Trade Restrictions: Some Effects

President Trump wants significant tariffs to help save U.S. jobs.  What are the effects of these policies?  An import tariff (or an import quota) slows or prevents the importation of goods and services into a country, making it similar to a wartime blockade.  It seems silly to impose a blockade on oneself, but that is what tariffs and quotas do.

Tariffs and quotas hurt importers to the extent that importers' sales are lowered.  However, the primary victim is the consumer, and the primary beneficiary is the producer – even the inefficient producer.

In a true free market, the consumer is king; producers must meet the demands, of consumers or the consumer will go elsewhere.

For example, assume you plan to purchase electronics this year.  You plan to spend about $3,000 and will most likely purchase foreign-made products.  If Congress imposes a 20% tariff, you must spend $3,600.  Where will you get the additional funds to make your desired purchase?  You need to reduce spending in other areas of your life to make up the difference.  The areas where you decrease spending are hurt indirectly by the tariff that is intended to save jobs.  At the same time, if a U.S. producer already sells similar products for $3,300, the producer can now charge $3,600 and get a windfall profit of $300 due to the tariff. 

Due to import quotas and farm subsidies, sugar in the U.S. costs about double the world price.  This is great for sugar producers, but how does it affect the rest of us? 

First, consumers pay more than they should for sugar.  Unfortunately, the cost per person is small, so the cost to lobby for the elimination of quotas or farm subsidies greatly outweighs the benefits to any individual.  With billions at stake, it is well worth the effort of sugar producers to lobby for the continuation of these policies.

Second, according to Mark Perry of the American Enterprise Institute:

2. Approximately 987,810 people worked in sugar-using industries as of 2002.  In contrast, there are 61,000 full-time equivalent jobs involved in the growing and harvesting of sugarcane and sugar beets.  Studies suggest that the U.S. sugar program helps to maintain approximately 2,260 of these sugar industry jobs, many of which are growing and harvesting jobs, at an annual cost per job saved of $826,000.  Therefore, the total economic cost to the U.S. economy of those jobs saved is about $1.9 billion per year.

3. For each one sugar growing and harvesting job saved through high U.S. sugar prices, nearly three confectionery manufacturing jobs are lost.

What jobs are lost due to these policies?  Think about all the businesses that use sugar as a major ingredient – candy, cookies, and soda, for example.  In Michigan, Life Savers moved production to nearby Canada, and Ferrara Candy expanded their operations in Canada and Mexico, but not the USA.  Both were escaping high sugar costs.  The maker of Oreos built a new facility and moved some production to Mexico, taking advantage of both lower labor rates and a lower sugar price.

Similarly, steel quotas and tariffs help save jobs in the steel industry, but how do the higher steel prices affect steel using industries?

Manufacturing jobs are falling and have been since the 1970s, but manufacturing output is near its all-time high.  Before implementing tariffs, we should understand how many and what kind of jobs are lost because of trade compared to those lost to technology.  It is impossible to know for certain, and there are studies that contradict each other.  Don Boudreaux at Café Hayek explains this nicely.

If you believe that protectionist policies and "buy American" programs are good, you can implement them on your own.  You are free to purchase products made in the USA without imposing tariffs and quotas on everyone.  Tariffs and quotas reduce each person's freedom of choice.  Every individual should be free to spend his money however he chooses.

We can easily see the jobs saved by tariffs and quotas.  They are usually highly touted by the protected industries.  Job losses caused by protectionist policies are much harder to identify.  It is even harder to identify jobs that are never created because protectionist policies made starting or expanding a business too expensive. 

President Trump should carefully consider both the seen and unseen impacts of his proposed trade policy.

Frederic Bastiat, who wrote about protectionism in "The Candlemakers' Petition," wrote, "Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race."

Thomas Nichta lives in San Antonio.  He is an ambassador for the Mises Institute.  The views expressed here are his and not necessarily those of the Mises Institute.

