Saturday, March 10, 2018

Henry Hazlitt Reveals the Truth About Tariffs

Henry Hazlitt
The following are excerpts from Henry Hazlitt’s classic, “Economics in One Lesson,” Chapter 11: “Who’s ‘Protected’ by Tariffs?”

Since the “Wealth of Nations” appeared more than two centuries ago, the case for free trade has been stated thousands of times, but perhaps never with more direct simplicity and force than it was stated in that volume. In general Smith rested his case on one fundamental propo­sition: “In every country it always is and must be the in­terest of the great body of the people to buy whatever they want of those who sell it cheapest.” “The proposition is so very manifest,” Smith continued, “that it seems ridiculous to take any pains to prove it …”

And this brings us to the real effect of a tariff wall. It is not merely that all its visible gains are offset by less obvious but no less real losses. It results, in fact, in a net loss to the country. For contrary to centuries of in­terested propaganda and disinterested confusion, the tariff reduces the American level of wages.
Let us observe more clearly how it does this. We have seen that the added amount which consumers pay for a tariff-protected article leaves them just that much less with which to by all other articles. There is here no net gain to industry as a whole.
But as a result of the artificial barrier erected against foreign goods, Ameri­can labor, capital and land are deflected from what they can do more efficiently to what they do less efficiently. Therefore, as a result of the tariff wall, the average pro­ductivity of American labor and capital is reduced.

The tariff has been described as a means of benefiting the producer at the expense of the consumer. In a sense this is correct … It is true that the tariff hurts all consumers as such. It is not true that it benefits all producers as such.
On the contrary, as we have just seen, it helps the pro­tected producers at the expense of all other American producers, and particularly of those who have a com­paratively large potential export market.
Now because foreign industries will find their market in America totally cut off, they will get no dollar ex­change, and therefore they will be unable to buy any American goods at all.
As a result of this, American in­dustries will suffer in direct proportion to the percentage of their sales previously made abroad.

The effect of a tariff, therefore, is to change the structure of American production. It changes the number of occupations, the kind of occupations, and the relative size of one industry as compared with another. It makes the industries in which we are comparatively inefficient larger, and the industries in which we are comparatively efficient smaller. Its net effect, therefore, is to reduce American efficiency …

As a postscript to this chapter I should add that its argument is … merely directed against the fallacy that a tariff on net balance “provides employ­ment,” “raises wages” or “protects the American stand­ard of living.” It does none of these things; and so far as wages and the standard of living are concerned, it does the precise opposite.

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