In his 1958 essay "I, Pencil," Leonard Read used the ordinary pencil to illustrate the extraordinary coordination of a free economy.
asserted
Read → use → economy
Cedar, graphite, clay, lacquer, metal, rubber, machinery, transportation, and innumerable varieties of human knowledge come together to produce an object that sells for pennies.
asserted
that → come → pennies
No single person directs the process.
asserted
person → direct → process
The United States and Canada are now demonstrating the opposite lesson.
asserted
States → demonstrate → lesson
Canada's new retaliatory tariffs, which took effect this week, include a 50 percent levy on a customs category expressly covering "ferrules for use in the manufacture of pencils."
asserted
which → take → pencils
A ferrule, for anyone fortunate enough not to speak fluent customs code, is the tiny metal collar joining the eraser to the pencil.
asserted
ferrule → speak → pencil
Government officials do not know how to make a pencil either.
asserted
officials → know → pencil
But they do know how to make its parts more expensive.
asserted
parts → know → ?
Canada's ordinary most-favored-nation tariff on aluminum pencil ferrules is zero.
asserted
tariff → favor → ferrules
A ferrule imported from almost anywhere outside the United States can continue to enter Canada duty-free.
asserted
ferrule → import → Canada
Meanwhile, a qualifying finished pencil imported from the United States can also enter duty-free under the U.S.-Mexico-Canada Agreement.
asserted
pencil → qualify → Agreement
Thus, a Canadian manufacturer may pay a 50 percent tariff to import the American component while its competitor pays no tariff to import the completed American pencil.
uncertain
competitor → pay → pencil
The policy meant to answer American protectionism may end up protecting American finished goods from Canadian manufacturers.
uncertain
policy → mean → manufacturers
The ferrule did not become a strategic national resource overnight.
asserted
ferrule → become → ?
Canada did not discover an endangered domestic pencil-ferrule industry.
asserted
Canada → discover → industry
The ferrule was swept into the conflict because of the simple fact that it is made of aluminum.
asserted
it → sweep → aluminum
Other items caught in that customs classification include candle cups, fish-egg incubators, climbing equipment, migratory-bird identification bands, pigeon leg bands, and certain pharmaceutical-manufacturing equipment.
asserted
items → catch → cups
This particular absurdity began in Washington.
asserted
absurdity → begin → Washington
As Reason has explained, President Donald Trump became the first president to impose tariffs under Section 338 of the Tariff Act of 1930—the Smoot-Hawley Tariff Act, perhaps the most notorious trade law in American history.
asserted
Trump → explain → history
Section 338 spent nearly a century gathering statutory dust before the administration pulled it from the attic to impose 50 percent tariffs on approximately $20 billion in Canadian imports.
asserted
administration → spend → imports
George Mason University law professor Ilya Somin has argued that this "long-defunct part" of Smoot-Hawley was superseded by later trade legislation and that its revival is illegal.
asserted
revival → argue → legislation
Canada responded as countries on the receiving end of tariffs traditionally do: It imposed tariffs of its own.
asserted
It → respond → own
Ottawa says its countermeasures match Washington's tariffs dollar for dollar and rate for rate.
asserted
countermeasures → say → rate
That is how two of the world's wealthiest, friendliest, and most integrated economies arrived basically at a 50 percent tax on the nationality of the ring around a pencil eraser.
asserted
two → arrive → eraser
Politicians describe this as retaliation, as if their government were striking a foreign adversary.
asserted
government → describe → adversary
But the first person to pay Canada's tariff is the Canadian importer.
asserted
person → pay → tariff
The burden then falls somewhere among Canadian manufacturers, retailers, workers, investors, and consumers.
asserted
burden → fall → manufacturers
American tariffs hurt Americans.
asserted
tariffs → hurt → Americans
Canadian tariffs hurt Canadians.
asserted
tariffs → hurt → Canadians
Combining the two does not cancel the damage.
asserted
Combining → combine → damage
It compounds it.
asserted
It → compound → it
Reason contributor J.D. Tuccille recently argued that Canada should answer American protectionism with unilateral free trade rather than join the United States in taxing its own citizens.
asserted
Canada → argue → citizens
The pencil ferrule demonstrates why.
asserted
ferrule → demonstrate → ?
Suppose a Canadian pencil manufacturer buys ferrules from an American supplier.
asserted
manufacturer → suppose → supplier
It can pay the tariff, force the supplier to absorb some of it, switch to a producer elsewhere, redesign the pencil, or import the finished product.
asserted
It → pay → product
None of those choices manufactures a ferrule in Canada or makes the Canadian factory more productive.
asserted
factory → manufacture → Canada
At best, the tariff diverts an order from an American supplier to a supplier in another country.
asserted
tariff → divert → country
At worst, it disadvantages Canadian manufacturing against foreign companies selling completed pencils.
asserted
it → disadvantage → pencils
Officials may later cite declining imports from the United States as proof that the tariff "worked."
uncertain
tariff → cite → proof
But changing the direction from which a tiny aluminum tube crosses the border is not productive capacity.
asserted
tube → change → border
…and 6 more, not listed.
