Drugs and Tariffs

I saw this linked from Free Northerner’s blog: An Economist’s Cautionary Note on Free Trade

Targeted tariffs won’t raise consumption. They won’t spur economic growth. They will lead to more expensive goods, and less consumption. David Ricardo was right on all that. Comparative advantage still exists, and be very wary of anyone who talks about free trade without acknowledging this.

But they might also lead to more employment. And this may well be worth it in terms of the quantity that the economist’s social planner is meant to care about, namely total welfare.

It might lead to fewer rust belt whites killing themselves with opiates, because their communities are totally hollowed out with everybody sitting around on welfare without any purpose in their lives.

If steel products cost slightly more as a result, personally that doesn’t strike me as the end of the world.

As I explained a few weeks ago, tariffs both raise prices and hurt employment, hurting the lowest of income earners. The reason is because America exports a lot of stuff, and increasing prices for imports will lower consumer demand for imported goods, but this will also lower foreign demand for America’s own exports, hence hurting American jobs. This is because America trades its exports for imports. Higher import prices hurt American retailers, costing jobs. Also, companies will find ways to evade the tariffs, such as choosing countries that don’t have tariffs.

Here is the cautionary tale regarding tariffs on Chinese tires:

But other trading partners rushed to fill the void. Shipments from South Korea, Thailand and Indonesia doubled in value, more than offsetting the decline in Chinese-made tires.

The Peterson Institute for International Economics reached very different conclusions: The think tank said the duties saved a maximum of 1,200 manufacturing jobs and when factoring in the higher American consumer cost for tires, resulted in the U.S. economy losing about 2,500 retail jobs.

The Smoot-Hawley bill, signed in 1930, is another example of how tariffs can backfire, by making the Great Depression worse:

Eighty four years ago on this day President Hoover signed the now-infamous Smoot-Hawley tariff bill, which substantially raised U.S. tariffs on some 890 products. Other countries retaliated and world trade shrank enormously; by the end of 1934 world trade had plummeted some 66 percent from the 1929 level.

Regarding opioid abuse, the author seems to be making a generous assumption that more jobs will equal less drug abuse in ‘rust belt’ states such as Ohio, Michigan, and Pennsylvania. Ohio is like the ‘opioid capital’ of the United States, due to the rampant abuse there:

If there were a one-to-one correlation between unemployment and opioid abuse, we would expect unemployment to be highest in those states, but it’s not:

Ohio’s unemployment rate is close to the national average. Look at Oklahoma: low unemployment, lots of opioid abuse.

Although Ohio lost 300,000 manufacturing jobs between 1999-2009, it gained back those jobs in other areas:

This suggests the problem has more to do with drug addiction and welfare than insufficient jobs. Although the unemployed are more likely to abuse drugs, there is more to it than that. For example, there are two questions regarding causality: does drug abuse cause unemployment or are people taking drugs because they are unemployed? I’m skeptical that drug addicts who are on welfare are going to suddenly ‘go clean’ if jobs become available. Another problem is that welfare may be a ‘better deal’ than going to work:

We should be more honest about the difficulty of persuading people on that $12 dole to give it up and work for $8. They are not irrational to find that bargain unappealing, especially when a private-sector economy groaning under the titanic burden of government has a hard time producing good employment opportunities for marginal workers.