September 15, 2025
President Trump says that tariffs are good for American workers. He claims that because tariffs raise costs on products manufactured abroad, they will make it feasible for American firms to make these goods here. Economists who oppose tariffs argue that free trade is more "efficient" than protectionism, but what they ignore is that this alleged "efficiency" comes at the expense of American workers. We are Americans, and we should follow an "America First" policy. In this week's article, I'm going to examine Trump's case, relying on the insights of the great Austrian economists Ludwig von Mises and Murray Rothbard.
The key point to bear in mind in the whole tariff controversy is that trade is voluntary. People aren't forced to trade but will do so only if they expect to benefit from the trade. This basic principle applies internationally as well as nationally: people won't engage in trade unless they think they will get something out of it. As Rothbard says, "Before analyzing the problem of the terms of exchange, it is well to recall the reason for exchange-the fact that each individual values more highly the good he gets than the good he gives up. This fact is enough to eliminate the fallacious notion that, if Crusoe and Jackson exchange 5,000 berries for one cow, there is some sort of 'equality of value' between the cow and the 5,000 berries. Value exists in the valuing minds of individuals, and these individuals make the exchange precisely because for each of them there is an inequality of values between the cow and the berries. For Crusoe the cow is valued more than the 5,000 berries; for Jackson it is valued less. Otherwise, the exchange could not be made. Therefore, for each exchange there is a double inequality of values, rather than an equality, and hence there are no 'equal values' to be 'measured' in any way."
Because tariffs interfere with voluntary trade, they distort the market and raise costs for American consumers, who must pay higher prices for what they want. They will be buying American products instead of foreign goods, but this costs them more than they would have spent without the tariffs. Rothbard explains: "Tariffs and various forms of import quotas prohibit, partially or totally, geographical competition for various products. Domestic firms are granted a quasi-monopoly and, generally, a monopoly price. Tariffs injure the consumers within the 'protected' area, who are prevented from purchasing from more efficient competitors at a lower price. They also injure the more efficient foreign firms and the consumers of all areas, who are deprived of the advantages of geographic specialization. In a free market, the best resources will tend to be allocated to their most value-productive locations. Blocking interregional trade will force factors to obtain lower remuneration at less efficient and less value-productive tasks."
Trump supporters object that even if consumers pay higher prices, American producers will profit. More manufacturing jobs will come to the United States. But this objection ignores the fact that many producers lose as well. Rothbard pulverizes this notion by pointing out that while trade barriers may save jobs in protected industries, they destroy jobs elsewhere in the economy by artificially raising the price of labor, in effect punishing more efficient businesses with higher costs of labor for the sake of the favored businesses or industries. Also, higher consumer prices mean less disposable income, leading to reduced spending in other sectors. Moreover, industries that rely on imported materials face higher costs, forcing them to cut back production or lay off workers. For example, suppose a tariff on steel raises the price of steel. Companies that use steel in their products will now have higher costs. They won't be able to hire as many workers as before and some American workers will lose jobs. Trade, by contrast, reallocates resources to their most productive uses, creating wealth and enabling job growth in competitive industries. Rothbard stresses the fact that the free market, not government intervention, is best equipped to direct labor and capital efficiently.
But, Trump supporters will say, isn't it true that some manufacturing jobs are created by tariffs? Well, let's see what happened during Trump's first term. Tariffs were imposed on a range of goods, from Chinese electronics to Canadian steel, under the banner of "America First." The consequences were predictable: higher prices for consumers, disruptions to global supply chains, retaliatory tariffs from trading partners, and a bailout for negatively affected but politically important constituencies. While these policies were marketed as a way to revitalize American manufacturing, they often had the opposite effect. Many businesses faced increased costs, forcing them to scale back operations or relocate production overseas. Meanwhile, consumers bore the brunt of higher prices, effectively paying a hidden tax to fund protectionist policies-to say nothing of taxpayers,
It is true that some new jobs were created, but these jobs cost the American economy more than they are worth. According to a study published in 2024 by the National Bureau of Economic Research, the "Buy American" policies of Trump's first jobs had a bad effect on the economy: "In a rare instance of agreement, Republicans and Democrats have converged on the idea that"Buy American"provisions should be expanded in order to increase American jobs. But a new paper finds that existing federal rules impose high costs on consumers. A September 2024 paper published by the National Bureau for Economic Research (NBER) found the Buy American Act has created more than 50,000 jobs. Just one catch: Each one of those jobs costs the economy more than $100,000. The Buy America Act of 1933 (BAA) is a New-Deal-era law that prohibits the federal government from purchasing foreign-made goods. The BAA's mandate comprises two principal requirements: first, goods must be manufactured in the U.S.; second, at least 50 percent of the cost of inputs for final goods must be domestic. The NBER paper found that removing the BAA's provisions would eliminate 100,000 manufacturing jobs, each of which costs the economy $130,000." This study didn't mention tariffs specifically, but you can be sure the result would have been the same.
Further, we need to bear in mind that particular tariffs are also supported by lobbyists for special interests, who pretend to be acting for the public good. In his great book Liberalism. Mises exposed this tactic: "Thus, the parties of special interests are obliged to be cautious. In speaking of this most important point in their endeavors, they must resort to ambiguous expressions intended to obscure the true state of affairs. Protectionist parties are the best example of this kind of equivocation. They must always be careful to represent the interest in the protective tariffs they recommend as that of a wider group. When associations of manufacturers advocate protective tariffs, the party leaders generally take care not to mention that the interests of individual groups and often even of individual concerns are by no means identical and harmonious. The weaver is injured by tariffs on machines and yarn and will promote the protectionist movement only in the expectation that textile tariffs will be high enough to compensate him for the loss that he suffers from the other tariffs. The farmer who grows fodder demands tariffs on fodder which the cattle raisers oppose; the winegrower demands a tariff on wine, which is just as disadvantageous to the farmer who does not happen to cultivate a vineyard as it is to the urban consumer. Nevertheless, the protectionists appear as a single party united behind a common program. This is made possible only by throwing a veil of obscurity over the truth of the matter."
Trump claims that tariffs are needed for national security, but in fact free trade encourages peaceful international relations. Again, Mises gets at the heart of the matter: "It is a question of whether we shall succeed in creating throughout the world a frame of mind without which all agreements for the preservation of peace and all the proceedings of courts of arbitration will remain, at the crucial moment, only worthless scraps of paper. This frame of mind can be nothing less than the unqualified, unconditional acceptance of liberalism. Liberal thinking must permeate all nations, liberal principles must pervade all political institutions, if the prerequisites of peace are to be created and the causes of war eliminated. As long as nations cling to protective tariffs, compulsory education, interventionism, and etatism, new conflicts capable of breaking out at any time into open warfare will continually arise to plague mankind."
Let's do everything we can to end tariffs and promote free trade!