What Is Seen and What Is Not Seen
The United States has brought the debate on tariffs and protectionism back to the forefront, so let us take this opportunity to recall from the outset that trade barriers do not strengthen a country—they weaken it. They reduce productivity, raise prices, generate low-quality employment, and penalize the sectors with the greatest potential. Far from promoting development, protectionism produces widespread impoverishment. This applies to both rich and poor economies alike, and it becomes all the more harmful the deeper it is applied. Those nations that have sought self-sufficiency by taking it to the extreme have invariably ended up needing foreign aid to meet their most basic needs.
Let us turn to the concepts. Protectionism is an economic policy that, seeking to favor domestic production, limits imports through various forms of trade barriers. One such form is tariffs—taxes imposed on certain imported goods with the sole purpose of making them more expensive. In this way, foreign goods become artificially costlier, and domestic producers, even if less efficient and offering worse and more expensive products, can compete thanks to that price differential in their favor.
At times, there may be other reasons to tax imports. We may find, for example, strategic motives—to avoid dependence on foreign suppliers in certain sectors; corrupt motives—to benefit or harm particular interests; or simply fiscal motives—to raise revenue. Yet these cases fall outside the protectionist argument and are not economic in nature, so we shall not deal with them here.
We will focus solely on the economic justifications and attempt to refute those who claim that tariffs are a developmental tool capable of strengthening the national economy: those who argue that they protect local companies from foreign competition capable of producing better and cheaper, that they help infant industries needing a period of protection before they can stand on their own, and that tariffs consequently defend the jobs that would be lost if unprotected industries were to close.
At first glance, the immediate effect of tariffs is to make products more expensive—that is, consumers pay more in order to benefit producers. This is abusive in itself, but upon closer inspection, we see an additional injustice: the benefit is not distributed across the entire productive sector, but concentrated among a small group of privileged manufacturers favored by the tariff. In practice, the consumer’s resources—those that would have been freely allocated to goods of their choice—are artificially diverted toward those whom policymakers have decided to favor. Thus, the overall effect is not even neutral: it does not simply benefit some while harming others to the same extent, but damages the productive sector as a whole. The entire economy suffers: consumers see their disposable income reduced and their choices constrained, while producers are also harmed, as resources are drawn away into inefficient sectors.
The Forgotten Lesson
These reflections were described more than seventy years ago by Henry Hazlitt in his book Economics in One Lesson, inspired by the tradition of Adam Smith and Frédéric Bastiat.
Hazlitt opens his chapter on tariffs by quoting Adam Smith:
“It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, the shoemaker does not attempt to make his own clothes, and the farmer does not attempt to make either one or the other… What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom”.
And, as is typical of Smith’s style, he insists elsewhere:
“It is the interest of every man to buy what he wants of those who sell it cheapest… The proposition is so manifest that to attempt to prove it might appear ridiculous, and it never could have been called into question had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind”.
At what point did governments begin to think that what is reasonable for a family ceases to be reasonable for all? When did they conclude that making things more expensive was sensible? When did they forget that buying the best at the best price is the very basis of common sense?
Hazlitt’s Two Key Principles
In his book, Hazlitt examines various issues through two fundamental ideas:
- What is seen and what is not seen: every economic measure has visible and invisible effects. In the case of tariffs, what is seen is the protection of a given sector and its direct consequences; what is unseen are the higher prices for consumers, the jobs destroyed in other industries, and the overall loss of income for all.
- The short and the long term: an immediate relief may turn into lasting harm. A benefit that appears real in the short run—such as preserving jobs in a given industry—over time becomes stagnation, as uncompetitive sectors are propped up and overall wages decline.
When Tariffs Rise
If a country raises tariffs on imported wheat, for instance, what is seen and happens in the short term is that local farmers sell at higher prices, produce more, increase their income, and not only preserve jobs but even create new ones. Entrepreneurs, instead of leaving an unprofitable sector, remain in it precisely because tariffs guarantee them artificial profits. At first glance, it seems a victory and the agricultural sector appears revitalized.
But what is unseen and unfolds in the long term is more complex. Every consumer ends up paying more for bread, flour, and any other wheat-based products. In practice, the entire population subsidizes uncompetitive producers. Inefficiency is rewarded, and sectors that, without protection, would have had to modernize, adapt, or disappear are kept alive artificially.
Meanwhile, sectors in which the country is genuinely competitive—say, textiles—lose dynamism. Investment and human capital that should have flowed into them are diverted toward protected wheat instead of sectors capable of generating real, sustainable wealth. Resources are wasted on maintaining an inefficient industry, and those that could thrive are penalized by the diversion of income. The overall result is less wealth, lower wages, stagnant productivity, and a more fragile economy. What appears to be a victory in one sector is, in truth, a national defeat.
