Trump’s Tariffs – National Security?

A long-time friend of mine, a staunch free-market and free-trade advocate, emailed me shortly after I posted the article Trump’s Tariffs – Just More Bad News. An excerpt from his commentary follows:

“…while I still believe in free trade as a basic tool for maximum prosperity, especially in a perfect world, I have changed my view, and now I believe that under many circumstances, tariffs and even subsidies are crucial to our national security. Free trade is fine when talking about sweaters, stuffed animals, plastic bowls, and maybe even automobiles. But do we want to depend on China , or even Japan, for our steel, ammunition and pharmaceuticals? I think not.”  

I agree in principal that there may be occasions where selective use of tariffs and “even subsidies” might serve a protective purpose in our national interests.

For example, if the United States were to become dependent on imported steel to the detriment of our own ability to produce and supply the product, we could possibly find ourselves quite vulnerable.

As the steel industry becomes less and less a factor domestically, the United States becomes more dependent on the steel that is imported from China, a country which is not exactly our best friend. That dependency could lead to much higher prices for the imported steel; or, even the prospect of China refusing to sell their steel to us – at any price. What then?

TARIFFS ARE NON-PRODUCTIVE TAXES

The problem with imposing tariffs in the interest of national security doesn’t make the actions more productive, though. The tariffs imposed by Trump on China this past week elicited a quick response and a scheduled retaliation by China which is to take effect this coming week. We seem to be in the early stages of a full-blown trade war.

As has been stated clearly, tariffs by one country on imported goods from other countries raise the prices of those same goods for consumers (their own citizens). The escalation of retaliation efforts is expensive and non-productive. The drag on economic activity can lead to severe declines worldwide.

FAIR TRADE VS FREE TRADE 

Tariffs and reciprocal measures in the name of “fairness” and designed to “level the playing field” will not be successful. Free trade is embodied by the lack of restrictions, regulations and taxes. If you support – and understand – what  free trade is, then by definition, you cannot be a supporter of tariffs (with the possible exception noted above, which would be very selective & limited; and, on a case by case basis).

(also see Trade Tariffs – The Worst Is Yet To Come and The Danger of Trade Tariffs)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED