Tariffs – When they are unbalanced

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  • #18680
    pwiker
    Member

    Let us say that China and the US both have tariffs on one another’s imports at an arbitrary rate. What happens if the US eliminates tariffs while China maintains theirs?

    Naturally, I understand that initially, Chinese goods in the us would be less expensive and some work in the US would cease to be competitive. However, the imported goods would be less expensive over all and this would boost value for the US.
    The Chinese on the other hand would get a boost in exports and would therefore bring in additional US dollars.

    In the long run, at some point, wouldn’t China have a gob of US dollars that they would have to exchange some how? Either use it to purchase gold or US products or land in the US. Is it not inevitable that the dollars will flow back to the US regardless of the tariff state?

    The essential question is if we lowered our tariffs on all imports to 0, and regardless if others reciprocated, should we care? How would that effect our economy?

    #18681
    jmherbener
    Participant

    You’re correct. Unilateral free trade policy is beneficial to society-at-large. It allows the division of labor more room to develop naturally. Both production processes and capital investment become more efficient.

    https://mises.org/blog/free-trade-benefits-vs-fears-foreign-goods

    Even if the Chinese just held dollar currency permanently, this would transfer command over goods to those of us who do not hold cash but continued to spend it.

    #18682
    pwiker
    Member

    I am pondering and wondering why we need trade ‘agreements’. If we just don’t tariff incoming goods, why would we care if the other party does the same thing?

    According to the article referenced by Jeff, “Indeed, the United States does not even need the mutual agreement of any other nation to implement free trade. The U.S., with just such a piece of legislation, can establish free trade unilaterally; even if other nations kept some or all of their own trade-restricting barriers in place, America would still be better off.”

    Does anyone know of an example where this has occurred? It’s one thing to say that we would be ‘better off’, but it would be far better to have an example.

    I can only guess that these agreements are designed to serve other purposes such as favoring certain parties etc.

    #18683
    jmherbener
    Participant

    Perhaps the most famous case is Great Britain in the mid-nineteenth century.

    http://personal.lse.ac.uk/schonhar/docs/books/Orourkes%20review.pdf

    https://mises.org/library/what-crushed-corn-laws

    Bastiat led the intellectual movement for free trade in France around the same time.

    https://mises.org/library/biography-frederic-bastiat-1801-1850-between-french-and-marginalist-revolutions

    https://mises.org/library/comment-french-liberal-school-0

    Chile is cited as a more recent case.

    http://www.nber.org/papers/w6510

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