Prof. Walter Williams: Shooting Ourselves in the Foot -- Here's a Better Alternative to Tariffs

The Canadian government, lining the pockets of its dairy producers, imposes high tariffs on American dairy imports. That forces Canadians to pay higher prices for dairy products. For example, Canadians pay $5.24 for a 10.5-ounce block of cheddar. In Washington, D.C., that same amount of cheddar sells for $3.64. Canadians pay $3.99 for a 1-pound container of yogurt. In Washington, D.C., you can get nearly twice as much yogurt for a little over $4. It's clear that the Canadian government's tariffs screw its citizens by forcing them to pay higher prices for dairy products.

What should the U.S. response be to Canada's screwing its citizens? If you were in the Trump administration, you might propose imposing tariffs on soft wood products that Americans import from Canada — in other words, retaliate against Canada by screwing American citizens. Canadian lumber — such as that from pine, spruce and fir trees — is used in U.S. homebuilding. Guess what tariffs on Canadian lumber do to home prices. If you answered that they raise the cost and American homebuyers are forced to pay higher prices, go to the head of the class.

This retaliation policy is both cruel and not very smart. It's as if you and I were in a rowboat out at sea and I shot a hole in my end of the boat. What should be your response? If you were Secretary of Commerce Wilbur Ross or Secretary of the Treasury Steven Mnuchin, you might advise retaliating by shooting a hole in your end of the boat. If I were president, I'd try to persuade officials of other countries not to serve special producer interests by forcing their citizens to pay higher prices. But if they insisted, I'd say, "Go ahead, but I'll be damned if I'll do the same to Americans!"

The ruse used to promote producer interests through tariff policy is concern about our large trade deficit. It's true that we have a large current account trade deficit. However, that's matched exactly by a very large capital account surplus. Translated, that means Americans buy more goods from other countries than they buy from us; that's our current account deficit. But other countries find our investment climate attractive and invest more in the U.S. than we invest in other countries; that's our capital account surplus.

Have you ever wondered why foreigners are willing to invest far more money in Texas and California than they are willing to invest in Argentina and Venezuela? Do you think it's because they like North Americans better than they like South Americans? No. We've always had an attractive investment climate, and we've had current account deficits and capital account surpluses throughout most of our nation's history. In fact, the only time we had a sustained current account trade surplus was during the Great Depression, when we had a surplus in nine out of 10 years, with 1936 being the lone exception.

Let's delve a bit into the politics of trade tariffs. Whom do we see spending the most resources lobbying for tariffs on foreign steel and aluminum? Is it American users of steel and aluminum, such as Harley-Davidson and John Deere? Or is it United States Steel Corp. and Alcoa? Of course it's U.S. Steel and Alcoa. They benefit from tariffs by being able to sell their products at higher prices. Harley-Davidson and John Deere lose by having to pay higher prices for their inputs, steel and aluminum, and their customers lose by having to pay higher product prices.

There's a lot of nonsense talk about international trade, which some define as one country's trading with another. When an American purchases a Mercedes, it does not represent the U.S. Congress' trading with the German Bundestag. It represents an American citizen's engaging in peaceable, voluntary exchange, through intermediaries, with a German auto producer. When voluntary exchange occurs, it means that both parties are better off in their own estimation — not Trump's estimation or General Motors' estimation. I'd like to hear the moral case for third-party interference with such an exchange.

Tariffs have their uses, but they tend to subsidize companies that cannot compete

That is BS. Domestic companies have to compete with each other. The same mechanism that apply to trade with others countries applies to domestic manufacturers. What you are saying is you have no faith in the American economic system to produce the best products for Americans. I don't call them Free Traitors™ for nothing, it's well deserved moniker.

Not BS. Look at the auto industry in the 30 years after WW2. No, of course they weren’t protected...they didn’t have to be, we (or the Germans or the Russians) bombed their competitors’ factories into dust, and pretty much devastated their economies to the point that they couldn’t produce any decent autos for several decades.

So, what did this tariff-by-bomb produce here? GM, Ford and Chrysler DID compete with each other...to see who could produce the crappiest cars and still sell them to the American public. OK, so that’s a bit of an exaggeration...but not by much, since the Germans and Japanese came along in the late ‘70s and ‘80s, and damned near drove all of Detroit into bankruptcy. The simple fact is that even with competition, having a tariff or other barrier to entry for competition (even a barrier created by cratering your competition’s factories) produces LESS competition. The Big 3 are not the first, nor will they be the last, to act in this manner - aided and abetted by their own collusion, and their lobbyists in DC.

Again, I’m for consumption taxes leveled evenly on all participants, as opposed to income taxes. But tariffs produce only short-term benefits for domestic companies, while shorting the consumer. They are best used, IMHO, to get foreigners to reduce their own tariffs, so as to really allow the free market to work (which would lead, IMHO, to a great deal of prosperity here, as I most certainly DO have lots of faith in the abilities of our economic system).

It's BS propaganda. You Free Traitors™ always take the car industry and project that on the an entire $18T economy 30 years ago the auto industry was having trouble and unions were a big problem. That's over. Now over 90% of the manufacturing done in the USA is done by non union workers. 90%!

Same broken Free Traitor ™ goo flowing from your finger tips. A broken record, the same old tired song. Go away back under your rock.

Stop with the “Free Traitor” shit. I’m for free trade, but ONLY if it is truly free in both directions. If not (and it usually isn’t) - well, that’s what tariffs are for. I’m very much like Trump, in that I’d prefer free trade, but I’m not so naive as to fall for mere academic theories as a means of determining policy.

As for the auto industry, they did have union problems. So why didn’t they MASSIVELY shut down factories and build new ones in non-union states? IMHO, the reason is that they didn’t really care, they were fine with the status quo (which included paying huge dividends to shareholders, rather than plowing a bunch of that money back into R&D and quality control. Had they done that, the Germans and Japanese would never have made a dent in our market...we’d have been a constantly moving target.

Of course not...but it was emblematic of ANY large and mature industry. The only thing that has improved autos so much is competition - now they’re actually competing against each other, not just the furriners.

FYI, my 2015 Chevy Impala - with a smallish V-6 and an automatic - is WAY faster than my ‘69 GTO; it is on par with the GTO Judge with the Ram Air IV engine and a 4-speed. It handles way better, brakes better, is certainly quieter, is more reliable, will last longer, won’t have its body rust out (thanks, zinc coating), gets twice the mileage while doing all of that, and has all kinds of modern conveniences - all for about the same inflation-adjusted price. The preceding 45 years of technological progress - induced by competition - is responsible for that. In the 20 or so years before my GTO was made, there was very little technological progress that found its way into automobiles that regular consumers could buy - because of the LACK of competition. Nash was far ahead of his time - but the Big 3 killed him off because they didn’t want to have to upgrade everything. They got away with it until about 1975 - because Japan and Germany were lots bigger than Nash.

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