What do history's most notorious despots have in common with many of the flag-waving, patriotic politicians of our day? Both groups rise to power through the exploitation of fear, which has become a societal plague. There have been widespread casualties. We need an antidote. Feardom offers its readers a much-needed immunization.
photo credit: lawatt
Article I Section 8 of the U.S. Constitution gives to Congress the authority to “lay and collect taxes, duties, imposts and excises”. Included in these powers is the tariff—a tax imposed on imported goods. Such tariffs provided the main source of revenue for the federal government until the introduction of income taxes in 1913, and for the first part of our nation’s existence were broad-based taxes applied widely across imports.
As nationalist central planners rose to power, a tumultuous tug of war ensued where tariffs once used in a broad and even manner came to be wielded as political weapons to encourage one industry over another and favor certain companies and goods at the expense of others. It is this latter type of tariff—a “protective” tariff—that has for almost two centuries been a favored method of intervention by the federal government into the economy.
The ideological enemies of such protective tariffs were once commonly known as free traders, though in the latter half of the twentieth century this name became a hiss and a byword among conservatives, as its application morphed into a bastardized version of trade that is more correctly defined as “managed trade”. So-called “free trade agreements” such as NAFTA, CAFTA, GATT, WTO, and all sorts of other acronym-heavy organizations, are sovereignty-eroding, quasi-governmental international bodies that no more resemble free trade than Congress resembles wisdom.
True free trade requires no treaties, no administrative bureaucracies, and no government-directed import/export processes. It is in the absence of these things, rather, that free trade manifests itself most purely. It acts, as economist Frédéric Bastiat once noted, “exactly in the same way as roads, canals, railways, and everything else that facilitates communication by removing obstacles.” Ludwig von Mises, erudite economistic/philospher that he was, narrowly defined it thusly:
There are countries with relatively favorable and others with relatively unfavorable natural conditions of production. In the absence of interference on the part of governments, the international division of labor will, of itself, result in every country’s finding its place in the world economy, no matter how its conditions of production compare with those of other countries. Of course, the countries with comparatively favorable conditions of production will be richer than the others, but this is a fact that cannot be altered by political measures in any case. It is simply the consequence of a difference in the natural factors of production.
The antithesis of free trade, protectionism, crosses party lines, and even so-called conservatives and supposed defenders of liberty embrace this tool of tyranny to wage economic warfare in the name of ensuring a strong manufacturing base here at home. Advocates of this economic manipulation have rallied around the banner of “fair trade” in recent years, asserting that in order for trade to be truly free, it must first be fair. They contend that the imbalance among nations—whether due to natural or artificial causes—necessitates using tariffs to compensate for this inequity and allow domestic producers to compete. But just as Mises noted a difference between countries through favorable or unfavorable conditions (Florida grows oranges far better than Sudan, and Thailand is better for growing rice than is Norway), differences can also occur through artificial means, such as one government subsidizing a certain export which introduces “unfair” competition in another country’s market for that product. Thus, the fair traders cry, tariffs are needed to defend our markets against the flood of cheaply-priced goods coming in from countries for whom these differences are favorable. (Most also hypocritically ignore the massive subsidies distributed by our own government which has the same effect in the markets of other countries; that pesky golden rule must be suppressed!)
Responding to differences of any type, and using his masterful rhetoric to satirically argue on behalf of candlemakers, Bastiat wrote the following to dismantle the protectionist’s argument:
We are suffering from the ruinous competition of a foreign rival who apparently works under conditions so far superior to our own for the production of light, that he is flooding the domestic market with it at an incredibly low price…. This rival … is none other than the sun….
We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights and blinds; in short, all openings, holes, chinks, and fissures.
Yet despite this clear reductio ad absurdum of protectionism, fair traders maintain their anti-liberty argument by noting that without protecting our local manufacturing base, we jeopardize our ability to adequately defend ourselves during wartime. Thus do neoconservatives transmogrify almost any issue into a matter of national security, clamoring for intervention and big government to achieve their aims.
Mises observed the following:
The freetrader is far from denying that the evil that the nations of the world wish to combat by means of a policy of protectionism really is an evil. What he maintains is only that the means recommended by the imperialists and protectionists cannot eliminate that evil.
As the saying goes, just because others shoot themselves in the foot doesn’t mean that we have to follow suit. The fact that other governments—even those hostile to our own—subsidize certain industries whose exports then become cheaper to the American people than their domestically-produced counterparts does not constitute a threat to our sovereignty, security, or liberty. In reality, the protectionists’ standard response to these cheap goods are a larger threat.
Despite being burdened by protective tariffs, heavy regulations, and the bureaucracy of managed trade organizations, the American manufacturing basis has been able to thrive. (In other words, it is in spite of—not because of—such protectionism that business has thrived.) Having access to a greater supply of inexpensive raw materials enables manufacturers to reduce their costs and become even more competitive in the marketplace. On the other hand, inflating the price of imported goods through protective tariffs only leaves domestic access to goods at high prices, thus reducing the production and innovation of new goods and the creation of new jobs. This puts our manufacturers at a competitive disadvantage and discourages economic growth.
“It is an old fallacy that it is a legitimate task of civil government to protect the less efficient producer against the competition of the more efficient,” Mises once wrote. It is, additionally, a laughable absurdity that any government official—whether elected or appointed—can determine what is “fair” for another person, and thus impose taxes to alter an economic transaction and make things “more equitable”.
In pursuit of that mystical equity, fair trade protectionists beg for government’s intervention through targeted (protectionist) tariffs. (The supposed constitutionalists of the bunch will defend their attack on liberty by making the dubious claim that such intervention is authorized by the Constitution; this assertion might find support in the letter of the law, though its spirit is ravaged through such tariffs not having a general application.) But this intervention is simply a contest between “special interests” where each industry and company sends its emissaries to court easily-purchased legislators with the goal of securing favorable legislation that helps them and hinders their competitors. It exposes the sadly true indictment by Bastiat of what government inevitably becomes: “the great fiction through which everybody endeavors to live at the expense of everybody else.”
Such being the case, the protective tariff becomes not an implement to bolster national security and encourage a strong manufacturing base, but a mercantilist weapon of war turned inward on the American people. Mises commented:
The philosophy of protectionism is a philosophy of war. The wars of our age are not at variance with popular economic doctrines; they are, on the contrary, the inescapable result of a consistent application of these doctrines.
Henry Hazlitt taught that we must examine economic policies by considering their long-term results on all affected parties. Under such scrutiny, protective tariffs are easily exposed as destroyers of wealth, enemies of liberty, and devices of big government bureaucrats.
It is the reduction of government intervention into the marketplace—not more, as fair trade protectionism requires—that will encourage domestic production and investment, strengthen national security, and create wealth. True free trade is the only system of economic exchange in which liberty is preserved and all parties profit. The American economy would be best served by the abolition of all free trade agreements, the substantial reduction of regulation on businesses, and the elimination of all tariffs that focus on a specific product, industry, or country.