Opponents of government welfare have their various reasons. Libertarians generally oppose government welfare on the grounds that it is immoral to take one person’s property (money) and give it to someone else.
Still, there is also a utilitarian argument against welfare. Libertarians can join conservatives in criticizing government welfare because it gives the wrong incentives. When someone receives welfare because they don’t have a job or don’t make much money, it encourages that person to continue the same behavior.
Someone who receives money for not having a job is more likely to not get a job in the near future.
Unfortunately, government welfare can also create a sense of entitlement. Even more, it can create resentment. Look at what happened to Elon Musk when he attempted to cut government spending. He was attacked ruthlessly, particularly by people who had a financial stake.
When was the last time you heard a welfare recipient declare publicly that they are so thankful for the support they receive?
Disincentives for Companies
Just as welfare creates disincentives for individuals to produce wealth, it does the same for companies.
While tariffs are a form of taxation, they act as a form of welfare for certain companies. And as with welfare, they create a sense of entitlement and resentment. Tariffs can also prop up an otherwise bad company.
Let’s say you have an American company that makes and sells baby dolls. Without any import tariffs, the company can barely exist because of competition from other companies that have their baby dolls made in China.
When there is a steep enough import tariff, all of a sudden, the American toy company can produce and sell baby dolls and make a good profit doing so. Since the costs for the competing companies is so much higher with the tariffs, they are unable to sell baby dolls at the previous price. This is a big advantage for the American producer that doesn’t have the added tariff cost.
The problem is that the American producer couldn’t compete without the tariff. Maybe some of that had to do with taxes and regulations within the United States, but then these should be reduced. You don’t make it a level playing field by making it more difficult for other companies.
Without the tariffs, the American toy producer would have been forced to be more cost efficient in order to compete. If it didn’t do so, it would probably go out of business.
With the tariffs, there is no longer the incentive to improve operations. The company can be far less efficient than some foreign companies, yet still outsell and outcompete them.
Bad Economics
The key to our living standards is wealth production. Resources should be allocated in accordance with consumer demand. Part of resource allocation is having producers be efficient. By enacting tariffs and propping up just the domestic companies, it is a misallocation of resources.
Profits and losses are a signal in the marketplace. Profits are a signal to do more of something. Losses are a signal to do less of something. You wouldn’t invest your money in a company that is losing money unless you expected the company to turn things around rather quickly.
Tariffs are a disruption to the profit and loss signal. An American company that was not profitable without the tariffs might be made profitable with the tariffs. This means that more investment would flow to this company, and the company would keep doing what would be deemed inefficient in a free market.
So, not only do tariffs increase prices, but they can also drive investment towards less efficient producers.
Like welfare, tariffs redistribute wealth and misallocate resources. They disincentivize companies to be more cost efficient. Overall, tariffs make us poorer than we otherwise would have been.