Not a Zero-Sum Game - Ludwig von Mises Institute

NOT A ZERO-SUM GAME
As always, intermediation will bring about a change in prices and, thus, in the
exchange rates. At $1 : Y43, the tendency will be to eliminate differences in
price relationships between TVs and radios approximating 1.4 : 1
Country A
The price of imported TVs in country A goes down from $29.33 to $27.91 each.
Intermediation brings the price of the basket of 10 radios and 10 TVs down
from $493.30 to $479.10 (still higher than $466.70 under free trade).
10 radios x $27.91 = $279.10
10 TVs x $20.00 = $200.00
TOTAL $479.10
Country B
Surprisingly, the cost of the same basket in country B goes down from Y21,000
to Y20,600.
10 radios x Y1,200 = Y12,000
10 TVS x Y860 = Y8,600
TOTAL Y20,600
Country B benefits because of the tax in country A, while country A harms its
own exporters (and consumers) because of the effect on the exchange rate.
The price of a radio in country B went down from X900 to X860 due to the effect
of the change in the exchange rate.
No one in his right mind will spend his own resources manu-
facturing items that he can purchase for a lower expenditure of
resources. When well-intentioned people impose economic tar-
iffs, quotas, and other non-tariff restrictions to divert industry
and commerce (not solely to raise revenue), they do so partly
because they view trade as a zero-sum game between nations
and not between Vaclav and Vladimir. They are seldom aware
of the self-imposed dead weight costs to their consumers.
EFFECTS OF "ECONOMIC" TARIFFS
Tariffs established to raise revenue are very different from
"economic" tariffs established to restrict foreign competition.
The goal of economic tariffs is to raise the domestic price of a
good above the world price so domestic producers can charge
more and reap additional, noncompetitive, unearned income.