Don Boudreaux lets it rip against the Trump administration with a letter to the Wall Street Journal about the EU’s trade surplus. Its not clear if the journalist who wrote the article understands free trade either.
“Where do we have tariffs?” President Trump asked on October 25, 2018.
One obvious answer is on imported clothing and footwear, where tariffs are both substantial and hit low-income consumers hard.
The United States raised $33.1 billion in tariff revenue in 2017, but $14 billion of that came from tariffs on apparel and footwear alone. These items account for 4.6 percent of the value of U.S. imports, but 42 percent of duties paid. That means while the average effective tariff rate for U.S. imports overall is just over 1.4 percent, rates for apparel and footwear are 13.7 percent and 11.3 percent, respectively.
The Fallacy of the Zero-Sum Game
The first of these fallacies is the belief that market activities, especially exchange, are zero-sum games. Zero-sum games are those in which the total gained from playing the game is zero. So, for example, if each of five people playing poker buys into the game for $100, there is only $500 to be won.
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We see this misperception of markets in a variety of forms. At the most general level, the belief that the rich get rich by impoverishing others is a species of zero-sum thinking.
The Fallacy That Order Requires Design
The second fallacy is the belief that economies require someone or some group to design and/or control them. Often this belief is linked to an argument from complexity: only a simple economy could be left to its own devices. Complex, advanced economies like those across most of the globe require human monitoring and regulation to function properly.
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The flaw at the heart of this fallacy is that it ignores the idea of spontaneous or undesigned order.
The Fallacy that Consumption is the Key to Growth
The final fallacy is the belief that consumption is the source of economic growth. This belief is widely held by everyone from the citizenry at large up through economic journalists and politicians. We hear it every time the economy enters a recession and begins to recover. Pundits declare that consumers need to start buying things to generate a recovery, and reports about the latest data on consumer spending make the headlines.
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In fact, consumption expenditures vary the least as economies go through booms and busts. The component with the greatest variation is private sector investment. If anything is needed during a recovery, it is more investment by the private sector, not more consumption.
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The heart of the fallacy, however, is that consumption consumes things! When we consume goods and services, we destroy their value by using them up. Consuming food does not create anything valuable, it eliminates something valuable.
She’s happy and self-interested. The customer says “Thank you”, she, the producer, says “Thank you” and both are happy they got what they wanted.
Markets guided by prices daily lead each of us to share happily and abundantly with each other despite the reality that we are, to each other, mostly strangers. Familiarity, affection, and brotherly love are virtuous feelings but these feelings do not contribute as reliably to our material well being as does market exchange.
Here is a parable to make the point.
….I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN
Tariffs are a tax paid by Americans on stuff they buy overseas, not the foreigners who are selling the stuff.
According to the President, the federal government is “taking in $billions”, but only because Americans are paying the tax. This is a total backfire on the Administration’s part.
As bad, there is no “raid”. The buying and selling is voluntary. Americans are deciding to buy from overseas. That is not a raid on the wealth of a nation.
UPDATE: Dan Mitchell weighs in.
There is indeed such a guarantee (“that our trading partners won’t prioritize use of their trade profits to more effectively compete with the U.S. or for actions that otherwise jeopardize U.S. interests”). It exists chiefly because U.S. dollars have value only because they can be spent or invested in the U.S.
It is appropriate that Donald Trump and Xi Jinping are flying to Buenos Aires for their showdown summit at the close of a month that began with the centennial of the end of the First World War. America’s economic tussles with China are all too reminiscent of the rivalry at the beginning of the last century between Britain, the superpower, and the rising power, Germany.
Learn from history to avoid repeating the same mistakes. Peace and prosperity is a wonderful thing and there’s no reason the leaders of China and the U.S. cannot forge a mutually beneficial relationship.