A site member posted a long question on tariffs. It included this.
I need help understanding the context on tariffs. I get it: tariffs are a tax, which I think is a stupid economic policy. A friend is all in favor of tariffs, citing the protection of the American worker. He concedes that tariffs make the consumer poorer but that the tax is worth it if it saves American jobs. I ask "How can a tax that makes goods more expensive protect American workers?" His refrain is a vehement "Without a job, no one can afford anything!" I don't know to what extent tariffs protect jobs; on the face of it, it sounds reasonable. My friend's hypothetical example is "If 5,000 American workers are out of [union-paid] job(s) because a manufacturer has moved overseas, it means that Americans can't afford the goods that are supposedly cheaper due to unfettered competition!"
THE COLLECTIVIST MINDSET
I begin with this: "A friend is all in favor of tariffs, citing the protection of the American worker." Fact: there is no American worker. There are 130 million American workers.
Anybody who uses a collectivist phrase such as "the American worker" is a collectivist. Literally, he thinks in collective terms. He does not think in terms of individual freedom.
The man's friend does not think in terms of 130 million people who go to work five days a week. He does not think in terms of the winners and losers in the competitive markets that we call labor markets. There are always winners and losers. Instead, he is focused on one tiny group of winners who would otherwise be losers if there were no government intervention. He defines them as the American worker. They are not the American worker.
Somebody who produces a product that is too expensive because labor costs are too high should find another line of employment. His company is going to go bankrupt. That's the free market at work.
As consumers, we want efficient companies to compete against each other to sell us the things we want to buy. We do not think of "the American worker." We think of what we want to buy. We should not think of the American worker. Our responsibility is not to "the American worker." Our responsibility is to our families. We are not supposed to waste our money.
As a consumer, I am not responsible for workers. But I would like to see efficient workers stay in business. I would like them to continue to compete for my money. I don't know these workers. But I do know their products. I like their products.
The American worker has nothing to do with any of this. Specific workers have a lot to do with it. We must think of individual workers, individual companies, individual products, and our own individual decisions about buying one thing and not buying another thing. In short, when we analyze economic relationships, we should not begin with a collectivist myth: the American worker. Such a worker does not exist. Such a collective does not exist.
THE THINGS NOT SEEN
Then there is this:
His refrain is a vehement "Without a job, no one can afford anything!" I don't know to what extent tariffs protect jobs; on the face of it, it sounds reasonable. My friend's hypothetical example is "If 5,000 American workers are out of [union-paid] job(s) because a manufacturer has moved overseas, it means that Americans can't afford the goods that are supposedly cheaper due to unfettered competition!"
This is a classic example of what Bastiat called the fallacy of the things not seen. It is at the heart of most economic fallacies. This is why Henry Hazlitt put this fallacy at the beginning of his classic book, Economics in One Lesson. I do the same with my book, Christian Economics in One Lesson.
Let's talk about the things not seen. The consumer who buys a cheaper product in America because it has been imported from China now has more money to spend or save. He is not going to put that money under his mattress. He is going to put it in the bank or he is going to spend it. If he spends it, he is going to spend it inside the United States. He is probably going to buy something produced in the United States. He is going to spend it on something produced by American workers in the United States.
Maybe the consumer saves his money. He puts it in the bank. So, the bank lends it to somebody who wants to buy a product, or the bank lends it to a business that wants to produce a product.
The pro-tariff person is indulging in the fallacy of the thing not seen. What he does not see is the money saved or spent by one or more American consumers.
It is possible that an American who works for a company that cannot compete with imported goods will lose his job. But isn't that what the free market is all about which is the idea that consumers should have the right to buy what they want? The person who has asked too much for what he is selling should go out of business if a competitor comes in and supplies whatever it is a lower price. The people who were employed by that company will go out and get jobs. They won't pay quite as much, but they shouldn't pay quite as much. By demanding more than the consumer was willing to pay, these people lost their jobs.
They will not be unemployed. They will be employed at a market wage. That is what we all should be employed at. Why should anybody be allowed to demand an above market wage based on government intervention? The tariff allows a relative handful of workers to demand wages above what the market would pay them if there were no government intervention.
Those American consumers who buy the output of these protected companies have less money to spend on the things they really want to buy. They would like to buy other goods and services, but they cannot afford to do this. So, people in companies inside the United States who would otherwise be able to sell goods and services to these consumers find that the consumers do not make the purchases. Why not? Because the government has intervened to protect a company or an industry that is now in a position to sell its output at a price above what consumers would otherwise be willing to pay.
What happens to jobs in those sectors of the economy that do not get orders from consumers? They disappear. One group of Americans, namely, those working in industries protected by tariffs, benefit, but they do so only at the expense of American workers in other companies that cannot find buyers among consumers who are victims of government intervention.
The defender of tariffs cannot understand this. He does not think logically. He cannot imagine the things not seen. All he can see is that an American company goes out of business because of superior foreign competition. He does not see the employment that resulted from the savings made available to consumers by the imported goods.
HOW MUCH PRODUCTION ARE WE TALKING ABOUT?
Not much. In a recent study, three economists conclude the following.
