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The case against tariffs

Matthew Lau: No matter how hard you squint, more expensive goods aren’t better for Canadians.

To achieve the same outcome or acquire the same goods, it’s always preferable to pay a lower cost than a higher one. As Adam Smith wrote in his 1776 book The Wealth of Nations, “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better to buy it of them with some part of the produce of our own industry.”

Not only is it basic economics, but a rule by which everybody – even those with little understanding of economics – lives. Approximately zero out of the 37 million people in Canada, for example, makes their clothes from scratch (including growing the plants that provide the material, harvesting it, turning it into clothing, raising cows to produce leather for shoes, and so on).

People know they can get higher quality clothes at a lower cost by purchasing it from a store. Indeed, people making minimum wage earn enough in a day to buy a pair of running shoes, but even the most skillful workers would expend much more than a day of labour trying to make those same shoes from scratch.

Given that everyone knows it’s better to incur lower costs to achieve the same result, it is utterly confounding that so many people are in favour of protective tariffs. Supporters insist that Canadians would actually be richer by paying higher prices, or by producing goods at a much higher cost than if purchased from abroad.

One recent example is an article in The Tyee by Ironworkers’ Union organizer Eric Bohne and Canadian Institute of Steel Construction CEO Ed Whalen, arguing that Canadians would be better off if the government imposed tariffs on steel imports from China. They were, perhaps, emulating the candle makers in Frederic Bastiat’s famous satirical essay, wherein candle makers call upon government to make it mandatory for everybody to close windows, curtains, shutters, and so on to block out the sun; by providing light, the sun was costing candle makers their jobs.

Just as the candle makers complain of “ruinous competition” from the sun “flooding the domestic market” at an “incredibly low price,” Bohne and Whalen decry “unfair competition” from Chinese exporters “dumping subsidized steel into our country.”

Like the argument that enforced darkness will mean more jobs for candle makers, it is argued that steel tariffs would preserve steel production jobs in Canada.

The critical economic error in this argument is the confusion between benefits and costs. Steel is a benefit; labour is a cost. Canadians buy clothes instead of making it themselves to reduce the cost (the labour that must be expended) in order to achieve the benefit (new clothes). By the same logic, Canadians should prefer to buy steel from China if it’s less expensive than producing it at home.

The false notion that Canadians are enriched by paying more for steel is no less absurd than saying that a consumer looking to buy clothing is enriched if the store charges him higher prices.

Just as tariffs make Canadians expend more labour to get the same amount of steel, a consumer facing higher prices at the clothing store would need to expend more labour (for example, by working longer hours) to get the same amount of clothes.

No differently to how a rise in clothing prices does not help Canadian consumers, tariffs make Canadians poorer. The case for protective tariffs, on steel or anything else, has not improved since Adam Smith destroyed it more than 240 years ago.

Matthew Lau is an economics writer. His columns have appeared in newspapers and online publications across Canada.