The US Probably Won’t Gain Much from Lower Tariffs. That’s a Good Sign

Empirical analysis of potential gains to the US with free trade deals tend to point toward relatively small gains, typically in the neighborhood of a few tenths of a percentage point of GDP.  NAFTA has been a fairly small impact on the US.

Some protectionists scarcityists like to point to this fact as evidence that free trade is oversold, that scarcityism is really the way to go.  They incorrectly interpret these figures as meaning free trade has no/small gains.  But the reality is different:

The US won’t/doesn’t benefit much from lower tariffs because we already have very low tariffs!  Over the past two centuries, with a few exceptions, the US radically liberalized trade.  What this means is the gains from lower trade barriers have already been realized for Americans.  More open trade with other nations (in this case, meaning the foreign tariffs are lowered since the US’ are already virtually at the zero-bound) would lead to a reorganization of US industry; new jobs would be created and existing jobs would be shuffled around, but any net gains are likely, at least in the near term, to be minimal.

What this also means, however, is the US has everything to lose in a trade war.  We’ve realized the gains from trade; going scarcityist would disrupt those gains and a trade war would be a losing proposition.  Conversely, those scarcityist nations, already being at a place where resources are wasted and tariffs are high, are unlikely to be significantly harmed by higher tariffs.  Their tariffs are already high; the damage has been done.  Raising tariffs higher will harm them, yes, but relatively less so than a free trade nation.

By way of metaphor, consider the following: let’s say a doctor says exercise and a good diet are key for healthy living.  He gives this advice to two people: one who exercises an hour a day and eats well, the other who is a couch potato and eats fried and fatty foods.  Who would benefit most from the doctor’s advice?  Obviously the latter; the former is already doing the doctor’s orders.  However, if one were to measure the effectiveness just by looking at the former, it would look like the extra exercise was ineffective!  It would be erroneous to conclude that exercise and a good diet are not very beneficial by looking at the minimal change in the health of someone who is already eating well and exercising.  And yet, that is exactly what some scarcityists do.

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