(Originally appearing at LvMIC.)
On Wednesday, Finance Minister Jim Flaherty, responding to a Senate Finance Committee report urging a “review of Canadian tariffs” to address the ongoing Canada-U.S. price gap, remarked:
We’ve been looking at our tariff situation carefully, particularly with respect to consumer goods in Canada to see what we could do. Tariffs are obviously sources of revenue as well and I have revenue concerns as Finance Minister but as a general rule, we would like to eliminate tariffs going forward.
A tariff is a tax paid by an importer in exchange for permission from the government to sell a foreign product within a domestic market. In 2011-12, the Canadian government collected $3.9-billion in tariffs on thousands of consumer goods ranging from hockey equipment to beer. This arrangement subsidizes government and inefficient producers at the expense of consumers and efficient producers.
Because of this, I am skeptical of Flaherty’s eagerness “to eliminate tariffs going forward.” Conservative politicians often pay lip-service to free market principles. However, as a general rule, the gang of thieves writ large cannot be expected to willingly part with the pelf.
It is similar to the fable of the scorpion and the frog. From the Wikipedia entry:
The Scorpion and the Frog is a fable about a scorpion asking a frog to carry him across a river. The frog is afraid of being stung during the trip, but the scorpion argues that if it stung the frog, the frog would sink and the scorpion would drown. The frog agrees and begins carrying the scorpion, but midway across the river the scorpion does indeed sting the frog, dooming them both. When asked why, the scorpion explains that this is simply its nature.
Free trade confers benefits on society by extending the division of labour. It also promotes peace among nations. Tariffs undermine this process by reducing the division of labour. They also often incite retaliatory tariffs and hostility among nations. Simply put, tariffs are economic nonsense. Solution: abolish them all. As Gary North mused: “Make profits, not war!” Also: “Sell trinkets. Don’t die.”
You cannot get something for nothing. This is also true of government. One of the many costs of government is higher consumer prices. Keep this in mind the next time you buy a round of marked-up draught.
And don’t expect Jim Flaherty to chip in for the tab. This is simply his nature.