By Malachi Johnson
Editor’s note: Malachi Johnson is a 15-year-old, Jacksonville, NC native. His dad is the pastor of Temple Baptist Church in Jacksonville. For the past few years, Malachi has been interested in free-market economics and libertarian political philosophy. He is home-schooled, and is interested in entrepreneurship and business.
“To try to protect any one industry or group with tariffs is to reduce the overall wealth of the nation by making goods more expensive and reducing the efficiency of the economy.” – Henry Hazlitt
“The gain of the protected industry is always less than the loss imposed on the whole economy.” – Henry Hazlitt
USA – For the last several years we have heard much talk about how we need to put heavy tariffs on foreign goods. The problem is that tariffs are thought of as “America First”, but they actually put America last.
The arguments for tariffs often run like this: “We need tariffs to protect American jobs and businesses. If we allowed people to buy cheap products from China (or any other country), they would buy less American made goods resulting in fewer American jobs and less economic growth.”
This is incorrect, and represents a flawed view of economics.
In the economy, businesses compete to produce the best product for the lowest price. Inefficient businesses get weeded out, and efficient businesses reap profits. This system promotes innovation and creates a rising standard of living. Do inefficient businesses employ lots of people? Sure. Does their weeding out help the economy as a whole? Of course. All the jobs and capital these businesses consume in our economy represent wasted resources that should be employed in more efficient manners. That’s why they go out of business.
So, if foreign companies tend to be more efficient in certain areas than their American counterparts, we should not punish them. Getting rid of the foreign firms is a bad thing because it lessens competition for American businesses, thus promoting waste and weakening our economy.
Tariffs are also taxes on Americans. When a tariff is put on a foreign good, the tariff ends up being passed on to the consumer in the form of a higher price. If the tariff is so high that no one will buy the product, then people still have to pay a higher price when they buy from a less efficient American company. This is bad for consumers of foreign goods, and since we pretty much all consume foreign goods, this is bad for everyone. Saying that tariffs are not taxes on Americans is like saying that the sales tax is not a tax on consumers but on businesses. Much of the tax is passed on to the consumer.
Some may object that many of these competing companies are in second or third world countries where they can pay extremely low wages, say only a couple of dollars per day. Because of this, American workers cannot compete. Few if any can live on a couple of dollars a day here!
You must ask yourself this important question: Must American workers compete in these sectors of the economy? No! If an American worker does not want to take the going rate for his type of employment, then he should not be hired. He should find a line of work that pays a decent salary. If his job is protected by a tariff so he can work at a higher wage, then his higher wage is essentially being stolen from the people that are forced to pay the higher price for the goods he is producing. It is also wasted capital that could (in a free market) have been put to a more productive use.
I think similar things could be said about the Industrial Revolution. Did it wipe out a bunch of jobs? Yes. Why? Because people could not compete against the machines, or very cheap labor. Was it good for our economy? Absolutely! The jobs were wiped out because they became wasteful in comparison to the much more efficient machines.
Next week, Mr. Johnson takes a look at industries in foreign countries that receive government subsidies.
