The Tariff Idea

by W. M. Curtiss

One of the fallacies popular throughout the world is the belief that exports are good and imports are bad. If we sell more than we buy, we have a “favorable” balance of trade—and that is supposed to be good. Actually, in a free market there is no such thing as a favorable or unfavorable balance of trade. There is simply a balance.
        Trade between nations is not different in this respect from trade between individuals. Suppose you sell a bushel of apples for two dollars. You get two dollars, which you would rather have than the apples; the buyer gets the apples, which he would rather have than two dollars. A perfect balance!
       True enough, our exporters may sell goods to English buyers and get sterling exchange. They may spend this money in France or Germany rather than in England, so that the flow of goods is not directly between England and America. But the same might be true in the trade of apples for dollars. With your two dollars, you probably will buy something from a third party rather than from the man who bought the apples.
       If we are to buy, we must sell. If we are to export, we must import. It is just that simple. Erecting barriers against imports is just another way of cutting down our exports. There will still be a balance, but at a lower level.
        Actually, tariffs have nothing to do with the balance of trade; they change the amount of trade, but the balance is still there. The optimum of foreign trade for any nation is that amount which will occur voluntarily when there are no artificial barriers to trade. It must be kept in mind that the term trade as used here refers to all exchanges—including services or travel or money or other types of “invisible” trade, as well as goods. The term refers to economic balance, rather than to physical balance.
        When governments use tariffs and other trade restrictions as instruments to influence, restrain, or coerce other peoples or governments, the field of international politics and intrigue is entered. If history offers any basis for judgment on this subject, it is that sound economics and morality are cast aside at such times....
        International politicians seem to assume that trade is a hostile process; that it is a concession granted to friendly nations; and that when it is withheld from unfriendly nations it does harm, without harming the withholder. Even the words sometimes used—protection, sanction, embargo, and the like—suggest hostility. They carry the implication of warfare—of doing something to restrain someone.
        Actually, trade as engaged in by individuals is generally a friendly exchange. A trader, to be sure, drives the best bargain he can. But when both sides are free to accept or reject offers, the result cannot be hostile to either party. If you’re out of gas, you don’t feel hostile toward the person who sells you some....
       In discussions of foreign trade, the term most-favored-nation clause is often used. This clause has, for several decades, been a part of many commercial treaties between nations. Its purpose is to prevent one nation’s being treated more favorably than any other nation signing the commercial pact. Thus, no favoritism among the signatory nations. Back of this idea is the concept that by reducing tariffs we are granting a favor to the other nation. We are; but it would be more nearly correct to say that the most favored nation in every such deal is the one granting the reduction. Why is it a sacrificial act to grant a favor in which you yourself will share?
        In the great expansion of trade restrictions following World War 1, some were imposed with the intent of retaliation. If country A raises a tariff wall against products from the United States, we are hurt by it; there’s no doubt about that. Country A, however, may fail to realize that its citizens are hurt to an equal or an even greater degree. So, what do we do about it? We are likely to say: “You can’t do this to us!” To drive home our conviction, we raise a retaliatory tariff against the products of country A. And who is affected by it? Country A, to be sure is hurt by our tariff because its people will have greater difficulty in exporting goods to us over the tariff wall; but we, too, are hurt by our tariff against the other country’s goods. Our consumers must pay more for imported goods which were formerly brought in duty-free. So the effect of such a combination of tariffs is to impoverish both nations. As Frederic Bastiat put it: “A protective duty is a tax directed against a foreign product; but we must never forget that it falls back on the home consumer.”
        The view is commonly held that in a world of widespread economic nationalism, where nations have raised tariff walls against nations, our only hope of survival is to do likewise. We must meet tariffs with tariffs—fight fire with fire. Such, of course, is not the case. Even if every single nation in the world raised tariffs against our products, we would gain in at least two ways by leaving our own borders open for the importation of goods. First, as consumers, we would benefit by the importation of goods and services shipped in at costs below those for which we could produce them. Second—and perhaps more important—this gesture would do more to establish friendly relations between nations than any other single thing we might do. Other nations would soon observe the wisdom of such a move and follow our example....
        National self-sufficiency is sometimes expressed as “economic nationalism,” “isolationism,” or the “keep the money at home” idea. The argument is that we would be better off, as a nation, if we did not trade with other nations. We would develop our own resources more fully; we would encourage domestic employment; and we would not become dependent on other nations for goods and services.
        On the question of dependency, it should be recalled again that trade is a two-way project. For example, if we gear our industry to the use of imported lead, we are, of course, dependent on foreign production of lead. But the foreign producer is just as dependent on our market for whatever he receives in trade for his lead. It is not a one-way street.
       One might as well argue that the automobile worker in Detroit should not be dependent on the farmer for his food, nor the farmer dependent on the Detroit worker for his automobile. The farmer is as dependent on the automobile worker for his market as the automobile worker is dependent on the farmer for food. It is as logical to argue self-sufficiency for an individual as for a nation. As a matter of fact, the type of dependence engendered by free trade between individuals is a wholesome thing. So long as it is voluntary trade, friendships develop. Such trade is not a battle between opposing forces, as is sometimes claimed. Witness the friendships between the customers and the tradespeople in a small community....
       Basically, the issue of tariffs and other trade restrictions is a moral one. This is not to deny that it is also an economic issue. It is merely a matter of emphasis. Unless economic principles are in harmony with good moral principles, they are not good economics.
        Government grows strong and dictatorial by the granting of special favors. Trade restrictions are just another of the handouts which a government can grant, thereby increasing its power over individuals—to the detriment of all....
        The moral basis for free trade rests on the assumption that an individual has the right to the product of his own labor—stealing is bad because ownership is good. This involves property rights .... The right to own property involves the right to use it, to keep it, to give it away, or to exchange it. Unless this is possible, one does not own property. To lay obstacles in the path of ownership, use, or exchange of property is a violation of the human right to own property....
        It isn’t necessary for all nations to agree jointly and simultaneously to remove restrictions. If only one nation does it, some good is accomplished—both for itself and for its customers. A great nation, such as the United States, could do it and thus set an example for others to follow. It would not be meddling in the affairs of other nations; it would merely be looking after the best interests of its own citizens. And instead of being resentful, other nations would be eternally grateful.

Chapter 4
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