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News Link • Philosophy: Libertarianism

Squaring the Libertarian Circle on Tariffs and Immigration

• https://libertarianinstitute.org, by Benjamin Seev

This is a puzzling claim. While it might be true that tariffs can be used as a tool for negotiations with Mexico, immigration control and trade barriers are contradictory policies. Tariffs increase the incentive to immigrate—illegally immigrate.

In his 1998 paper "The Case for Free Trade and Restricted Immigration," economist Hans-Hermann Hoppe wrote:

"The relationship between trade and migration is one of elastic substitutability (rather than rigid exclusivity): the more (or less) you have of one, the less (or more) you need of the other. Other things being equal, businesses move to low wage areas, and labor moves to high wage areas, thus effecting a tendency toward the equalization of wage rates (for the same kind of labor) as well as the optimal localization of capital. With political borders separating high- from low-wage areas, and with national (nation-wide) trade and immigration policies in effect, these normal tendencies—of immigration and capital export—are weakened with free trade and strengthened with protectionism. As long as Mexican products—the products of a low-wage area—can freely enter a high-wage area such as the U.S., the incentive for Mexican people to move to the U.S. is reduced. In contrast, if Mexican products are prevented from entering the American market, the attraction for Mexican workers to move to the U.S. is increased. Similarly, when U.S. producers are free to buy from and sell to Mexican producers and consumers, capital exports from the U.S. to Mexico will be reduced; however, when U.S. producers are prevented from doing so, the attraction of moving production from the U.S. to Mexico is increased."

Either production or labor move. Tariffs decrease the benefit of outsourcing production to another country; therefore, companies settle for producing domestically. Given that domestic production increases as outsourcing decreases, domestic wages increase relative to foreign wages, ceteris paribus. Some immigrants are spurred to immigrate by the higher domestic wages in protected industries.

Essentially, a company can either relocate their capital overseas to take advantage of lower foreign wages, or labor can relocate to take advantage of higher domestic wages. When foreign trade is restricted by tariffs, then the labor tends to migrate. Put differently: labor and capital migration are substitutes. When the cost of capital migration increases via tariffs, the demand for the other increases.

A trade war—one in which the United States drastically increases tariffs—will only exacerbate illegal immigration. As wages for protected industries rise, the motivation to immigrate to the U.S. will increase. The U.S. immigration authorities will either be incapable or unwilling to accommodate this increased demand for legal immigration. Incapable because it is extremely difficult to legally immigrate and unwilling because of the hardline immigration stance of the present administration. Hence, tariff policy frustrates the national conservative policy of immigration control.


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