Canada Cuts Tariffs, Endorses Free Trade — Imports Good, Exports Good

In a free-trade lesson the U.S. should study, Canada announced that it was eliminating tariffs on imports that Canadian manufacturers use to help spur the economy. Canadian Finance Minister Jim Flaherty noted that tariffs would be cut on about 70 items, the latest in government moves to get rid of all tariffs by 2015. Already Canada has abolished tariffs on more than 1800 items — relief that is expected to provide about $423 million annually.

This strategy contrasts sharply with the U.S. mercantilist approach – exports good, imports bad — and the U.S. focus on trade deficits instead of also looking at the economic benefit of imports, as providing greater choice and lower-cost goods for consumers and critical inputs for manufacturers, who can create jobs.

As CEI’s Daniel Rivera Greenwood has noted:

 . . . there seems to be a correlation between large trade deficits and reduced unemployment, as well as a larger economic output. Why? One reason is that a large proportion of U.S. imports are actually manufacturing inputs, used to produce goods in the United States. In fact, the most recent data available from the U.S. Census Bureau (August 2011) shows that 57 percent (US$106 billion worth) of all U.S. imports are capital goods and industrial supplies materials, the basis of the domestic manufacturing sector.

Professor Mark Perry also makes those points well in an article today. As Perry notes:

We sometimes forget that “tariffs” and “duties” are really “taxes” on imports; and therefore eliminating or reducing tariffs or duties is the same thing as eliminating or reducing taxes on consumers and businesses buying foreign products.  In the same way that “tax cuts” can stimulate economic activity, “tariff cuts” do the same, and that’s the approach being taken in Canada.

That’s a good lesson in what free trade is all about.