Canada Implements Retaliatory Tariffs Amid U.S. Trade Measures
Modest Tariffs, Immodest Pretences
A small trade war between neighbours is still a war against their own consumers, waged for the benefit of a few well-organized interests.
When a statesman describes a new round of tariffs as “relatively modest,” he reminds me of the physician who consoles his patient that the fever is not quite so violent as last week. The Canadian ministry has already imposed retaliatory duties on a large sum of American goods; the United States now bans certain dairy products, motorcycles, and many alcoholic drinks from Canada. Each measure is explained in the accents of sovereignty, security, and national dignity. Yet the dairy in the grocer’s case, the vehicle in the showroom, and the bottle on the table know nothing of honour: they only know whether they are dearer or cheaper to the buyer who must part with his wages.
In the work on the Wealth of Nations, I observed that the division of labour is limited by the extent of the market. Two neighbouring countries, joined by roads, rivers, and habits of commerce, form in many respects a single great market, in which each side can carry its particular talents farthest when it sells most freely to the other. To interpose, for reasons of policy or pique, a barrier betwixt Canadian dairy and American drink, between one country’s machines and the other’s riders, is not merely to inconvenience a few traders; it is to narrow the market for every art that depends upon those trades, and thus to dull the edge of industry itself.
Tariffs act, in the first instance, upon prices. They raise the price of the foreign article, or, when framed as bans, they altogether extinguish the cheapest source of supply. The benefit is concentrated and visible: the protected producer rejoices, his stock is cleared, his profits for the moment improve. The cost is dispersed and silent: each family pays a trifle more for cheese or spirits, each small manufacturer pays more for his inputs, each worker finds his wages stretch a little less far. No procession is formed for those invisible losers; they murmur only in their household accounts, and their complaints rarely reach the cabinet retreat in Banff.
In my day I remarked that people of the same trade seldom meet together, even for recreation, without the conversation ending in some contrivance to raise prices; the principle is no kinder when the confederates enlist their governments. Business interests frequently urge such tariffs, not because they hate their neighbours, but because they love their own monopoly. They would have the public believe that the nation is enriched when a few producers are shielded from competition; in truth, the nation is thereby made to pay dearly for what it might have purchased cheaply. It is a conspiracy against the public, conducted under the banner of patriotism and employment.
None of this is to deny that states have proper duties. Defence and the exact administration of justice cannot be left to the casual higgling and bargaining of the market. Public works, which greatly benefit commerce but could never reimburse a private undertaker, must be supported by public revenue. Trade policy, too, belongs to the magistrate’s care, not as a toy for courting factions, but as an instrument for enlarging the real income of the people, above all the labouring poor. The standard is plain: do these measures increase the annual produce of the land and labour, measured in what ordinary households can actually consume, or do they diminish it?
An impartial spectator, such as I described in The Theory of Moral Sentiments, would not content himself with the drama of diplomatic firmness. He would enquire who bears the burden. He would see Canadian and American families paying more, or doing without; he would foresee each country imitating the other’s restrictions, until both are surrounded by walls of their own building. That spectator might allow that the present measures are, as has been said, modest in scale, and therefore modest in harm; but he would suspect, with some alarm, the habit they encourage—that of sacrificing many dispersed consumers to a few clamorous producers, whenever an election or a quarrel makes it convenient.
The encouraging words in this unhappy story are those that speak of a “mutually beneficial deal” and of building at home while diversifying abroad. The true remedy for the mischief these tariffs cause is not an escalating contest in which each side proves its fortitude by further taxing its own citizens, but a sober agreement that widens the market for both, respects each country’s laws, and leaves merchants to compete in service, not in influence. These particular duties may be small raindrops, not yet a flood, but even light showers, long persisted in, will rot the foundations of a house that was meant to be built for open commerce, not for siege.
From the works cited
- An Inquiry into the Nature and Causes of the Wealth of Nations — The division of labour (the pin factory) as the engine of opulence, limited by the extent of the market.
- An Inquiry into the Nature and Causes of the Wealth of Nations — The critique of mercantilism: wealth is not money; policies rigged by merchants and manufacturers sacrifice the consumer to the producer.
- The Theory of Moral Sentiments — Judge conduct by the impartial spectator: what would a well-informed, disinterested observer feel about this action?