First, despite how individual shopping experiences may appear, the majority of U.S. personal consumption expenditures are on domestically produced goods and services. Second, nearly half of the amount we spend on imported goods stays in the United States to pay for the local component of the retail price of these goods. Third, almost half of the total expenditures on imports is embedded in the production of U.S. goods and services that use imported intermediate inputs. Taking all of these factors into account, import content in total PCE [personal consumption expenditures] was just over 10% in 2017.
This conclusion is similar to the conclusion that two of the three economists made in 2011.
In short, the whole issue of tariffs really is a tempest in a teapot, economically speaking. As we learned in 2016, it is a big deal politically. It still is. But tariffs have a small impact on the overall American economy, which is in the range of $21 trillion.
WHICH BORDERS ARE ECONOMICALLY RELEVANT?
I begin with a principle: American workers do their work inside borders. There are city borders, county borders, state borders, and the American border. I asked this question: Why is the American border economically relevant for discussing tariffs, but all of the other borders are not relevant?
Let us begin with one worker. He lives in Detroit. He demands $30 an hour. He is a member of the United Auto Workers. Another worker in Tennessee is willing to do the same amount of work for $15 an hour. So, a Japanese auto manufacturer sets up a plant in Tennessee, where it can hire all the workers it wants at $15 an hour. It can therefore sell its cars cheaper than American cars made in Detroit. The person in Detroit loses his job. Does anyone who defends tariffs also defend the Detroit worker as "the American worker"? Of course not. He doesn't give a thought about the Detroit worker. He thinks that it is wise to hire an American in Tennessee at half the price. He can buy a cheaper car this way. Or he can buy a better quality car at the same price as the American car.
What is the difference between the two borders? There is a state border around Michigan. There is a state border around Tennessee. There are borders in between. Who cares? Not a defender of tariffs.
What is the relevance economically of the border? There's a border down the middle of every road in America. People on one side of that border drive in one direction. People on the other side of the border drive in another direction. This is a judicial matter. But nobody says that there ought to be tariffs on goods imported from the other side of the street. Why not? Logically, why not?
How about borders that divide cities? Should there be tariffs on imports across these borders? I've never heard anybody argue this way.
What about borders between states? The original impetus of the United States Constitutional convention was to get rid of tariffs between the states. The Constitution achieved this goal.
If tariffs between cities make no sense, and if tariffs between states make no sense, then why do tariffs between countries make sense? The tariff defender says that they do make sense. But he cannot explain this without adopting the fallacy of the things not seen.
These people have two sets of logic. They apply economic logic, or maybe just ignore economic logic, when it comes to city borders and state borders. Then they say there is a different economic logic as it applies to national borders. Of course, they don't actually say this, but they assume it.
BADGES AND GUNS
The pro-tariff person assumes this: economic freedom is not a good thing. Freedom allows consumers the right to buy what they want. This is bad, bad, bad. We should not allow this kind of freedom. What we need is sales taxes.
This person says he's in favor the free market. But he is not in favor of the free market. He is just another defender of the idea that the state should send out a man with a badge and a gun, and stick the gun in the belly of the consumer. "You can't buy this, boy. You don't have the right to buy this. I've got this badge. I've got this gun. I'm not going to let you buy that. You got that, boy?"
This person is a mini-tyrant. He cannot think logically. He believes that the President should send out people with badges and guns and stick those guns in the bellies of American consumers. He thinks it's moral. He thinks it's a good economic policy.
He can't think straight. He cannot imagine the fallacy of the things not seen. He literally cannot follow a very short chain of economic reasoning.
I ask this: Why should you spend your time arguing with people like this? There aren't very many of them. They elected Trump, or least some of them did, and the result is losses for American farmers. China is retaliating against farm imports. Don't farmers' jobs count?
DO YOUR HOMEWORK
I have devoted an entire department to refuting every pro-tariff question you have ever read. The department is free. It's here: https://www.garynorth.com/public/department162.cfm.
If you are going to get into an argument with somebody who, from the beginning, cannot think straight economically, and was a big advocate of government tyranny based on badges and guns, it is a good idea to think through why you are wasting your time with this person. Your time is valuable. Would you waste time arguing with Bernie Sanders? I know I wouldn't. How about arguing with AOC? I think you would be wasting your time. You're equally wasting your time with somebody who says he's in favor of low taxes, but then he says he's in favor of tariffs. He is in favor of the free market but is not in favor of free trade. But the great defense of the free market is Adam Smith's Wealth of Nations, and it is a 900-page defense of comprehensive free trade, including no tariffs.
If you're going to debate with somebody, do your homework. Read every article in this department. Don't just read it; think through what you have read. Be able to lecture to the wall. Read the article, and then literally lecture to the wall on its logic. When you can do this, then you may want to spend time debating with somebody who has no influence, who has never read a book on economics, who cannot think straight, and who believes in an economy based on badges and guns.
I believe in doing your homework. I have spent the last 60 years doing my homework. I have published the results of this homework. I have done the legwork. I have done the grunt work. All you have to do is read the results.
© 2022 GaryNorth.com, Inc., 2005-2021 All Rights Reserved. Reproduction without permission prohibited.