Sunday, March 11, 2018

Trump's Steel Tariffs are New, But Ain't Nothin' New Under the Sun About Tariffs

Milton Friedman, in 1978, warned against the seductive calls for tariffs to protect the steel industry.

Back then, the issue was that Japan, ostensibly, was subsidizing the production of steel so that the private steel industry in America would be unable to compete.

In other words, Japan was making it "very unfair" for American steel companies.  Milton Friedman articulates why worrying excessively about that, as President Trump seems to, is pure folly.

An excerpt from the following video, Friedman begins:

Let us suppose for a moment that the Japanese flood us with steel – that will reduce employment in the American steel industry, no doubt. However, it will increase employment elsewhere in America. We will pay for that steel with dollars. What will the Japanese do with the dollars they get for the steel?

They're not gonna burn 'em.  They're not gonna tear 'em up, if they would, that would be best of all.  Because there's nothing we can produce more cheaply than green pieces of paper.  [Laughter]

And they were just willing to send us steel, and just take back green pieces of paper, I can't imagine a better deal.

But they're not gonna do that.  They're not stupid, they're smart people.  They're gonna use those dollars to buy goods and services.  In the process of spending them, they may spend them directly in the United States, and that directly provides employment in the United States. They may spend them in Brazil or in Germany or in China or anywhere else – but whoever gets them, in turn, is gonna spend them. So the dollars that we spend for the steel will find their way back to the U.S. as demand for U.S. goods and services.


I urge on those people who think there's some sense to the steel industry argument to consider it in a more absurd setting. You very often bring out the logic of an argument by carrying it to an extreme. You know, you can have a great employment in the city of Logan, Utah, of people growing bananas in hothouses. If we had a high enough tariff on the import of bananas, it could become profitable to build hothouses and grow bananas and those hothouses. That would give employment. Would that be a sensible thing to do? If that isn't sensible, neither is it sensible to artificially restrict the import of steel.

Now, with respect to the charge that the Japanese government is subsidizing the export of steel. Number one, it's very dubious that it's true, but suppose it were true, then that would be a foolish thing for the Japanese to do from their own point of view. But why should we object to their giving us foreign aid? We have given them quite a bit. [Laughter]

That's just it.  The reduced cost is value to American producers of products which require steel.  Whether that value is subsidized by the taxpayers of another country, or whether it has only become manifest due to an overabundance of steel produced by the Chinese despite expectedly slowing steel demand, is irrelevant.   

To "artificially" jack up the price of steel imports, thereby prohibiting American producers from taking advantage of that discounted steel may be good politics, but it's not economic sense.  We should be honest about that.

And to put it more firmly, it's an affront to liberty.  It denies American producers of a grand opportunity to independently grow, unfettered by a government which seeks to price-fix a peculiar type of product to protect certain industries. 

In the end, tariffs are still tariffs.  They're as unsound today as they were in 1978, as they were in the 16th century, and as they have been since the beginning of time.  Observation of reality throughout human history has led us to this enlightenment, and we shouldn't ignore that truth because we like this president.

I'm a great fan of Donald Trump for most of what he's done as president thus far.  But the fact that this is his edict and not Barack Obama's, George Bush's, or anyone else's, should not factor into a reasonable American's mind as to whether tariff policy makes sense.

Please watch the below video.  Hat tip to Frank Camp at the Daily Wire.


  1. The only rational objection to the above points would be national security. That would be a justifiable reason to protect the steel industry.

    1. Agreed, if you’re talking about actual national security threats. It’s a fine line. The 1962 Trade Expansion Act gave the prez authority to subjectively say whether imports threatened national security - ostensibly, that’s the only way it would be constitutional. But the entire military and Homeland Security could operate currently on just 3% of US steel production. And much of the steel we import is from allies. I don’t there’s any national security angle with Trump’s tariffs. It’s a campaign promise that helped him pierce the Blue Wall in ‘16. This is politics and pandering.

  2. You're missing the whole point of Trumps tarrifs, it is a stick, with which to bring the other party to the negotiating table, to renegotiate trade deals that unfairly benefits the other party.

    He's a business man and can see a bad deal for what it is, he's also smart enough to know that using the stick, instead of carrot, is the only way to set it right, bully his way to a fair deal.