At Cafe Hayek, Don Boudreaux makes an important point: if the comparative advantage of one industry is protected by tariffs, that necessarily means another industry’s comparative advantage is reduced. While this makes logical and mathematical sense from the point of view of the theory, is it reflective of reality? Yes:
Virtually all steel used in U.S. tire manufacturing must be imported, as domestic steel suppliers cannot meet volume and quality needs for this critical tire safety component. Thus any trade constraint could potentially have a cascading, negative impact on U.S. commerce nationwide, as the transportation industry depends on a reliable supply of tires to ship goods. Additionally, the U.S. military depends on the tire manufacturing industry to supply tires used to protect our national security.
The US tire manufacturing industry, as quoted above, as a consumer of steel would see their comparative advantage reduced, and thus their competitiveness reduced, due to import tariffs on steel. Their costs rise, their competitiveness is thusly reduced. All so US steel manufacturers can have potentially higher profits.
I think it’s worth noting that the tire industry is also an industry that feels threatened by imports and demanded tariffs, too. So the steel industry tariffs would make this supposedly threatened industry even more threatened.
In short, you cannot Make America Great Again by taxing it into oblivion.
One thought on “A Tariff is a Tax on Domestic Manufacturers”
The fire you mentioned rages unchecked at the Cafe. 🙂 (Don is on fire over there)
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