Thursday, January 26, 2012

Show Me the Daylight 'twixt Sanction and Tariff

Sorry about the double post, people. It's just that something's been bothering me the last couple of days.

See, the United States government has been tightening economic sanctions against Iran for typical saber-rattling reasons: they pose a threat to global peace, they have a nuclear program, et al. (I will dutifully refrain from snark here), but what do "economic sanctions" entail? Blocking foreign trade. A trade embargo forces the embargoed nation into autarky. As economic theory predicts, this makes the citizens of the affected nation poorer.

Yet at other times, perhaps when accusing Chinese monetary authorities of currency manipulation (and no, I don't have an economics-based definition of currency manipulation standing by), the political response is to impose similar sanctions on the home country.

I think I have a blind spot here. When country X imposes an embargo on country Y, this is regarded as an act of war. When country X imposes an embargo on itself, this is ennobling trade protection. In both circumstances, the citizens of the affected country are unable to freely conduct trade for mutual advantage.

If I had to hazard a guess, and I'm not sure I really want to, I think that the trade protection racket grazes the boundaries of euvoluntary exchange. If we set aside anti-foreign bias for the moment, we might imagine that the claim is somehow about externalities: trade with foreign businesses imposes costs upon domestic businesses who have to reduce prices (and wages) to compete. This occurs through no fault of the domestic business, therefore the political process must mitigate or eliminate the untoward competition. Furthermore, it's critical that this be done from the home country; if someone does it for us, that's cause to declare war (viz. United States and Japan ca. 1939) or worse.

Neil Gaiman is one of my favorite authors and I seem to retain many of the bon mots he sprinkled liberally through The Sandman comics. One that seems apropos in this case goes something like this: "a chicken with its head cut off is different than a chicken with its neck wrung, but it doesn't matter to the chicken." If government exists to serve the interests of the people, well, they sure have a funny way of showing it.

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Do you have suggestions on where we could find more examples of this phenomenon?