It is often said that Trump will use trade protectionism because free trade isn’t necessarily fair trade. We are told that if, say, Japan imposes tariffs – aka import taxes – on GM products but the US does not impose tariffs on Toyotas, it is not fair trade.
The question is, to whom is it unfair?
Suppose I want to purchase a Lexus LS (a Toyota product) in 2017.
I have saved and I am ready to make my purchase but when the day finally arrives, I learn that the price of the car has increased by $10,000 due to a tariff imposed under Trump’s plan.
Trump argues that it is unfair that Tokyo places an import tax on the Chevy Malibu in Japan. He has, in an attempt to benefit General Motors, responded with a retaliatory tariff.
Is this fair to me? No. It represents a significant increase in the cost of the car I want. The cost increase is nothing less than a new federal tax on my household. It benefits me in no way whatsoever but has significantly increased my costs (or forced me to do without a car I want).
Is it fair to the Bill Jones, the owner of the local Toyota/Lexus dealership. No. The increase in the cost of his automobiles due to the new federal tax means that his income has fallen significantly.
Is it fair to the Jack Williamson, the owner of the Chevrolet dealership across the street? It helps him a little in the short run, but not much. For example,I want a Lexus, not a Chevy so I still won’t buy a car from him. Other buyers will, however. In the long run the reduction in competition allows GM to keep prices higher than they otherwise would and higher prices get passed to the consumer. Higher prices mean fewer sales. That is bad for Williamson’s bottom line.
Who does it help? It helps the owners of GM and the UAW.
In other words, the new “fair trade” policy is grossly unfair to consumers and to importers, does little for domestic retailers but is very good for GM and its union.
The federal government intervened in the market, took money from the pockets of millions of consumers and put it in the pockets of GM and the UAW. There is absolutely, positively nothing fair about that.