Free Trade and Retaliation

Up to now, most of my arguments — and Kash’s — in favor of free trade have been premised on the idea that access to inexpensive imports is good for U.S. consumers and also good for the countries selling the goods. A second line of argument is that when the imports being limited or having tariffs attached are inputs (like steel), the harm to industries that use those inputs outweighs the benefits to the protected domestic industry.

There is also another element to the argument for free trade: avoiding the imposition of retaliatory tariffs on U.S. exports. If the rest of the world responds to U.S. protectionism with more protectionism, then we really hit the trifecta of higher prices for consumer goods, lost jobs in import-consuming domestic industries, and lost jobs in export industries. And it looks like that’s where we are heading:

The United States’ growing trade dispute with Europe, Japan, and China over steel and textiles is sparking threats of retaliation that may slow global investment and hurt the sales of companies such as Boeing Co., Ford Motor Co. and AMF Bowling Worldwide Inc.

Japan and Norway has joined the European Union in saying they’ll impose sanctions on US goods to strike back at the Bush administration for steel-import tariffs imposed last year.

… in March, the EU will begin phasing in $4 billion in duties on US products, from leather goods to nuclear reactors, to pressure American lawmakers to scrap a tax break that the WTO says violates export-subsidy rules.

… Products of AMF Bowling Products Inc., a unit of AMF Bowling Worldwide, are on the EU’s retaliation list. The company estimates that as much as 30 percent of its $125 million in annual revenue comes from sales of bowling alley equipment in the EU. “I would view that business as being significantly at risk if these tariffs get passed,” said company president John Walker. AMF may lose sales to Brunswick Corp., which has a factory in Hungary, and to Asian competitors, he said.

Tariffs are bad. Trade wars are really bad.