President Trump wants significant tariffs to help save U.S. jobs.  What are the effects of these policies?  An import tariff (or an import quota) slows or prevents the importation of goods and services into a country, making it similar to a wartime blockade.  It seems silly to impose a blockade on oneself, but that is what tariffs and quotas do.

Tariffs and quotas hurt importers to the extent that importers' sales are lowered.  However, the primary victim is the consumer, and the primary beneficiary is the producer – even the inefficient producer.

In a true free market, the consumer is king; producers must meet the demands, of consumers or the consumer will go elsewhere.

For example, assume you plan to purchase electronics this year.  You plan to spend about $3,000 and will most likely purchase foreign-made products.  If Congress imposes a 20% tariff, you must spend $3,600.  Where will you get the additional funds to make your desired purchase?  You need to reduce spending in other areas of your life to make up the difference.  The areas where you decrease spending are hurt indirectly by the tariff that is intended to save jobs.  At the same time, if a U.S. producer already sells similar products for $3,300, the producer can now charge $3,600 and get a windfall profit of $300 due to the tariff. 

Due to import quotas and farm subsidies, sugar in the U.S. costs about double the world price.  This is great for sugar producers, but how does it affect the rest of us? 

First, consumers pay more than they should for sugar.  Unfortunately, the cost per person is small, so the cost to lobby for the elimination of quotas or farm subsidies greatly outweighs the benefits to any individual.  With billions at stake, it is well worth the effort of sugar producers to lobby for the continuation of these policies.

Second, according to Mark Perry of the American Enterprise Institute:

2. Approximately 987,810 people worked in sugar-using industries as of 2002.  In contrast, there are 61,000 full-time equivalent jobs involved in the growing and harvesting of sugarcane and sugar beets.  Studies suggest that the U.S. sugar program helps to maintain approximately 2,260 of these sugar industry jobs, many of which are growing and harvesting jobs, at an annual cost per job saved of $826,000.  Therefore, the total economic cost to the U.S. economy of those jobs saved is about $1.9 billion per year.

3. For each one sugar growing and harvesting job saved through high U.S. sugar prices, nearly three confectionery manufacturing jobs are lost.

What jobs are lost due to these policies?  Think about all the businesses that use sugar as a major ingredient – candy, cookies, and soda, for example.  In Michigan, Life Savers moved production to nearby Canada, and Ferrara Candy expanded their operations in Canada and Mexico, but not the USA.  Both were escaping high sugar costs.  The maker of Oreos built a new facility and moved some production to Mexico, taking advantage of both lower labor rates and a lower sugar price.

Similarly, steel quotas and tariffs help save jobs in the steel industry, but how do the higher steel prices affect steel using industries?

Manufacturing jobs are falling and have been since the 1970s, but manufacturing output is near its all-time high.  Before implementing tariffs, we should understand how many and what kind of jobs are lost because of trade compared to those lost to technology.  It is impossible to know for certain, and there are studies that contradict each other.  Don Boudreaux at Café Hayek explains this nicely.

If you believe that protectionist policies and "buy American" programs are good, you can implement them on your own.  You are free to purchase products made in the USA without imposing tariffs and quotas on everyone.  Tariffs and quotas reduce each person's freedom of choice.  Every individual should be free to spend his money however he chooses.

We can easily see the jobs saved by tariffs and quotas.  They are usually highly touted by the protected industries.  Job losses caused by protectionist policies are much harder to identify.  It is even harder to identify jobs that are never created because protectionist policies made starting or expanding a business too expensive. 

President Trump should carefully consider both the seen and unseen impacts of his proposed trade policy.

Frederic Bastiat, who wrote about protectionism in "The Candlemakers' Petition," wrote, "Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race."

Thomas Nichta lives in San Antonio.  He is an ambassador for the Mises Institute.  The views expressed here are his and not necessarily those of the Mises Institute.