%
Germany 99%
Actually I’m guessing, but I think you’ll see my point…
Then look at the percentages for cars (I don’t have the figures to hand)… then look at the percentages for CPU’s. Now I think you’ll see a trend occurring. The greater the resistance to international trade, the more your home market will be won by home owned manufacturers.
Here is a real time example to analyze: http://online.wsj.com/article/SB125288420566007227.html#mod=article-outset-box