Trade Theory Hypocrisy

All for freedom and for pleasure
Nothing ever lasts forever
Everybody wants to rule the world
--Tears for Fears

Renewed trade tensions between the US and China are raising concerns about the negative impact of tariffs on prosperity. This concern is warranted.

People are more productive, i.e., produce more goods per hour, when they specialize in a particular output. However, specialized producers are, by definition, not self-sufficient. They are co-dependent. Specialists must trade with each other to acquire the resources that they desire. When specialists do engage in trade, then the benefits of specialization are realized by all and general prosperity improves.

To maximize prosperity improvement, trade must occur in a free, unhampered manner. Any intervention that impairs free trade will cause producers to diversify rather than specialize so that they can create the variety resources that they require.

A tariff is a tax on imports. When imports are taxed, their cost goes up, thereby negating the productivity gains from specialization. Consequently, people buy less imported goods and then must resort to more diversified/less specialized production to generate the variety that they need. Productivity falls and, with it, so does prosperity.

This is Trade Theory 101 and it seems that people are generally getting it in the case of Chinese tariffs.

Curiously, though, many of the same people who seem to be grasping Trade Theory 101 with respect to international trade seem to be oblivious about the theory's identical application to domestic trade. It does not matter whether trading partners span oceans or street corners. Any regulation that impairs trade motivates less specialization and more diversification...and lower prosperity.

If you oppose taxes on imports, then to be intellectually consistent you should oppose all interventions that effectively tax domestic production and trade. Otherwise you are engaging in trade theory hypocrisy.