Is it time to impose tariffs on China and Mexico?
Should Donald Trump impose a 35% tariff on the importation of goods from China and Mexico as he proposes to do once inaugurated? The short answer, for two reasons, is NO.
Reason number one has to do with utilitarian ethics. Nearly all studies conducted by unbiased economists have found that trade restrictions are negativesum games: There are more losers than winners, or the total losses exceed the total gains. For every job saved, two or three jobs are destroyed, depending on the study and the underlying assumptions.
Trump proposes imposing a tariff of 35% on imports from China and Mexico. The first question to be asked is, "who ultimately pays these tariffs?" The answer is, American consumers.
But that's not the end of the story. Even people who don't purchase those Chinese and Mexican products are worse off as a result of the tariff. A 35% tariff on the importation of foreign goods allows American producers to raise their prices. If they raise their prices by anything less than 35%, they will gain market share. American consumers who purchase American products will have to pay these higher prices. Tariffs are a form of corporate welfare because they benefit domestic producers. They are also a tax imposed on American consumers. American producers who pressure the government to impose tariffs on foreign producers are engaged in what economists call rent-seeking – feathering their own nests at the expense of the public.
And beyond utilitarian calculations, let's talk about rights. President Trump should not impose a 35% tariff on the importation of Chinese or Mexican products because it violates the property and contract rights of both buyers (American consumers) and sellers (Chinese and Mexican producers).
Consumers should be free to trade what they have (cash) for what they want (goods) without government interference. If a 35% tariff is imposed, it is likely that many Chinese and Mexican products will be shut out of the U.S. market. Their prices will become prohibitively high. American consumers will no longer even have the option of purchasing these products because they will never even cross the border. If they are able to cross the border, American consumers will have to pay more to obtain them.
The only trade policy that does not violate property rights is a policy of free trade.
That means no tariffs, no quotas, no punishment for selling at a price that is deemed unacceptable by some bureaucrat in Washington, no protectionist schemes like domestic content laws, and no other restrictions on trade. If consenting adults and the corporations that represent them can trade what they have for what they want without government interference, no one's rights are violated. In all other cases, rights are violated, which is unacceptable.