Free Trade and Welfare

One argument protectionists make for tariffs is the cost to the economy of free trade (in terms of higher welfare payments because people are now laid off) are higher than the cost of the tariff.  However, that does not appear to be the case.

Let’s look at a few examples:

  1. According to the Peterson Institute for International Economics, the cost of US tariffs on Chinese tires in 2009 was very high.  The tariff “saved” some 1,200 jobs, but cost US consumers approximately $1.1 billion/yr due to the higher prices.  That works out to be about $900,000 per job per year.
  2. A 2002 paper from Mackinac Center for Public Policy found that a tariff on steel imports will cost about $439,485-$451,509 per job.
  3. A 1994 research paper from the National Center of Policy Analysis estimates US tariffs costs $170,000 per job saved.

As we can see, the cost varies greatly depending on the industry and the tariff, but they all have costs involved (and these costs fall disproportionately among lower-income Americans).

But what does welfare cost?  A 2012 US Senate report estimates welfare costs per household on welfare is approximately $168 per day, or $61,320 a year (please note, this is toward the higher end of estimates, but there is a very very wide range.  As you can imagine, this is a highly political issue, and, depending on how you measure it, it could give you different answers.  I choose the higher bound to be as fair as possible to the trade protectionists).

According to this, the cost of welfare is actually considerably lower than the cost of tariffs.  This would suggest that, despite many (typically left-wing, but some right-wing) objections, free trade is preferable even in a welfare state!

I suspect we may see something similar when looking at the costs of immigration, but that’s a post for another time.

Update: In the comments section, Bill points us to additional evidence on the cost-per-job of tariffs.