A friend wrote me today asking what I thought about President Donald Trump’s recent steps to impose new or higher tariffs on some imports. He appreciated my response, so I thought readers here might appreciate it as well.

The justification of import tariffs as protecting domestic employment is an age-old fallacy rooted in what Frederic Bastiat called the problem of the things that are seen and the things that are not seen. Imports threaten domestic employment only if the total cost of the import is less than the total cost of the domestic product. The tariff can indeed protect those employed domestically in producing that product—their jobs are “the things that are seen.” But by protecting those jobs, the tariff forces domestic consumers to spend more for the domestic product than they otherwise would. In the absence of the tariff, domestic consumers would both purchase the cheaper imported product and do something else with the difference between the import’s price and the domestic’s price—whether they’d invest the difference (creating capital demand for workers) or spend it on some other items (creating consumer demand for workers). But the jobs created by either of those two other uses of the consumers’ savings created by the difference between the domestic and import prices are impossible to specify—so they are “the things that are not seen.” Yet they are just as real as the things that are seen. And what’s crucial is that while total employment quantity in either case is the same, the goods actually consumed are fewer with the tariff than without it. Ipso facto, the total welfare of the society is less.

But that’s not the end of the problem. Tariff in the “protecting” state often results (irrationally—but who says people always act rationally?!) in a responsive tariff in the “offending” state, which means a reduction in demand for goods formerly exported by the protecting state, and consequently a reduction in employment making those goods. So the protectionist tariff results not only in lost consumption and the redistribution of domestic jobs from one industry to another but also in the loss of domestic jobs in an industry whose exports are reduced by the response tariff.

The tit-for-tat can escalate between the two countries and spread to other countries, resulting in widespread and deep reduction in consumer demand. (Note the difference between demand, which is desire coupled with willingness and ability to pay, and mere desire!) That leads to growing unemployment and recession or depression. This is why many economists, especially the Austrians, blame America’s Great Depression, at least in major part, on the Smoot-Hawley Tariff.

The economically defensible grounds for tariffs are two: (1) funding the costs of border security where imports enter (i.e., the “tariff” is really a user fee for the port), and (2) ensuring the domestic production of such goods as are deemed crucial to the government’s role of national defense. The former is clear. The latter is laden with difficulties, for it can be challenged on the ground that just as a household economizes by buying cheaper imports rather than more expensive domestic products, so the national government can do likewise. Higher prices for domestic steel, for instance, leave the government with less money available to spend for other items used in defense, such as uniforms or tires. It is conceivable that there are some items the domestic production of which is truly necessary to national security. These would be items that are used pretty much exclusively in defense. But items that are used commonly as well as in defense are probably better purchased by the government from the least costly supplier (other things being equal—like quality and timeliness), and we have found over and over that items once used exclusively for defense soon make their way into the wider market for private use (like the Internet, cell phones, and all kinds of miniaturized technologies), so even the national defense justification for tariffs is tenuous at best.

I discussed the general matter in my book Prosperity and Poverty (1988).

As for the current debates over the Trump tariffs, I’ve not followed the arguments closely. What I’ve seen leads me to think they’re economically misguided and not justified on national defense grounds, but one would need to look closely at details to justify tenacity in that conclusion.