Saturday, November 22, 2003

I'd like to say a bit about tariffs, quotas, embargoes, and other international trade restrictions. As a free-trader I generally oppose them, but there are certain circumstances in which they are good for free trade. An extreme example would be embargoing a repressive country so as to starve it until it collapses and a free market emerges. Unfortunately such has never happened because the whole world never has agreed to an embargo and the emergence of free market isn't easy (see Russia).

A more common example is happening right now. Europe is threatening retaliatory tariffs against us because of Bush sold out his conservative supporters (who are overwhelmingly free traders these days) by imposing steel tariffs which he think will help him with the protectionist vote in 2004. Are the Europeans further hurting free trade by threatening to retaliate? Will they hurt free trade if we call their bluff and they follow through? No and no. If the Europeans keep a credible deterrent, in the long run the US will have more free trade (at least with Europe) than if the Europeans decide to just lie down and take it. In the short run it would be in Europe's economic interest not to respond, as restricting trade hurts all parties, but in the long run it will be better for Europe to keep a deterrent.

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