One of the hidden benefits of internet communication is that you end up with a written transcript of your conversations. In reference to reports of China subsidizing its paper industry, my friend Chris recently asked me:
Chris is referring to what Friedman said about allegations that Japan was subsidizing its steel industry, and what it would do to the American economy:
"According to Milton Freidman, the Chinese subsidizing paper for us to buy would be a good thing, because they absorb the extra costs and sell it to us cheaper (the same as his Japanese steel analogy). But, this is eliminating jobs here in the US. So, wouldn't you think that ultimately the most important thing is jobs? Apparently Congress things so. Wouldn't banning or placing tariffs on Chinese imports be a good solution to create jobs in the US again?"
As Friedman said, channeling the wisdom of Adam Smith, Americans will simply get cheaper steel. The American steel industry will shrink, and steel workers will get other jobs in America. These jobs will be created because the Japanese will have American dollars to spend and will spend it on other American goods. Other American industries will grow, compensating for the loss of the steel industry. Meanwhile American consumers will benefit because their steel purchases were subsidized by the Japanese taxpayers. Friedman compared this to receiving foreign aid.
Chris was right to compare the two examples. Chinese paper will be no different. If it's true and Americans buy cheaper paper from China, the American paper industry will get smaller while other American companies get bigger as exports increase.
So the actual number of jobs will not change. The tariffs would make imported paper more expensive, so Americans will buy less of it. This means less American dollars abroad, so the increases to exports will not happen. The difference is that we will protect the visible jobs we can name, at the expense of the invisible jobs that will happen, but we can't say where.
A tariff is supposed to be a tax a company pays to import something to America. But in reality, a tariff is a tax consumers must pay for the right to buy things produced in other countries. If there is a $5 tariff for a unit of paper, the paper will cost the American consumer $5 more than it should. The paper company already paid that $5 to the government and will have to charge the customer for it.
Can tariffs create jobs?
The second part of the question is if tariffs should be used to create American jobs. Let me be clear, tariffs absolutely create jobs, just as blinding half the population would create jobs to take care of them, or burning Paris would create construction jobs.
But those are terrible things to do. Creating jobs is not a goal in and of itself. It's the creation of goods and services that make a society wealthy, not keeping people busy.
George Will has a Friedman anecdote that sheds light on this:
Who cares how many people are kept busy? It's productivity that matters. As an industry gets more productive, it doesn't create more jobs - it destroys them. As Paul Krugman wrote:
"He went to Asia in the 1960s and was proudly taken by the government to see a public works project. They were building a canal. He was struck everyone was digging the canal with shovels. Friedman says, why no heavy earth-moving equipment?"They said, oh, this is a jobs program. So Friedman says, why don't you give them spoons instead of shovels?"
"The kinds of jobs that grow over time are not the things we do well but the things we do badly. The American economy has become supremely efficient at growing food; as a result, we are able to feed ourselves and a good part of the rest of the world, while employing only two percent of the work force on the farm. On the other hand, it takes as many people to serve a meal or man a cash register as it always did; that's why so many of the jobs our economy creates are in the food service and retail trade. Industries that achieve rapid productivity growth tend to lose jobs, not gain them."Using tariffs to protect American jobs is not a new idea. It's not even a new idea during times of high unemployment. The Smoot-Hawley Tariff of 1930 was the exact same idea. Tariffs were established on some 20,000 imported goods. It did not work and the United States sank deeper into the Great Depression. Imports went down, as did exports.
As I've said before, reject any scheme to improve an economy or increase wealth by being purposely inefficient. Jobs should be created as a side effect of improvements to our society. If you aim to improve the quality of peoples lives by offering new goods and services, the jobs will follow.