Posted by
Andrews on Friday, February 06, 2009 10:02:02 PM
Often you hear people argue that they are not for protectionism, but support "fair trade". Many times this is just a smokescreen for protectionism, but sometimes the people saying this simply mean that we should respond to foreign tariffs with tariffs of our.
However, much as this might satisfy some sense of fairness, it is still a bad idea.
A foreign tariff serves to make our goods more expensive for foreigners, however, retaliating with a tariff of our own just makes goods more expensive for our own citizens.
As I discussed earlier, goods trade against goods. So if a tariff makes it harder for foreigners to buy our goods, then we will be able to buy fewer of theirs. That alone is enough to harm them in "punishment" for their protectionism. A tariff of our own does nothing to make the situation better. Instead it makes goods more expensive for our own buyers, transferring part of their purchase money to the government.
The best response to a foreign tariff is simply to let them suffer the consequences of their own foolishness. As I argued many times before, protective tariffs harm the nation enforcing the tariff more than anyone else. Yes, it makes the entire world a bit poorer by impeding global division of labor, but the solution to that is not to impede trade even more. Unless we are willing to go the Admiral Perry or Opium War route to open closed or protected markets, the best solution is simply to let the tariff enforcing nation suffer the consequences of their own foolishness, while continuing to trade as before.
Anything else is simply to take another's error and inflict it upon ourselves as well.