Who's Protected By Tariffs?

0:00I'm Geoffrey Tucker of the Mises Institute. I have with me Mark Thornton, also of the Mises Institute, and we're plowing through economics in one lesson to see what kind of lessons he offers and how they apply today. And today we're going to talk about trade. And in the headlines this morning is the news presented as a tremendous calamity to the world that the latest trade negotiations have broken down and everyone's in a panic. So maybe you could put this in some context. Big surprise, right? You mean politicians are getting together, can't get along? Yes, exactly. Or that these trade talks would break down. I mean, all of these international agreements and trade talks have always broken down at certain points and they take forever.

0:55forever to get to their supposed goals and so a trade talk round can take years and years and years and they periodically break down when the various interest groups are at loggerheads with one another. It's not the politicians so much but the interest groups that they're representing that break down. For example, in the third world, or the developing world, we have a very strong desire for exporting our products. And a lot of these products are being protected by tariffs in the developed world. So it's a matter of negotiating between those concerns. Absolutely.

1:40So it is really the interest groups behind them. It's the interests of the exporters versus the domestic producers. It's the whole story that Hazlitt tells and tells so well about what's really going on. It's, you know, the protectionism is supposed to protect particular jobs, and that's obvious in that scene, but what is not seen behind the scenes, so to speak, is that so many people People are being hurt. The consumer is being hurt. Domestic industries are being hurt. And the whole protectionist scheme is a net loser for the economy. Now, you say domestic industries. You mean final producers of goods, right? Because there's many intermediate producers. Well, the final producers are the ones that are benefiting from these restrictions on imports, but there are many in between producers, wholesale manufacturers and things that are very much hurt by the tariffs on the goods that they use.

2:48I'm thinking, for example, of sugar, which is, am I right, it's still heavily protected? It is very heavily protected. The U.S. sugar producers have been protected since the very beginning of the country. I think that was to bring Louisiana into the Union or something. And so they've always had protection. It's really economically irrational for much of the U.S. sugar production to take place. It has very destructive effects on the Florida ecology. And it makes sugar prices for all Americans so much more expensive. How much more? Do you know? Several times. Really? Do you pay a third as much for sugar? We pay, let's say, three times the world price of sugar.

3:38Right. So we pay that much less. If we could get rid of those restrictions and import sugar from Cuba, for example, the price of sugar for Americans would go down and many Americans say, well, I don't really buy that much sugar. But in reality, you do. You buy sugar in so many products that you consume all of the bakery goods and all of the candies and ice cream and soda pop and you know right on down the list. Now of course the price is so high that they've come up with the high fructose corn syrup as a... Right. And that's been around for some years. Yes, since I think after World War II they started working on that as a way of helping the Corn Producers, who seem to always need help as well.

4:33And so most of our products have been altered with taking the sugar out and putting the high fructose corn syrup in them, and so Coca-Cola in the United States doesn't taste like real Coca-Cola as it's produced elsewhere around the world. I have to go and buy this Mexican Coke, which is in the import section of the grocery stores, to get anything that tastes decent. I read a story the other day, I don't know if you bumped into this either, also, that said that this corn syrup is actually much more fattening than sugar. Did you see that? And the story actually speculated that this has substantial impact on the average weight of the average person in the American population.

5:20It's supposed to have an impact on obesity and insulin problems and now that is still being debated scientifically amongst that community and of course the corn producers are saying no, it doesn't have any effect, it's the same thing and other people are saying no, it's correlated with obesity and it's correlated with diabetes and all of those sorts of things. So scientifically we haven't heard the final word on that, I think there's a lot to the The story though, and certainly the basic correlation is there, the more corn syrup we've been consuming, the heavier we've gotten as a nation in general. And I think the science of it is that the high fructose corn syrup doesn't satisfy you as quickly as sugar and that the corn syrup is supposed to be more stored in your body rather than used directly. So that's the theory The Terrors are ultimately behind this. That's what's remarkable about it.

6:21The unintended consequences. Economists can't necessarily spell all of these unintended consequences out at the very beginning, but we should all be aware that we can't imagine all these problems. We don't know everything that's going to happen behind the scenes, but it's something to consider any time something like a tariff or a regulation is brought up is, wait a second, you've got these direct effects that's going to hurt consumers, that's going to make it more difficult for unprotected industries to get land, labor and capital, and then you're going to have all these diversions and unintended consequences. So watch out. And that's what Hazlett is telling us. Look at the unseen problems that have emerged in and things like sugar and the softwood lumber tariffs and the steel tariffs of 2002. These all have, you know, wide-ranging effects on the economy and they're all negative.

7:26Okay, now explain this. Every president that I can remember in my lifetime has said that Free Trade is a wonderful thing. I'm talking about U.S. President, right? Free Trade is a wonderful thing. We have to back this wonderful trade agreement. You know, we must just get behind it. And anybody who says otherwise is just backwards and uninformed. So, there seems to be a big gap between the practice and what the politicians are preaching. Oh, absolutely. I mean, no U.S. president that I could think of was actually for free trade, that they would actually say unilaterally disarm our weapons of economic protectionism, which is what free trade is. That's what Richard Cobden advocated. That's what Frederic Bastiat advocated. That's what Henry Hazlitt advocated is unilateral economic disarmament.

