The Personal Website of Mark W. Dawson

Tariffs - A Double Entry Ledger

When thinking of Tariffs you should always remember:

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.
  - Frederic Bastiat – That Which Is Seen and That Which Is Not Seen

The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; and for just as long, politicians and popular opinion have largely ignored it. Most often, however, the law of unintended consequences illuminates the perverse unanticipated effects of government legislation and regulation.
- From The Library of Economics and Liberty

Life is like a double entry ledger. For everything that happens there are positives and negatives.
- As stated in one of my “Principles”

The above three statements often work in tandem. When examining any public policy position, you must be careful to examine both, and all, sides of the issue to determine the impacts of the public policy. This can be seen in two current public policy issues; Tariffs on Mexico and my chirp on Something We Should All Agree Upon. We should examine these issues based on the above three statements.

Tariffs on Mexico have been decried as harmful to both the economies of Mexico and America. On one side of the ledger, tariffs stifle economic activity and raise the costs of goods and services to all Americans. And this is true. The other side of the ledger is without tariffs or the threat of tariffs Mexico has little incentive to stem the flow of illegal immigrants from Mexico to America. Currently, at over one million illegal immigrants per year, many of these immigrants are drug runners, gang members, human traffickers, some terrorists, and other undesirables that negatively impact American society. They also risk bringing in infectious diseases that could spread to all peoples in America, and many of them have health problems that must be addressed. All illegal immigrants have a negative economic impact on American taxpayers in increased government financial resources for public schooling, health services, public welfare, law enforcement, judicial processes, prisons, drug addiction treatment, etc.… This increase of government financial resources results in increased taxes on American taxpayers and a larger government to meet these needs. Most illegal immigrants do not pay taxes to support these services and these costs must be borne by the American taxpayers. And these increases in taxes are often hidden in increased operating budgets of government agencies. An increase in taxes that may be more than the raise the costs of goods and services to all Americans as a result of tariffs. Are Americans prepared to accept increased taxes, larger government, and negative societal impacts for higher economic activity and lower costs of goods and services?

My Chirp “Something We Should All Agree Upon” also raises the question of the lowering of the costs of goods by American companies through foreign relocation of manufacturing. Many companies would counter My Chirp that they are forced to relocate their manufacturing overseas to reduce the costs of goods to Americans and remain competitive. But this is just one side of the ledger. The other side of the ledger is millions of good jobs lost overseas and a generation of stagnant wages, growing income inequality, and sluggish economic growth for many Americans. This also has a negative economic impact on American taxpayers in increased government financial resources for unemployment benefits, health services, and public welfare for those negatively impacted by foreign relocation. And this is not only Americans directly impacted by closings, but also for companies who support those factories with goods and services, and for their workers that have lost their jobs as a result of the relocation. This effect ripples throughout a community, town, city, or State as a result of foreign relocation of manufacturing. Taxes must be increased to support those negatively affected while at the same time there are fewer taxpayers. There is also the societal impact of many Americans feeling dispossessed as a result of not having gainful employment. We must also keep in mind that many of these manufacture workers fall into the lower percentile in my article Cognitive Abilities and the Value of a Human Being and the associated negative consequences. Many of the newer jobs that are created after the relocation of manufacturing are in the higher percentile of Cognitive Abilities and therefore cannot be filled by those that were laid off by the relocation. Are Americans willing to accept increased taxes, larger government, and negative societal impacts for lower costs of goods by relocating manufacturing overseas?

We also need to consider the impact on foreign workers and countries. Many of these foreign workers are working in almost slave labor and unsafe workplace conditions. These foreign manufacturing plants are often environmental polluters as well as consumers of energy that is produced by environmental polluters. The mining and manufacturing of the raw materials to supply these foreign manufacturing plants are often environmental polluters as well. Many foreign countries subsidize these companies by either direct funding or indirectly through financial grants, property allocation, tax breaks or currency manipulations, thus giving them a competitive advantage over American companies. This also raises the philosophical issue of tariffs on these foreign countries due to their abuses of Human Rights, negative environmental impacts, and subsidies. We, as Americans, have no right to tell other countries what they can or should do inside their country. But we do have the right to say if you abuse Human Rights, abuse the environment, and subsidize your companies to the detriment of American companies we reserve the right to impose tariffs to level the playing field.

I am generally opposed to tariffs, especially when they are done to simply protect American businesses or workers. American businesses and workers should compete with foreign businesses and workers, but this competition should be on a level playing field and not against stacked foreign competition. American businesses and workers also need to keep in mind that they are in a symbiotic relationship. They need to work together to better compete with foreign and domestic competitors. If not they will learn the truth of one of my locutions "Half of something is better than all of nothing".

We should also be wary of politicians and political commentators who focus on only one side of the ledger and not examining the other side.