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Siberian Grapes and Adam Smith: Why Tariffs Are Bad
Adam Smith, Wikimedia Commons
Tariffs might be OK as a source of revenue, and it would be hard for them to suck as bad as the current American income tax system. They might be OK as a means to the end of achieving a foreign policy goal. So I’m not talking about Trump’s tariff policies as such.
I’m just talking about tariffs as such. As such–in and of themselves, not considering all possible uses and consequences–they’re bad. They’re inherently detrimental to economic productivity. And did you know that that was exactly the point Adam Smith aimed at when he talked about the Invisible Hand?
Now the same insight applies generally to more or less all government meddling in the economy. But when he talked about the Invisible Hand, he was specifically talking about what’s wrong with “Restraints upon Importation from Foreign Countries of Such Goods as Can Be Produced at Home.” Here’s The Wealth of Nations–do a Ctr-F for yourself.
Here’s a version of his argument:
1. Everyone who makes economic decisions freely is someone who uses his economic resources in support of local industry.
2. Everyone who uses his economic resources in support of local industry is someone who is working so as to make the local economy as productive as possible.
3. So everyone who makes economic decisions freely is someone who is working so as to make the local economy as productive as possible.
Thus the famous line about how my economic self-interest is good for other people too:
By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
All this is much clearer with his superb illustration:
By means of glasses, hot-beds, and hot-walls, very good grapes can be raised in Scotland, and very good wine, too, can be made of them, at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and Burgundy in Scotland?
I like to make it clearer still: Suppose an ambitious Russian businessman wants to grow grapes to make wine in Siberia. And suppose a well-meaning Russian government decides to pass some laws to support the new wine industry by imposing massive tariffs on imports of wine into Siberia.
The result: Inefficiency. Wasted resources. Maybe a successful wine industry, sure. But at a cost. A cost we can’t always see but know is there: some real bad caused and some real good prevented because customers couldn’t buy wine without paying an unnecessarily high cost for it. That wasted money means less food, less savings, less investment, a car going too long without maintenance, medical bills paid off more slowly, or something else that’s bad.
What makes an example like this easy to understand is just how bad a policy like this is. But what makes it bad is something that involves any tariff: When people can’t make free economic decisions, their decisions are less efficient; when their decisions are less efficient, they’re worse for a growing local economy.
Published in Religion and Philosophy
The money doesn’t just go around, it LEAVES. That is a problem.
They weren’t mostly just raising their own cattle etc, they were raising them for others too. That’s my point. Most people didn’t raise all of their own.
So you are saying we’re being kept in the dark about all of those statistics, not just unemployment? Then how can you back-up any of your arguments if you have no statistics from which to work?
I believe my “lying eyes” even if I can’t attach numbers to them out to 3 or 4 decimal places.
It comes back either as consumption or investment i.e. treasury, bonds and bills, thus keeping the interest rates lower or the stock market. It can also go into private investments. I’m not saying it was a good idea to give any of this to the Chinese mafia.
It wouldn’t be any better to do the same with any other country. At least not fiscally. Maybe better in terms of IP theft, spyware… but not fiscally.
You don’t understand specialization and comparative advantage.
Sure I do. But I just don’t think they’re necessarily more important than other concerns.
cEntRal pLAnNing MakEs oUr liVEs beTTEr
Maybe because Americans don’t want to pay 1,200 dollars for an iPhone?
Unemployment is at very low levels right now.
How about reducing taxes and reducing spending instead of supporting Trump enormous tax increase on American businesses and American consumers?
He doesn’t believe the employment figures. He thinks the government, in other words the Trump administration, is making up the numbers to make it look better than it really is.
We don’t need any level of government producing any non-public goods.
You can hear local economist John Spry call Trump’s tariff scheme the largest tax increase in US history. He also described it as, “Wilsonian”.
https://jacktomczakpodcast.libsyn.com/tariffs-are-bad-with-dr-john-spry
*** Whatever Trump is doing ***, I hope it works.
In case you missed it, Adam Smith is on my side too.
https://ricochet.com/1806172/siberian-grapes-and-adam-smith-why-tariffs-are-bad/#comment-7605910
Where have you been? The latest iPhones are from $1200 and UP! If you just buy one.
