U.S. Tariffs Are Not "More Punishing to China"
By Pierre Lemieux
The world would be a different place, more rational and convivial, if all politicians, journalists, and editors had some clear notions of supply and demand as well as of the history of economic thought—if, for example, they had read David Hume, Adam Smith, Jean-Baptiste Say, James Mill, and John Stuart Mill. As an illustration, consider a sentence in yesterday’s Wall Street Journal (“Trump’s Trade War Will Be Left for Biden to Win,” January 3, 2021—my emphasis):
[Mr. Biden] has already said he wouldn’t immediately lift the tariffs, which should prove more punishing to China than the U.S., as its economy generally depends more on exports.
It is not clear whether the explanation I have emphasized is the journalist’s paraphrase of Mr. Biden’s thinking or the journalist’s own opinion. It could well be both. My guess is that, as the sentence is written, it expresses the journalist’s belief. On the other hand, it is quite obvious that Mr. Biden is as ignorant of trade as Mr. Trump, although the ignorance of the former is not as militant as the ignorance of the latter. But whoever’s thinking it represents, the clause ignores two centuries and a half of economic understanding, to which only some extreme left and some extreme right have been completely immune.
Increasing the tariffs “against China” would increase them against American consumers, who, as was again demonstrated by President Trump’s trade war, end up paying the tariffs in increased prices, which reimburse the tariffs paid by American importers. The only sense in which Chinese exporters pay is that higher tariffs and prices translate into a lower quantity demanded for their wares, assuming they cannot sell them elsewhere in world markets. Thus, increasing the tariffs on Chinese goods would prove more punishing to American consumers. (See my Econlog posts “The Poverty of Protectionism and the Impact of Tariffs,” June 17, 2019; and “Anecdotes and Data in the Trade War,” July 9, 2019.)
The last clause of the quote above, “as [China’s] economy depends more on exports,” is also (at the very least) misleading. As such, exports do not increase domestic prosperity: they divert to the benefit of foreign consumers (Chinese consumers, in this case) domestic (American) resources that would otherwise be used to produce goods or services for domestic (American) consumers. American exports benefit Americans only in the sense that they allow them to produce more of what they have a comparative advantage in and thus import more goods which are produced relatively more cheaply in China or in other countries. The only benefit of exports for the domestic economy is that they allow more imports. Otherwise, exports would be just a gift from “the Americans” to “the Chinese.” (For an elaboration of this point, see my “Logic, Economics, and Protectionist Nationalists,” Regulation 43:3 (Fall 2020), pp. 9-11.)