Tariffs Are A Form of Taxation and Taxation Is Theft

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The Imperative Lessons

When Henry Hazlitt published Economics in One Lesson in 1946, he veritably outlined the way the world works. There are no free lunches; government intervention always has unseen effects that offset the observed benefits in the short-run; you cannot create wealth through destruction or theft; you cannot tax yourself into prosperity. The pith of this classic book is not just the way it presents ideas unambiguously as well as thoroughly; the lessons were timeless.

The concepts of the seen versus the unseen and the broken window fallacy were made pellucid. And Chapter 11, titled “Who’s ‘Protected’ by Tariffs?”, brought to light the true intentions of protectionists: “It is useless to deny that a tariff does benefit—or at least can benefit—special interests. True, it benefits them at the expense of everyone else. But it does benefit them. If one industry alone could get protection, while its owners and workers enjoyed the benefits of free trade in everything else they bought, that industry would benefit, even on net balance… we should not deny, as enthusiastic free traders have so often done, the possibility of these tariff benefits to special groups.”

Learning From The Past: The Bush Steel Tariffs of 2002

In March 2002, tariffs as high as 30% were placed on steel to mitigate the bankruptcies of more than 30 U.S. steel producers; the backlash was felt immediately. A case was filed at the Dispute Settlement Body, a wing of the World Trade Organization, and retaliatory sanctions of $2.2 billion were threatened against the US. Bush refused to end the tariffs initially, but at the expense of starting a trade war, he lifted the tariffs on December 4th, 2003. The tariffs were to originally remain in place until 2005, yet given their original intent, the damage inflicted in this short span was inconceivable.

A 2003 report by The Consuming Industries Trade Action Coalition concluded that 200,000 Americans lost their jobs when the price of steel rose (or approximately $4 billion in lost wages from February to November 2002), while there were only 187,500 Americans employed by U.S. steel producers in that same year. 50,000, or one in four, lost jobs in “the metal manufacturing, machinery and equipment and transportation equipment and parts sectors.”

Even more tragic, after having been under the guise that it will help everyone at large, was that “the vast majority of steel-consuming manufacturers are small businesses. In fact, 98 percent of all the 193,000 U.S. firms in steel-consuming sectors employ less than 500 workers, according to the Small Business Administration.”

A New Era of Tariffs: The Lessons Ignored

On March 1st, 2018, Donald Trump announced that he planned to implement steel and aluminum tariffs; steel at 25% and aluminum at 10%. Walter Williams, the distinguished professor and intellectual giant from George Mason University, gave a concise description of the aim of these tariffs:

“The answer is simple. Reducing the amounts of steel and aluminum that hit our shores enables American producers to charge higher prices. Thus, U.S. steel and aluminum producers will earn higher profits, hire more workers and pay them higher wages. They are the visible beneficiaries of Trump’s tariffs.”

The “visible” beneficiaries, as Williams put it, are the few who seek to benefit by lobbying through the political arena:

“In the cases of the steel and aluminum industries, company executives will know whom to give political campaign contributions. Workers in those industries will know for whom to cast their votes. The people in the steel and aluminum-using industries may not know whom to blame for declining profits, lack of competitiveness and job loss. There’s no better scenario for politicians. It’s heads politicians win and tails somebody else loses.”

How is production and demand of steel dispersed? Unevenly to say the least, and not in our favor. According to the World Steel Association, China produced 831 Mt of steel in 2017, while the U.S. produced a measly 81.6 Mt. Even India produced more than us (101.4 Mt.). By these numbers, China is on its way to produce over half of the worlds steel, while the U.S. can’t seem to break 5%.

Author Steven Clyde

Out of the steel produced, what is most of it used for? Nearly 50% of it is used in buildings and infrastructure, 16% in mechanical equipment, 13% in automotive, etc. Considering steel tariffs will put the biggest burden on builders of infrastructure, Trump nevertheless opined in the State of the Union Address on January 30th, 2018, saying that:

“As we rebuild our industries, it is also time to rebuild our crumbling infrastructure. America is a nation of builders. We built the Empire State Building in just 1 year — is it not a disgrace that it can now take 10 years just to get a permit approved for a simple road? I am asking both parties to come together to give us the safe, fast, reliable, and modern infrastructure our economy needs and our people deserve. Tonight, I am calling on the Congress to produce a bill that generates at least $1.5 trillion for the new infrastructure investment we need.”

The immediate response has been clear: “The Dow Jones industrial average fell sharply, closing 420 points lower on Thursday, shedding 1.7 percent. At closing, Japan’s Nikkei lost 2.5 percent, and Hong Kong’s Hang Seng was down nearly 1.5 percent, although Shanghai’s Stock Exchange seemed to largely shrug off the news, losing just under 0.6 percent.” Australian trade minister Steven Ciobo stated “The imposition of a tariff like this will do nothing other than distort trade and ultimately, we believe, will lead to a loss of jobs… my concern remains that on the back of actions like this we could see retaliatory measures that are put in place by other major economics.” Hua Chunying, the Chinese Foreign Ministry spokeswoman said “all countries steel and aluminum industries are facing difficulties” and “China urges the United States to show restraint in using protective trade measures, respect multilateral trade rules, and make a positive contribution to international trade order.” The European Union published a 10 page long list, which according to one article “is divided into two categories: US products that face immediate retaliation, and others that would be hit if the World Trade Organization rules the US tariffs illegal or three years pass. The European Union would apply tariffs of up to 25% on the first group.”

If history is on the verge of repeating itself, like it tends to do, then we might not escape the grips of a full-blown trade war; a trade war that is avoidable if only Congress and politicians could acquire some economic literacy.

* Steven Clyde is a 25-year-old studying economics and history at the University of Colorado. He also hosts the “Peace and Liberty Podcast”, which is a Monday-Friday dose of history and economics featuring a bevy of interesting guests.

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