8:27Non-negotiated international agreements. There's severe problems with international negotiated agreements. There's no problems with free trade. You just unilaterally lower your barriers, lower your restrictions and trade emerges on its own. International agreements break down and when they do, they can lead to things like war. Okay, so Europe went through through this in the 19th century where through bilateral agreements and then multilateral agreements they all reduced their tariffs in the 19th century, but that led to internal contradictions within that system that ultimately broke out in hostility and was one of the ingredients leading up to World War I. So, you know, the idea that we can negotiate our Our way to free trade is ridiculous. We can get some freer trade through those things, but the long-run consequences are very dangerous.

9:30Right. Then you have these boards that are set up to arbitrate disputes. Now, why wouldn't those lead to more peaceful... So you don't have to turn to war. You have to turn to these arbitration panels, no? Well, that's where the conflict arises, is with these panels and these organizations. That's where the infighting comes to impasses and things break down just as this trade talks have broken down. Hopefully this breakdown will not result in any kind of war, but you can imagine economic circumstances 10, 15 years from now where trading negotiations between the United States and China and other parts of the world, the Middle East, that could come to great impasses that results in actual armed conflict as well.

10:20So when you talk about free trade, you're really not talking about the World Trade Organization? No, absolutely not. There are aspects of freer trade within these organizations such as the right of developing countries to import textiles and garments and clothing into the United States without any barriers. So there are some freer trade, you know, and of course The lowering of those barriers helped American consumers. They had a very negative effect here in Alabama. We lost all of our textile mills here in the state of Alabama. But look what happened. We lost our steel mills and our textile mills. And what were they replaced with? They were replaced with automobiles, finance, high tech, healthcare. And so when I ask some of my fellow citizens here in Alabama, would you rather that the population be working in Textile Mills or Automobile Plants. Would you rather have them working in iron mills or in finance and things of that nature or healthcare? And of course they always say,

11:26well, you know, of course we'd rather have these higher paying, more sophisticated jobs for our population. So they can see the benefits after the fact, but up front they were, everybody was totally against all this relaxation of protectionism. Another thing about these negotiations, it's very interesting because what is the U.S. position on these, within these negotiations usually has something to do with if we're going to lower our tariffs, then you've got to accept what our policies that we're going to Impose on You, such as IP, intellectual property recognition, so that American music manufacturers or something can crack down on pirated DVDs or whatever.

12:16Another one, these labor regulations and environmental restrictions that the US is advocating that these other countries pick up, they can hardly afford them, right? Right, they absolutely can't afford them, they can't stop the IP problem. And so, you know, those are going to be part of the impasse that has been developing, is developing, and probably can only get worse, really. There's nothing to suggest that these countries can comply with our labor regulations or our minimum wage law or anything like that. Although American labor unions would love that, right? Absolutely. And why? Because they believe in the rights of workers all over the world? I'm afraid not, Mr. Tucker. And that's why the unions are supposed to be, you know, supposedly financing some of these anti-globalism groups around, you know, that protest globalism because they want the left, sort of left-wing agenda of labor regulations and so forth to be more be more prominent and be a definitive part of the global project, so to speak.

13:32Raise the cost of competition. That's the game, right? That is the game. Or take a cut, in the case of intellectual property, take a cut of the revenue of foreign producers who are otherwise able to sell, produce and sell their products at a much lower price. Well, this is a huge racket. Now, this topic is frustrating for you as an economist, isn't it? I'm an economist, isn't it? Because it's been explained now for centuries and yet we still somehow don't get it, right? Oh yeah, well if you read Hazlitt's chapter on who gets protected, he starts off with a very frustrating discussion about, you know, we've known all this. We don't need to be talking about the finer points of economic theory.

14:19We know the basics about tariffs and protectionism since at least the time of Adam Smith, and that this is the biggest step forward that we could take. We could just decide to become free trade, and it would be the biggest benefit to the economy that we could possibly do. And so there's a tremendous amount of frustration on the part of Hazlitt and myself and all and all the other Austrian economists about, you know, the, just the common sense of free trade. Yeah. So, what do you suppose is the missing ingredient? What do we, what's missing? Why can't we get from here to there, from our current protectionist environment to a world of free trade? Well, of course, the special interest groups that benefit from these individual free trades have advocates who are paid large amounts of money to lobby Congress and other groups, and what we need to oppose that is the wide-ranging recognition of the benefits of free trade, and that people understand what free trade is, unilateral, and what it is not, which

15:30is these groups and these organizations and these agreements, and to proceed along those Those lines, which is far more efficient, which is far faster, and it's less likely to result in any kind of conflict between nations, and then eventually, once you go through a very short period of adjustment like we did here in Alabama through the late 1980s and early 1990s, and all of a sudden, you know, we're at a much better economic position and you know people are happy with the outcome that they feared to begin with. Wouldn't it set a wonderful example for the world too? Absolutely, absolutely. There's no question. You think about Cuba and Florida where Florida is destroying the Everglades and its ecology in order to produce sugar. In Cuba people are, you know, starving and they have no access to any kind of economy at all and if we could just open up the free trade there, open up the door between Cuba and Florida, it would solve Florida's problem, its ecological problem, its water problem and so on and so forth.

16:45Cuba would be a much more prosperous country and all that takes is the will to do it. And we would consume less corn syrup and more sugar and we'd all be thin. Right? Or something like that. Well, it just, all the benefits start rolling out, all the unintended consequences start being rolled back. It's a wonderful process and I hope we start it real soon. Well, thanks so much for explaining this to us, Dr. Bernton.

17:22Thank you for watching!