Tim Worstall fisks a recent Pat Buchanan brain fart article on the glories of erecting tariff walls against foreign trade:
Pat Buchanan has been going on for decades about how wondrous tariffs are and if only they were brought back then things would be just peachy. Sadly, this all seems to be based on his not understanding trade, tariffs, nor apparently even history. That’s not a good set of recommendations for a policy about trade and tariffs, one that has been tried many a time in history.
Now, it is entirely true that if we returned to a more Hamiltonian policy era then we’d all be richer. But that wouldn’t be because we had tariffs which paid for government rather than an income or corporate tax. It’s because government would be confiscating a very much smaller portion of what we all produce to pay for itself. If the Feds took 3% of everything we do instead of the current 18% or so then sure, we’d all be richer. But that’s true however that tax is raised.
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His argument is that, protected from foreign competition, American business was able to develop and grow into being world beaters. No, I don’t think this is true – I insist that behind tariff barriers companies stagnate. Indeed it’s standard economics that the medium to long term effects of trade are that the competition from foreigners is what makes the domestic companies stronger and more productive. But put that argument to one side. Assume that Buchanan is correct.
For his conclusion to be correct then it must have been true that the total costs of trade were rising in that time period. Total costs being tariffs plus transport. Only if the total costs were rising was protection rising. The tariffs are only part of the story. And as it happens total protection was falling over this time period. The falls in the costs of transport – for the US externally primarily the steam ship – were greater than the rises in the tariffs. Thus the US was becoming more open to trade at this time when industry was booming and growing to world class levels.
That’s not an argument in favour of trade protection now, is it?
The U.S. relied on tariffs to convert from an agricultural economy in 1800 to the mightiest manufacturing power on earth by 1900.
Well, it’s also true that what the US was inside those tariff barriers was the largest free trade area in the world. I’m the guy insisting that free trade makes places grow, Pat the opposite. And the place with more free trade among more people than anywhere else grows fastest? That’s a point in my favour, no, not Pat’s? Remember, the US Constitution expressly forbids the individual states from having tariffs between them…..that regulation is left to the Feds who have never imposed them.
How have EU nations run up endless trade surpluses with America? By imposing a value-added tax, or VAT, on imports from the U.S., while rebating the VAT on exports to the USA. Works just like a tariff.
No, a VAT does not work like a tariff. In no manner at all does it do so in fact. As every economist keeps trying to point out. Within the EU all goods and services, no matter where they’re made, pay the exact same rate of VAT. Well, OK, ladies unmentionables pay a lower rate than motor cars, that’s true, but all unmentionables pay the same rate, all cars. There is no difference made between domestic and foreign production. It’s entirely unlike a tariff therefore, the crucial component of which is that distinction made between home and foreign production.
Stuff made in the EU and sold in the US pays no VAT. Stuff made in the US and sold in the US pays no VAT. Again, we’ve no distinction by source or origin, this is entirely and completely unlike a tariff.
