Much of economics and economic policy-making has to do with the visibility of consequences – what is seen by the public and what is not. Often, the unseen is overlooked and ignored in favour of the seen. As such, problems are often addressed by placing a band-aid on a bullet-wound. The same can be said about Boris Johnson’s announcement to renew steel tariffs at the end of the month.
Last week, the government proposed an extension of two years on steel tariffs. The package will include imports from countries such as India, Turkey and China with the intention to ‘save jobs’ and ‘protect the domestic steel industry’ due to the hard times they are facing.
What is seen in the case of Johnson’s announcement on tariffs is the reason why he and various other MPs are contemplating this: one can count the number of steel workers whose jobs this will protect, the market value of the product and the amount of capital invested in the industry. Neighbours will be able to watch steel-workers leave their homes every morning to go to work, grateful they are to keep their job due to the tariffs.
To summarise, the steel industry will be kept alive thanks to subsidies by the tax on foreign steel – which is exactly what tariffs fundamentally are. But what is the unseen side to this?
Neglected are those consequences that do not come into existence due to the tariffs. Adam Smith knew that, so did Frédéric Bastiat and Henry Hazlitt too. The difference between tariffs and no tariffs is the money that will be left over in the pockets of those who are buying British steel, be that steel-consuming industries or the public in need of a new stainless-steel frying pan.
What tariffs do is to change the structure of an economy by putting capital and manpower in less productive places, favouring special interest groups above everyone else. Without tariffs, labour would be employed in the part of the economy where it will be most efficient, rather than where it is simply subsidised.
Steel tariffs do not result in a net job increase, nor in an increase in the demand for steel or greater labour productivity. They also do not raise British wages. On the contrary: as consumers have to pay more for steel and steel products, they have less for everything else. Real wages and general purchasing power will be reduced.
Steel tariffs solely enable Britons to work in the British steel industry. There might even be cases where this is desired, for example when discussing special circumstances or industries, like those needed for defence during war. But it is a fallacy to claim that tariffs will somehow lead to prosperity by providing more jobs at home.
Taking this argument reductio ad absurdum illustrates the above point well. If steel tariffs save the steel industry, why don’t we reduce all imports by introducing tariffs across the board? It certainly wouldn’t create a society of zero per cent unemployment and maintain the same standard of living. Equally, if cheap(er) imports are bad for our economy at home, then what about free imports? Would that, too, hurt our economy?
When President Bush imposed tariffs of up to 30 per cent on steel imports in 2002, the steel-making states in the US, such as Pennsylvania, saluted him for protecting companies and workers. Steel-consuming states, such as Michigan however, were not so amused. Little did Bush’s adviser foresee that the imposed tariffs would not just be bad news for international markets, but cause chaos at home too.
What economics tries to highlight is not just the seen but also the unseen. About this dichotomy Frédéric Bastiat once wrote: “Between a good and a bad economist this constitutes the whole difference — the one takes account of the visible effect; the other takes account both of the effects which are seen and also of those which it is necessary to foresee.“ Boris and his Cabinet would be wise to take a page off Bastiat’s book – quite literally.
