It seems strange that some people who do not want to cut government spending and do not complain about high domestic taxes are very excited about tariffs and predict horrible things happening if tariffs remain in place. Tariffs are just one kind of tax.
Yes, tariffs can lead to some inefficiencies when we start producing things that can be produced in other countries more cheaply. However, domestic taxes encourage even worse inefficiencies by motivating individuals to produce more for themselves to avoid additional taxes instead of specializing and trading with other people.
Moreover, there are some disadvantages of foreign trade as compared with domestic trade. Contracts with international partners are harder to enforce. Agreements of free trade or any other trade agreements do not ensure free trade between countries and can make one country dependent on another country.
In 2020, we had a shortage of face masks even for medical personnel as foreign countries did not want to sell them to us. Our ability to manufacture them was very limited, as we used to rely on imports for similar products. Unfortunately, face masks were not the only product that we could not freely buy from foreign countries during this time. People sometimes forget that free trade is not only about the freedom to sell but also about the freedom to buy. When countries feel that they can restrict selling of any products to foreigners whenever they perceive any crisis, we do not have free trade.
International trade can involve countries in wars. For example, before the second world war, Japan used to buy supplies from the United States. Responding to Japan’s aggression against foreign territories, in 1939, the United States started restricting exports of goods to Japan, increasing these restrictions in 1940 and 1941. Japan needed those supplies, and they attacked the United States. This attempt to enforce international trade was very costly to both Japan and the United States.
Foreign trade can also lead to foreign countries imposing their laws and regulations on U.S. companies. For example, the European Union is in the process of trying to impose its regulations via the Corporate Sustainability Due Diligence Directive, which includes restrictions on freedom of speech, not only on foreign firms with significant sales in the European Union but also on all suppliers of those firms. Some European politicians and bureaucrats argue that these restrictions on freedom of speech are meant to reduce misinformation. However, neither the European Union nor the United States have benevolent and omniscient bureaucrats who can correctly judge what is true and what is false and impose that on the rest of us. Restrictions on freedom of speech are more likely to lead to more misinformation.
There are no good reasons why our tax structure should favor international trade over domestic trade. If we want more free trade, we need to lower all taxes, especially those that burden domestic producers. To be able to do that, we need to cut government expenses, as financing government spending by printing money and causing inflation is even more harmful than taxes to both domestic and foreign economies. To claim to want free trade and high government spending is logically inconsistent.
Dr. Dalia Marciukaityte is an associate professor of finance at Illinois State University. She is also a policy advisor for the Heartland Institute.