The first iPhones in 2007 started at $500, which is almost $800 today. So iPhone prices have actually increased, not decreased. Yes they’re more capable, but aren’t we supposed to get more capability for LESS cost?
I don’t know that Trump has cleaned out the Labor Dept yet. Or if the calculations/cooking must be done a certain way by law, or not.
I don’t know about that. Maybe you are just quoting the highest-priced I-Phone. A 5-second search turned up dozens of I-phones that are as low as $200 or even less.
https://duckduckgo.com/?t=ftsa&q=I-phones+for+sale&atb=v358-1&ia=shopping&iax=shopping
Those are the older ones, often refurbished. Latest is the iPhone 16. But those will be cheaper in a few years too.
kedavis mentioned the money we spend on unemployment compensation. We do know how much money the state and federal governments are spending on unemployment compensation, right?
Or do we think we don’t have access to that data either?
To avoid paying unemployment compensation, we will raise taxes by an enormous amount, hoping that this massive tax increase results in less, not more, payments in the form of unemployment compensation.
The Smoot-Hawley Tariffs of 1930-1931 actually resulted in the New Deal, a huge increase in government spending and regulation.
No. I don’t think Trump’s huge tax increase on imported goods represents the Yellow Brick Road toward more limited government.
A quick search suggests that there was between probably $35 and $37 billion in unemployment paid in 2024. There might be additional on state and local levels not reflected in that amount. It’s worth noting that unemployment is not perpetual, so there would be people still unemployed who are no longer receiving unemployment payments. Then also add in Social Security etc for people who might otherwise be working but took early retirement because they couldn’t find a job…
Do you really think it costs taxpayers less for unemployment, than to buy the products they might produce? At least if you buy products, you get products. What do you get from paying unemployment? Diddly.
Right. You get nothing from paying unemployment.
That’s why we shouldn’t hit the US economy with a huge tax increase which will likely cause unemployment to go up.
When you damage the economy with a huge tax increase, more people will end up on Social Security, unemployment, food stamps and farm bailouts.
Why do I mention farm bailouts? Because Trump is already saying that the farmers who get hurt by Trump’s trade war will get bailed out by the federal taxpayer.
Tax and spend doesn’t work.
Donald Trump’s tariff guru, Peter Navarro, has said the new tariffs should bring in $6 trillion over the next decade, which is $600 billion per year. Trump himself said they might bring in $1 trillion a year! So, we collectively will pay an additional $600-1000 billion a year in increased costs to save some portion of $35-37 billion. I say “portion” because there will always be people who have been fired or laid off who will take some time to find a new job. And not everyone wants a factory job. All numbers from government are obviously fraudulent, but these are the numbers from kedavis, Navarro, and Trump, whose numbers must certainly be correct. That doesn’t sound like a very good deal to me.
Something about “short-term pain…”
We saw that when the Smoot-Hawley Tariffs were enacted in 1930 and implemented in 1931, there was short-term pain followed by long-term pain. What a deal!
There was so much more than tariffs being done at that time. Also, bad results from tariffs during a recession/depression, doesn’t prove that tariffs – or even just threats of tariffs – can’t be useful at other times.
It doesn’t prove they are good, either.
Simple test: Show me the country with high tariff rates that is prosperous…………I’ll even let you cheat by giving you the answers on Wikipedia:
https://en.wikipedia.org/wiki/List_of_countries_by_tariff_rate
I mostly agree with you, but you have to admit that in trying to be as self-sufficient as possible, a person’s life would be more interesting. In this day and age, that’s something. The big problem is that in general you can’t have both prosperity and a more interesting life. The two tend to work against each other. You can have an interesting job building cars from scratch, but you will probably go broke doing it. Or you can having a boring but well paid job doing the same thing over and over again on an automotive assembly line (until your job is automated out of existence). There may be exceptions here and there, of course. The person who designs the more efficient assembly line is probably not bored to the point of despair, but in general that’s how it works. The person with the boring job may have time for hobbies, such as getting involved in violent socialist politics that will tear down the whole works and reduce us all to a state of nature. That can compensate for an uninteresting but well-paid job.
Is anybody else thinking that Reticulator wishes he had been a pirate? Adventure and possible riches, but also a high probability of an early death or disfigurement.
Small business and self employment is easier under deflation.
Unless your small business relies on borrowed capital for part of the year until jobs are completed or crops are harvested.