Tariffs have been a polarizing economic tool for centuries. Supporters contend they protect domestic industries and foster jobs, and critics respond that they stifle free trade, harm consumers, and give the government too much authority. Former President Donald Trump used to claim that “the word tariff is the most beautiful word in the dictionary” and maintained tariffs help the nation without harming Americans. History and economic theory, though, have another tale to share.
Free markets, and not protectionism, have formed the basis of economic development and individual liberty. Tariffs that hinder us bring about inefficiency, consumer choice restriction, and government control. Since one of America’s framers, James Madison, knew that free markets are the key to a prosperous and equitable society. This article examines why tariffs have no part to play and why open trade is still the key to economic development and individual liberty.
The Economic Fallacy of Tariffs
Tariffs are import taxes. When tariffs are imposed, they raise the prices paid by consumers on foreign products so they are less competitive compared to domestic production. This, in the short-term, will seem to benefit domestic business, but in the long-term, the effect is generally catastrophic.
Consumers and Companies Shell Out More with Tariffs
One of the biggest myths surrounding tariffs is that Americans do not pay tariffs. Tariffs increase the prices to consumers immediately. Since corporations use foreign inputs, they pass these costs to consumers, so ordinary items, everything from automobiles to electronics to food, are more costly.
For example, when the United States imposed tariffs on Chinese imports under the Trump administration, American businesses that imported Chinese components paid more. The businesses either had to absorb the expense, lay off employees, or raise prices. Studies found that most of the tariff expense was passed on to consumers, refuting claims that tariffs were foreign exporters paying them.
Tariffs disrupt supply chains and stifle innovation
Today’s economies are highly interdependent. Supply chains stretch across continents, and firms find the best materials at the best prices. Tariffs cut into these chains, requiring firms to find new suppliers or relocate production processes, both involving inefficiencies.
The automotive industry is one where American producers are dependent on components from other countries. With tariffs, these components increase their prices, which makes domestic vehicles more costly, decreases sales, and makes the industry less competitive. The same effects are experienced in industries such as technology, agriculture, and manufacturing.
Tariffs have resulted in trade wars and retaliations
Protectionist policies do not stand by themselves. When one country sets tariffs, other countries retaliate. Trade wars heat up, and industries that once relied on export sales are excluded from key markets.
The China-U.S. trade war is a case in point. When Trump’s government imposed tariffs on China imports, China retaliated by imposing tariffs on U.S. export products in the form of agricultural products including soybeans. American farmers, therefore, lost out on their traditional sales to consumers in China. The government attempted to assuage farmers by providing them with subsidies, but it was a temporary measure that did not address underlying economic inefficiencies that came out of protectionism.
Free trade is an aspect of prosperity and freedom
Whereas protectionism attempts to preserve jobs, experience teaches that freer trade generates real economic development. Freer trade not only brings costs down, but it also promotes competition, inspires innovation, and opens new market horizons.
James Madison’s vision for free trade
The United States’ foremost constitution drafter, James Madison, was cognizant of the threat to business posed by government interference. In 1789, he expressed:
I declare myself a friend to a highly liberal system of trade, and to hold as an axiom, that commercial fetters are most commonly unjust, oppressive, and unwise.
Madison believed that if nations and private enterprises are not too hamstrung by government regulation to conduct trade, their economies will thrive. Free markets relocate labor and capital to their most productive uses and make everyone rich.
Comparative Advantage The Foundation of Trade
Comparative advantage theory, developed by economist David Ricardo, holds the secret as to why free trade is best for every country. Every country has to do what it is most capable of doing, and trade to obtain what it is less capable of doing. This permits optimum resource allocation and economic growth.
For instance, the United States is technologically advanced, and Brazil and Argentina are dominant producers of food. Everyone will have more to consume and less to spend if countries specialize in their strengths and trade what they lack. Tariffs disrupt natural efficiency and reduce the productivity of nations.
 The Relationship between Liberal Trade and Political Freedom
Political and economic freedom have long been linked. Economist Peter Bauer put emphasis on the fact that the sign of economic development is the expansion of choice—providing more goods and options to individuals. Tariffs, by restraining trade, decrease consumer choice and increase government control over the economy.
Free trade countries also enjoy more political and individual liberty. Free markets foster the open flow of ideas, promote cultural interchange, and discourage governments from trying to overly control economic action. Protectionism, by contrast, is usually linked with authoritarianism, as governments use trade restrictions to regulate industries and concentrate powers.
The Dangers of Government Excess through Tariffs
Among the most pernicious risks tariffs represent is that they can increase government power. Protectionism enables governments to pick winners and losers, granting special favors to some industries while imposing costs on other industries. This encourages crony capitalism, as companies lobby politicians into providing them with special trade agreements rather than competing based on merit.
Tariffs as a Political Tool
More typically, tariffs are employed as a political tool rather than an economic tool. Tariffs are used by politicians to win political friends by promising to “bring jobs back” regardless of the ultimate result being adverse. Politically favored industries get protected and politically disfavored industries get hurt.
For example, recent tariffs on steel and aluminium benefited particular domestic producers but hurt industries that consume them, such as construction and manufacturing. What happened as a result? A net economic detriment, more jobs destroyed than created.
A Simple System of Natural Liberty
Adam Smith, in The Wealth of Nations, warned against government interference with business, believing that economies prosper most under a “simple system of natural liberty.” He wrote:
“Each man. is left entirely at liberty to pursue his interest his way. The sovereign is entirely relieved from an undertaking [for which] no talent or knowledge in any way could be sufficient, the undertaking to regulate the industry of the people, and to direct it to the most beneficial employments for the welfare of the community.”
That is, governments must not interfere, and markets regulate themselves, and interference by the government will do more harm.
Conclusion: Protectionism vs. Free Trade
Tariffs sound great in speeches, but their economic effect is devastating. They raise prices to consumers, they harm business, and they restrict economic opportunity. More importantly, they enhance government authority by limiting individual liberty. Decision-makers must commit themselves to the values of free trade if they want to “Make America Great Again.” Open markets encourage competition, innovation, and offer consumers more choice all while protecting economic and political freedom. Protectionism is a step back toward government control and economic stagnation. The most beautiful word in the dictionary is not “tariff” but freedom, the freedom to trade, to be free to innovate, and to make the world richer.
