How would Milton Friedman react to potential tariffs imposed by Trump?

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Political Arenas

4 min readMar 31, 2017

We have watched the rising idea of protectionism in America due to Trump’s election and it would be very interesting to examine how “neoliberal” this measure is (not). So let’s examine what Milton Friedman believed about imposing tariffs and why he opposed them based on his book “Free to Choose”.

First of all, the customer loses the freedom to choose which product wants and in which price. Let’s say for example that US try to protect a “native” product that costs $1,30 from an imported product that costs $1. After the tariff, both could cost $1,30. The problem is that the citizen cannot anymore buy the cheapest one and thus with the same wage he/she can buy less products (=de facto reduction of the real wages). Even more, the information included in the price is lost. The $1 product for instance could be of lower quality and thus be cheaper. As a result, a poor citizen with low income would buy the cheaper one while the wealthier could choose the product of better quality.

“Yes, but buying native products will benefit back the citizens, because native people will have more money to buy product or services from their fellow citizens” could be an argument against that. The currency would stay in the country. Is that true? Sometimes yes and sometimes no.

According to Friedman, tariffs would probably make the other countries retaliate. As a result, the exports will also get harmed. So who will be harmed most? The quality products of both countries. Why? When a state imposes a tariff, the reason is to protect the less competitive products that cannot even stand in the internal market on their own. For the quality and value for money products a free-market global environment is of course better. So in both countries, there will be a shift of employment from the more productive sectors to the less productive sectors. This would reduce the total output of both countries.

To understand this idea better, Friedman’s example of the secretary could be mentioned. A lawyer pays, for example, $8/hour his secretary. He decides to fire her so that he saves some money from the “office work”. He fires her and he seems to have saved some money. But the truth is different. First of all, he could be earning much more money at the same time if he applied his job(for example $30/hour), at which he is better, even if he paid the secretary, rather than “protecting” himself from paying the secretary. In the end, the secretary loses her job, the lawyer becomes less efficient and the total output is reduced.

That’s the same with countries, according to Friedman. If America is better in one sector and China is better in another, let each one sell the products/services at which they are better.

“But the others use unfair practices. For example, they subsidy some products so that they are cheaper than the internal American ones”. That’s also true, but is this really bad for the consumer? According to Friedman, this is even better for the consumer. You would have to pay an X amount of money for a product/service and the Chinese government subsidies 20% of this. Is it good or bad for the American consumer? China taxes their companies so that they subsidy a percentage of what an American consumer buys. And you will say no?

And you should not forget that if you stop buying some of their products, they will also have less money to buy your products.

“Yeah, but since the other countries buy less products from us than the ones we buy from them, in the end they will be rich and we will be poor”. This is also just partly true. If America would constantly sell much less than what they bought, then, soon or later, the dollar would fall. As a result, the external products would be more expensive in America and the American products would be cheaper abroad.

But after all, the quality of life is important, isn’t it? When an American can buy with the same amount of money more products, for example from China, because people there work with smaller wages, this is something bad for the American or for the Chinese? If China imposes so many taxes in the products that are imported, so that the Chinese citizen should pay double amount of money for one product than the amount paid by an American, this is bad for whom?

And, in the end, if the Chinese economic practices are so good that Trump is jealous of them, why are the USA the only superpower of the world and not China? Why do the USA have such a bigger GDP and, even more important, so better quality of life for their citizens? And above all, why do the USA have more freedom than China? Is it time to impose more bans and restrictions imitating the “People’s Republic of China”?

How would Milton Friedman react to potential tariffs imposed by Trump?

Written by Stefanos