What Would Henry Hazlitt Think About Trump’s Trade Policy With Mexico And China?

download (1)

Donald Trump loves talking about Tariffs: he talks about them quite constantly actually. He’s gonna slap a tariff on Ford cars made in Mexico. He’s gonna slap tariffs on China (say that in Trump exaggerated way now). It seems like the so-called fair and free market supporter that he is is in favor of some unfair policies, and policies that will hurt American workers, as they’ve done so in the past.

Today, I’m talking some Henry Hazlitt, specifically on tariffs and trade policy (because those two seem to be the two of the core points in his campaign). To start, allow us to examine some select words from Chapter 11 of Henry Hazlitt’s “Economics in One Lesson” on tariffs, and to do this, we need to first read over an example that Hazlitt gives:

Now let us look at the matter the other way round, and see the effect of imposing a tariff in the first place. Suppose that there had been no tariff on foreign knit goods, that Americans were accustomed to buying foreign sweaters without duty, and that the argument were then put forward that we could bring a sweater industry into existence by imposing a duty of $5 on sweaters.

There would be nothing logically wrong with this argument so far as it went. The cost of British sweaters to the American consumer might thereby be forced so high that American manufacturers would find it profitable to enter the sweater business. But American consumers would be forced to subsidize this industry. On every American sweater they bought they would be forced in effect to pay a tax of $5 which would be collected from them in a higher price by the new sweater industry.

Americans would be employed in a sweater industry who had not previously been employed in a sweater industry. That much is true. But there would be no net addition to the country’s industry or the country’s employment. Because the American consumer had to pay $5 more for the same quality of sweater he would have just that much less left over to buy anything else. He would have to reduce his expenditures by $5 somewhere else. In order that one industry might grow or come into existence, a hundred other industries would have to shrink. In order that 20,000 persons might be employed in a sweater industry, 20,000 fewer persons would be employed elsewhere.

But the new industry would be visible. The number of its employees, the capital invested in it, the market value of its product in terms of dollars, could be easily counted. The neighbors could see the sweater workers going to and from the factory every day. The results would be palpable and direct. But the shrinkage of a hundred other industries, the loss of 20,000 other jobs somewhere else, would not be so easily noticed. It would be impossible for even the cleverest statistician to know precisely what the incidence of the loss of other jobs had been—precisely how many men and women had been laid off from each particular industry, precisely how much business each particular industry had lost—because consumers had to pay more for their sweaters. For a loss spread among all the other productive activities of the country would be comparatively minute for each. It would be impossible for anyone to know precisely how each consumer would have spent his extra $5 if he had been allowed to retain it. The overwhelming majority of the people, therefore, would probably suffer from the optical illusion that the new industry had cost us nothing.

It is my contention that Trump may actually be aware of this. Maybe he does not care, and he’s willing to go ahead and do it anyways. His tariff proposals will mean that ALL CONSUMERS will pay a higher price on goods, be they the foreign goods with the tariff, or the domestic goods at the higher price. This is a gross manipulation of the free market, and further promotes a big government that Donald *occasionally* professes to hate.

This brings me to the next thing from Hazlitt which I will quote from him, specifically referring to the earlier example, and what would happen with wages:

And this brings us to the real effect of a tariff wall. It is not merely that all its visible gains are offset by less obvious but no less real losses. It results, in fact, in a net loss to the country. For contrary to centuries of interested propaganda and disinterested confusion, the tariff reduces the American level of wages.

Let us observe more clearly how it does this. We have seen that the added amount which consumers pay for a tariff-protected article leaves them just that much less with which to buy all other articles. There is here no net gain to industry as a whole. But as a result of the artificial barrier erected against foreign goods, American labor, capital and land are deflected from what they can do more efficiently to what they do less efficiently. Therefore, as a result of the tariff wall, the average productivity of American labor and capital is reduced.

If we look at it now from the consumer’s point of view, we find that he can buy less with his money. Because he has to pay more for sweaters and other protected goods, he can buy less of everything else. The general purchasing power of his income has therefore been reduced. Whether the net effect of the tariff is to lower money wages or to raise money prices will depend upon the monetary policies that are followed. But what is clear is that the tariff—though it may increase wages above what they would have been in the protected industries—must on net balance, when all occupations are considered, reduce real wages.

Allow me to use an example: the Smoot-Hawley Act of 1930, which increased tariffs on a large number of imports to protect American industries. This was after the Depression was already well underway. The result of Smoot-Hawley was to begin a trade war, where countries raised tariffs on the United States. This crippled all exports in EVERY country, and what you saw was a worsening of the Depression, and sinking the US into further troubles. More people suffered after something intended to help them was passed. This WILL be the result of the Trump tariff plan, whether you like it or not.

You will raise tariffs, but you will not raise wages, you will not make productivity better, you will not make people better off, you will not. It simply won’t work, not in the current climate of business. And do not tell me how Donald will make that better, because I know it’s not going to happen.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s