The best way to look at tariffs or import quotas or other protectionist restraints is to forget about political boundaries.
Political boundaries of nations may be important for other reasons, but they have no economic meaning whatever. Suppose, for example, that each state of the United States were a separate nation. Then we would hear a lot of protectionist bellyaching that we are now fortunately spared. Think of the howls by inefficient, high, priced New York or Rhode Island textile manufacturers who would then be complaining about the “unfair,” “cheap labor” competition from various low, type “foreigners” from Tennessee or North Carolina, or vice versa. Fortunately, the absurdity of worrying about the balance of payments is made evident by focusing on interstate trade. For nobody worries about the balance of payments between New York and New Jersey, or, for that matter, between Manhattan and Brooklyn, because there are no customs officials recording such trade and such balances.
If we think about it, it is clear that a call by New York firms for a tariff against North Carolina is a pure ripoff of New York (as well as North Carolina) consumers, a naked grab for coerced special privilege by inefficient business firms. If the 50 states were separate nations, the protectionists would then be able to use the trappings of patriotism, and distrust of foreigners, to camouflage and get away with their looting the consumers of their own region.
This post was published at Ludwig von Mises Institute on July 17, 2017.