Join Date: Mar 2007
Location: San Antonio, Texas
One of the dangers of increasing tariffs is that they have the capacity to create artificially distorted markets. This is, of course, what trade protection sets out to do but since trade protection is antagonistic to the operation of free markets, there is an almost guaranteed reduction in trade. A number of years ago I found myself at a table with some very accomplished economists who were very interested in this phenomenon. One of them was Gordon Tullock who discussed the political consequences of trade barriers which tended to produce the practice of "rent seeking".
When businesses find that they are encouraged by government to operate in artificial tariff protected markets, they naturally enough militate against any return to the rough-and-tumble world of free-market competition. To protect their tariff-aided interests, they typically turn to political arrangements to ensure that the tariff status-quo is maintained. This "rent seeking" behavior is dangerous to free markets because it tends to institutionalize tariffs and make them permanent.
While I understand Trump's use of tariff brinksmanship as a negotiating tool to create trade relationships based on equitable tariffs, there is always the present danger that political forces will seek to make high tariffs permanent, thereby defeating the initial purpose of raising tariffs. We live in interesting times.
From Wikipedia . . .
"Tullock developed a theory referred to as rent-seeking. Rent seeking, according to public choice theory, is securing profits through the political process rather than the market process of exchange. An example of rent seeking is when a firm, union, or special-interest group lobbies political actors (e.g. politicians or bureaucrats) to influence legislation in a beneficial manner. This can lead to moral hazard when politicians make policy decisions based on the lobby instead of the efficiency of the policy.
Jim . . . '72 Super 1300, '70, 1750GTV, 2nd series,
'62, Lancia Flaminia Zagato3c, 2nd series
Last edited by 180OUT; 06-20-2018 at 10:20 PM.