Tariffs on European Booze Will Hurt American Consumers

Two of the best meals of my life have been at a New York restaurant called Estela. I owe my wife for the privilege: it took too long, but it finally dawned on me that for her, going to a fine restaurant is like going to an art museum or an opera. It’s an artistic experience. A couple of years ago, I signed up for their mailing list and bought my wife a copy of an Estela cookbook.

A few days ago, I got an email from them that I was about to delete when I noticed that it was a call to action on tariffs that would punish importers of goods like wine, cheese, and olive oil—people like the proprietors of Estela.

Estela, and other high-end restaurants that import a lot of wine, cheese, olive oil, and other goods from Europe, face a considerable burden from the proposed tariffs. They are, with good reason, working to get the word out and mobilize their customers in the battle against the tariffs.

Tariffs are bad economics, they always have been, and while there are clear winners who are better off because of them, they also make us worse off on net.

Here’s what happens thanks to the tariff. First, US wine production expands. However, this consumes land, labor, and capital that would be better used elsewhere. Second, it raises the incomes of American wine producers, but it does so by lowering the incomes of American wine consumers. Third, it means Americans get to drink less European wine. Fourth, it means the government makes some money, but this just like with the transfers from consumers to providers, this comes out of taxpayers’ pockets.

Importantly, the proprietors of Estela aren’t making any new sandwiches or coming up with any new ideas. I’m also not writing an article about something else. Instead, we are taking our very valuable time and energy fighting to preserve the status quo—just as tariff proponents are fighting to upset it in a way that at best only redistributes resources.

I’ll close on a bright note as the discussion illustrates at least one bright spot about American politics, which for all its faults could be a lot worse. In their 2009 book Violence and Social Orders, the economists Douglass North, John J. Wallis, and Barry R. Weingast explained the importance of an open-access economic and political order. We might not get the resource-wasting tariffs because there is an open-access clash of special interests: American wine and cheese producers against American restaurateurs. The restaurateurs, in this case, might be powerful enough to maintain (relatively) free trade in European foodstuffs.

Of course, it would have been better had the tariffs never been proposed in the first place. The only real winners are the politicians—and maybe the economics professors who have yet another example they can use when they teach about tariffs in their economics classes. Consumers, on net, are worse off. Whether you are talking about steel, cherries, tires, shrimp, sugar, or fancy wine and cheese, the principles remain the same.