Sunday, August 13, 2017

Tariffs Without Bounds

Everybody's kicking sand
Even politicians
We're living in a plastic land
Somebody give me a hand
--Steve Miller Band

Rothbard suggests a useful way to think about tariffs: forget about political boundaries. While country borders may be important for other reasons, they can be seen as arbitrary from an economic perspective and having little significance.

Imagine that each state in the US were a separate nation. Inevitably, there would be complaints from some states about unfair, cheap labor in other states undercutting inefficient producers on prices. Calls for tariffs would follow to protect essential local industries from that unfair competition.

Indeed, such trade wars between the original 13 states provided motivation for the Constitutional Convention of 1787. The idea was to have a central government to regulate--in the sense of making regular and free--trade between the states. And so it is today--an American free trade zone where it is illegal for states to levy tariffs on other states.

To push the tariff 'logic' to completion, why stop at country borders, asks Rothbard? Why not tariffs at state, city, or even the family level in order to shield producers from unfair external competition?

The answer, of course, is that such nonsense would cast the world back into the dark ages, where each producer would need to diversity in attempts of being self-sufficient. As trade dried up, division of labor and the productivity gains that it confers would disappear.

As history reminds us, tariffs protect squalor, not prosperity.

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