Understanding Tariffs and Their Trade-Offs

Although the economy was severely damaged during the pandemic, the culprits were price controls and lockdowns

Letter to The WSJ. 

"Flaws mar Paul Rahe’s op-ed arguing that, in a world subject to war and other disruptions, tariffs can protect an economy’s resilience (“There’s a Case for Tariffs,” April 16). It’s untrue that the pandemic showed that, with free trade and global disruptions, “supply chains collapse.”

Although America’s economy was severely damaged during the pandemic, the culprits were price controls and lockdowns. Yet despite these obstructions, as Scott Lincicome explains, “a December 2020 U.S. International Trade Commission (ITC) report found that U.S. manufacturers and global supply chains responded quickly to boost supplies or make new drugs, medical devices, PPE, cleaning supplies, and other goods, and that the pharmaceutical, medical device, N95 mask, and cleaning products (including hand sanitizer) industries were particularly ‘resilient’ (in the ITC’s own words).”

Economically, tariffs can’t increase the domestic capacity to produce particular goods without decreasing the domestic capacity to produce other goods. Because private businesses themselves have strong incentives to assess accurately the risks of global disruptions and optimally diversify their sources of supply to minimize supply-chain troubles, tariffs likely create excess capacity in protected, politically powerful industries as they drain resources away from other, politically weaker industries. This political determination of which industries are essential and which aren’t weakens the economy’s ability to respond effectively to global shocks.

Prof. Donald J. Boudreaux

George Mason University"