The following is featured in the Summer 2025 Edition of When Free to Choose
With the rise of populist skepticism about international trade, claims have resurfaced asserting that restricting imports will create jobs, that trade deficits are a subsidy to foreigners, that tariffs generate tax revenue, and that tariffs serve as a strategic negotiating tool. But most of these claims are economically flawed and often contradict each other.
The Core Principle: Trade Makes Us Wealthier
At its core, international trade is about efficiency and wealth creation. We are all better off when we buy from those who can produce more cheaply — whether individuals, states, or nations. You wouldn’t grow your own food or build your own car if others could provide these more affordably. What’s true for individuals also applies to regions and countries.
Comparative Advantage and Specialization
The key to prosperity through trade lies in comparative advantage. Even if one country (or person) is better at producing everything, it still benefits from specializing in what it does relatively better and trading for the rest. Consider a neurosurgeon who can also mop floors more effectively than the janitor. The surgeon should still focus on surgery, where their comparative (relative) advantage is greatest. The janitor, even if less proficient at both surgery and cleaning, still provides value by freeing the surgeon to specialize in surgery. Nations operate the same way: even if a country can do everything well, it gains from trading and focusing on the sectors where its superiority is relatively greater.
Trade also enables economies of scale. If every state or country tried to produce all its own goods, we’d waste resources on inefficient, small-scale production. Instead, larger-scale production in fewer locations allows for greater efficiency and lower costs — benefiting everyone through lower prices and greater variety.
Why Borders Don’t Change Economics
A national border doesn’t alter the logic of trade. A job in Windsor, Canada, is no less valuable to a Michigan consumer than one in Detroit. Consumers care about affordable goods, not where they’re made. Protectionism — the effort to make everything at home — only drives up prices and makes us poorer. The U.S. already enjoys low unemployment, so trade barriers don’t create net new jobs; they merely shift workers from more productive to less productive sectors, lowering wages and standard of living.
Every job created by tariffs destroys a job elsewhere in the economy, as consumers must pay more for protected goods and have less money to spend on other things. Protectionism doesn’t create prosperity — it redistributes and diminishes it.
Trade as Technology
Trade functions like a technology that transforms one good into another. A parable tells of a mysterious factory that takes in corn and outputs cars. The secret? A shipping dock exchanging corn for cars with Japan. Trade, like a machine, converts surplus goods into what we need most — efficiently and invisibly.
If tariffs truly created jobs and wealth, then why not ban all trade entirely? Because we know that would devastate the economy—just as siege warfare aims to do to enemies. Henry George quipped, “What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.”
Debunking Trade Deficit Myths
One common misconception is that the U.S. trade deficit — importing more than we export — means America is being taken advantage of. But trade is always balanced in value. What we don’t “get back” in goods, we get back in investment. Foreigners use U.S. dollars earned through trade to invest in our economy, which lowers interest rates and boosts growth.
Exports are a cost (what we give up), and imports are a benefit (what we consume). A trade surplus means giving away more than we get — clearly not a sign of success. The idea that deficits are harmful confuses accounting categories and overlooks the crucial role of capital flows.
Moreover, bilateral trade deficits are inevitable and harmless. Individuals don’t trade equally with everyone — they buy from some and sell to others. A professor buys groceries from Walmart, and yet Walmart never buys lectures from professors — but the professor’s income from students (exporting lectures) balances their grocery spending (imports). Similarly, the U.S. may have a deficit with one country and a surplus with another, but total trade balances. This is in fact the very purpose of money: to enable multilateral trade deficits – deficits with one person which balance surpluses with another. Without money, we would resort to barter, which requires perfectly balanced bilateral trade – such as a professor trading lectures for food.
Tariffs Hurt Consumers
Tariffs are taxes — paid not just by foreign exporters, but by U.S. importers and, ultimately, consumers. The economic burden, or “tax incidence,” is shared, depending on how flexible buyers and sellers are. That is, how much ability buyers and sellers respectively have to avoid the tax by finding an alternative buyer or seller. Often, American consumers and businesses bear much of the cost through higher prices and reduced choices.
Furthermore, claims that tariffs will both generate revenue and create jobs are internally inconsistent. Tariffs only generate revenue if imports continue; but if imports fall dramatically (to protect domestic jobs), then there’s little to tax and little revenue. A tax can be effective at either restricting consumption or raising money — but not both.
Governments raise the most revenue from taxing inelastic goods — those people cannot easily stop buying or selling. That’s why property and income are taxed, not lettuce. Tariffs on imported goods with ready substitutes simply shift consumption or production elsewhere, raising little revenue while causing economic inefficiency.
The Myth of Tariffs as Negotiation Tools
In theory, tariffs could be used to pressure other nations to reduce theirs. But in practice, such tactics often provoke retaliation rather than cooperation. This is exactly how the Smoot-Hawley Tariff of 1930 deepened the Great Depression – by causing an international trade war which destroyed jobs in U.S. exporting industries. Similarly, the Trump-era trade wars have triggered counter-tariffs, job losses, and manufacturing shifts abroad. Subaru, for example, has announced plans to move Canadian-bound production from the U.S. to Japan in response to Canada’s retaliatory tariffs.
For tariffs to be effective negotiation tools, the country imposing tariffs must credibly signal that it does not really want tariffs at all, but is only imposing them reluctantly. But if a country openly favors tariffs for their own sake (to create jobs or raise revenue), there is little incentive for other nations to make concessions. By touting the (fictitious) ability of tariffs to make America prosperous, Trump signals that he is inclined to impose tariffs no matter what other countries do – so other countries have little reason to believe that Trump is negotiating in good faith. Trump’s unilateral and sudden violation of past trade agreements further reduces other countries’ inclinations to trust that Trump will negotiate in good faith and honor any commitments. By touting tariffs and flouting past agreements, Trump makes it less likely that any future negotiations will be successful. Trade agreements like NAFTA and the WTO work better by committing all sides to mutual tariff reductions — just as disarmament agreements succeed when both parties agree to lay down arms together. And once agreements are made, they should be honored, if only to facilitate future agreements.
The National Defense Exception
One valid argument for limited protectionism is national defense. Strategic industries may warrant support to ensure readiness in times of war. But even here, the economic cost is real. Just like taxation to finance defense spending, tariffs aimed at preparedness reduce overall prosperity. If this is truly the goal, it would be at least as efficient and definitely more transparent to fund such efforts directly through direct subsidies — not to distort markets through hidden taxes that hurt consumers and workers alike. Rather than taxing automobile imports to preserve our ability to make tanks, we can directly subsidize tank production. At the very least, we should acknowledge that taxation for national defense makes us poorer in all other ways, and is the regrettable price we pay.
Conclusion: Trade Is Prosperity
At the heart of it, free trade is about freedom, choice, and mutual benefit. Just as individuals do best by specializing and exchanging, nations grow wealthier by buying what others make better and cheaper. Trying to do everything ourselves is not a path to strength—it is a recipe for inefficiency and poverty.
As economist Frédéric Bastiat wisely put it: “When goods do not cross borders, armies will.” Free trade not only enriches us — it helps keep the peace.
About the Author
Dr. Michael Makovi is an Assistant Economics Professor and Bretzlaff Scholar at Northwood University. This piece was featured on the cover of the Summer 2025 edition of When Free to Choose, Northwood University’s signature publication dedicated to exploring the importance of free enterprise. Click here to receive When Free to Choose in your inbox! To contact Dr. Makovi, email .
