By Dr Frank Shostak
On January 31, 2025, US President Donald Trump announced that he would impose a 25 percent tariff on imports from Canada and Mexico (except for Canadian crude oil and energy imports, which will be subject to a 10 percent tariff) and a 10 percent tariff on imports from China. Tariffs are taxes on things that Americans buy from producers in other countries (see Tariffs Will Not Make America Great Again – Connor O’Keeffe- 1/29/2025 Mises Wire).
One would have thought that out of all people, President Trump, who prides himself of placing America first, would never consider imposing tariffs. After all a tariff on any imported good implies curtailing the supply of less costly goods and encouraging the supply to the domestic market of more costly domestically produced goods i.e. punishing the domestic consumers i.e. the Americans. In his Economics in One Lesson, (p 75) Henry Hazlitt quotes Adam Smith,
It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers. All of them find it their interest to employ their whole industry in a way in which they have some advantage over their neighbors, and to purchase with a part of its produce, or what is the same thing, with the price of a part of it, whatever else they have occasion for. What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.
Also, on this Rothbard wrote in the Power and Market (p 47),
Tariffs injure the consumers within the “protected” area, who are prevented from purchasing from more efficient competitors at a lower price.
Furthermore, by raising a protection wall to various inefficient domestic industries, Trump’s policies are going to promote inefficiency, thereby undermining the process of wealth generation. In The Menace of Tariffs Mises Wire 11/19/2024 -Llewellyn H. Rockwell Jr made the following comments,
Trump said in his interview that high tariffs will encourage foreign firms to relocate to the United States, so that they can avoid paying the tariffs. What this argument ignores is that there is no benefit to American consumers in having firms located here rather than in foreign countries. What matters to consumers is getting the lowest price for the goods and services they want; and if the firm that offers the lowest price is in China rather than America, so what?
According to Rothbard, in Mises Daily 11/15 2011 – Smashing Protectionist “Theory” (Again)
Invariably, we will find that the protectionists are out to cripple, exploit, and impose severe losses not only on foreign consumers but especially on Americans. And since each and every one of us is a consumer, this means that protectionism is out to mulct all of us for the benefit of a specially privileged, subsidized few — and an inefficient few at that: people who cannot make it in a free and unhampered market.
Take, for example, the alleged Japanese menace. All trade is mutually beneficial to both parties — in this case Japanese producers and American consumers — otherwise they would not engage in the exchange. In trying to stop this trade, protectionists are trying to stop American consumers from enjoying high living standards by buying cheap and high-quality Japanese products. Instead, we are to be forced by government to return to the inefficient, higher-priced products we have already rejected. In short, inefficient producers are trying to deprive all of us of products we desire so that we will have to turn to inefficient firms. American consumers are to be plundered.
Given that President Trump considers himself as a successful businessman, he is surely must be well aware that the ultimate goal of every business is to make profit. Hence, to succeed in this task as a businessman, Donald Trump will not allow activities that are going to undermine the net worth of his company.
Yet the President is of the view that this is ok for the economy as a whole. If planned policies such as imposition of tariffs are going to weaken the process of wealth formation and undermine individuals’ wellbeing, obviously this is going to be bad news for the economy as a whole i.e. for America, which President Trump holds as number one on his priority list. Note that President Trump is of the view that by means of the tariffs tampering he can make the US economy prosperous. On this Ludwig von Mises said the following (see Human Action Fourth Revised Edition p 744),
At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing it subjects, and that it can spend this mythical something for definite purposes.
The Peterson Institute for International Economics estimated that a 25 percent tariff, retained through 2029, would reduce the gross domestic product of the United States by US$200 billion. According to the Budget Lab at Yale University, American households will lose approximately US$1,200 in purchasing power.
The retaliation by countries such as China, the Eurozone and Canada to Trump’s tariffs raises the likelihood of a trade war that is going to feed the ego of politicians. By lifting tariffs on American imports, these countries will only make things much worse to themselves.
What is the point of punishing your own citizens because of a misguided economic policy of the US? By curbing imports from the US to the domestic markets, one does not fix the negative side effects of US tariffs.
If all countries in the world were to impose tariffs on imports, this would quickly arrest the international trade and lead to massive economic impoverishment. In Power and Market (p48 -49) Rothbard argued that the absurdity of the pro tariff arguments can be seen in the following example of two individuals Jones and Smith. This is a valid use of the reductio ad absurdum because the same qualitative effects take place when a tariff is levied on a whole nation as when it is levied on one or two people; the difference is merely one of degree.
Suppose that Jones has a farm, “Jones Acres,” and Smith works for him. Having become steeped in pro tariff ideas, Jones exhorts Smith to “buy Jones’ Acres”. “Keep the money in Jones’ Acres,” don’t be exploited by the flood of products from the cheap labor of foreigners outside Jones’ Acres,” and similar maxims become the watchword of the two men. To make sure that their aim is accomplished, Jones levies a 1000% tariff on the imports of all goods and services from “abroad”, i.e., from outside the farm. As a result, Jones and Smith see their leisure, or “problems of unemployment,” disappear as they work from dawn to dusk trying to eke out the production of all the goods they desire. Many they cannot raise at all, others they can, given, centuries of effort. It is true that they reap the promise of the protectionists: “self-sufficiency,” although the “sufficiency” is bare subsistence instead of a comfortable standard of living. Money is “kept at home”, and they can pay each other very high nominal wages and prices, but the men find that the real value of their wages, in terms of goods, plummets drastically. Truly we are now back in the situation of the isolated or barter economies of Crusoe and Friday. And that is effectively what the tariff principle amounts to. This principle is an attack on the market, and its logical goal is the self-sufficiency of individual producers: it is a goal that, if realized, would spell poverty for all, and death for most, of the present world population. It would be a regression from civilization to barbarism.
Conclusion
The imposition of tariffs is going to hurt the American consumers. This is going to stifle the trade between the US and the rest of the world. This we suggest is likely to undermine the process of wealth generation.
According to Mark Hendrickson – Trump’s First Big Economic Mistake – Mises Wire 03/0/2018,
In 1850, Frederic Bastiat wrote in his classic essay, “The Law,” that tariffs are a step toward socialism. In his words, “protectionism, socialism, and communism are basically the same plant in three different stages of its growth.” All three call for government to intervene in the marketplace to influence who gains and who loses.