The Multiple Impoverishing Effects of Tariffs
Ultimately, considering Hazlitt’s analytical framework—the total long-term effects and those less visible—tariffs produce:
- Higher prices and reduced purchasing power: consumers pay more for the same goods, cutting their disposable income and limiting consumption.
- Productive distortion: resources and workers shift toward less efficient industries while more competitive and productive sectors are neglected.
- Lower productivity and net employment: by raising input costs, tariffs create jobs in inefficient sectors while destroying—or preventing the creation of—jobs in dynamic ones.
- Disincentives to innovation: inefficiency thrives under the protection of guaranteed prices.
- Falling exports: as a country buys fewer foreign goods, its trading partners lose foreign currency and reduce their purchases in return.
- Economic stagnation and injustice: the economy as a whole slows, while a minority of producers benefit at the expense of other sectors and millions of consumers whose standard of living declines.
From Poverty to Humanitarian Dependence
When a country becomes impoverished by policies that decisively interfere with the allocation of resources, external aid ends up filling the gaps. This is what happens under centralized planning, which allocates resources based on inevitably incomplete information and political decision-making rather than through exchanges among individuals who—contrary to the bureaucrat’s or politician’s opinion—know what they want and what they are willing to pay for it. Protectionism, usually to a lesser degree, achieves the same result: distorting prices, favoring inefficient sectors, and punishing competitive ones. In both cases, the outcome is the same: slower growth, declining incomes, and, in extreme cases, a need for humanitarian assistance.
India provides a paradigmatic example of how policies that distort efficient resource allocation—whether through protectionism or central planning—ultimately impoverish a country. After independence in 1947, it adopted a model of import substitution combined with heavy state intervention: high tariffs, import licenses, public enterprises dominating key sectors, and tight regulatory controls over nearly all economic activity. The result was persistent poverty, dependence on aid, and significant lag behind other Asian nations that opted for openness. Only when trade was liberalized and state intervention reduced in 1991 did India begin a cycle of strong growth, poverty reduction, and modernization.
But India was not alone. Spain, after its civil war, experienced something similar: postwar autarky—tariffs, isolation, state monopolies, and price controls—led to scarcity, rationing, and stagnation until the 1959 Stabilization Plan opened the economy and launched one of the fastest recoveries in history. Myanmar likewise fell into misery under the “Burmese Way to Socialism,” closing itself to the world. Mengistu’s Ethiopia suffered famine and dependence on humanitarian aid due to nationalizations and trade restrictions. And North Korea, with its extreme combination of isolation and central planning, remains the most dramatic example of how a closed economy condemns its people to profound poverty. In all these cases, the pattern repeats: when prices are distorted and resources are allocated through political decisions, the result is slower growth, impoverishment, and, in the worst cases, dependence on external aid for survival.
We could go on explaining how this also increases vulnerability to disasters, or how tariffs, visa restrictions, transfer controls, and compliance regulations hinder humanitarian operations—but, as Adam Smith himself might have said, it is so evident that insisting further would seem almost ridiculous.
Conclusion
Throughout the twentieth century, the GATT and later the WTO promoted several rounds of negotiations that significantly reduced tariffs and other trade barriers. Yet that process stalled more than two decades ago: the Doha Round, launched in 2001, failed, and since then trade multilateralism has been paralyzed. Instead of moving toward a world without barriers, we now see a proliferation of bilateral and regional agreements of limited scope, while many countries continue to maintain subsidies, quotas, regulatory requirements, and all sorts of obstacles.
The global norm remains protectionism, not openness.
In fact, the only genuine free trade area in existence today is the European Union, which eliminated internal tariffs and created a single market where goods, services, capital, and people move with minimal barriers. Other blocs—such as the SACU in Africa or MERCOSUR in South America—have sought to follow that path, but none have reached the EU’s level of integration. Outside regional agreements, the closest examples of unilateral free trade are Hong Kong, Singapore, and Macau, which apply near-zero tariffs on imports solely for fiscal purposes. Consequently, free trade remains the exception.
Tariffs do not strengthen a nation—they weaken it. In a tariff war, each country believes it is punishing the other, but in truth it wounds itself. The best response to foreign tariffs is not to raise one’s own, but to remove them.
The effects of protectionism are universal: it impoverishes, stagnates, and breeds dependency. Explaining this clearly is crucial because, while it may sound appealing, its consequences are destructive. For those who seek development and human dignity, tariffs are not a solution—they are an obstacle.
As Hazlitt himself observed, what other outcome could we expect from artificially making things more expensive in order to benefit some at the expense of others?
