Occasionally one hears an argument for protectionism that protectionist rates will eventually lead to lower prices. The argument they make is a customized form of the Argument for baby industry: Domestic companies do not expand due to the presence of foreign competition. Rates will force foreign competition from the market. The prices will rise, so new domestic companies are formed. These new companies enter the market and push prices to the pre-Tariff level (or even below the pre-Tariff level). In short, rates enable companies to expand their scale and lower prices.
Just like the argument of the children’s industry, one can make an internal coherent prediction for rates in this sense. But, just like the argument of the children’s industry, it suffers from the same fatal mistake: rates are not necessary to achieve these goals. If it was profitable for companies to operate on such a scale that they match or beat the free trade price, they would already do this. The presence of capital markets ensures that the profit options of those companies can be realized. Given all the political issues with rates, it is quite unlikely that the political market would be better suited to realize those profit options than the companies themselves and investors; I just find it difficult to believe that these people who are profit seekers would leave billions of dollars on the table. In short, If companies can equal the free trade price, they would already do that.
Financial markets allocate resources over time. By borrowing, companies and individuals can sacrifice some consumption in the future for consumption now. Especially companies borrow to expand, to finance new technology, to finance new projects, etc., which can take years to pay. These types of transactions always occur, for the melody of trillion dollars per day. How can politicians identify profit chances in the right way that know on knowing that don’t know?
In comparison, the imposition of rates is a long public process. There are debates, votes, public hearings, etc. If, by a miracle, the political process was able to better identify profit options than the market participants, it would become a public knowledge as soon as the rate was announced. Investors of all stripes would hurry to the affected markets, who would like to grab the profit opportunities. The rates would be made reliable.
In short, while it is possibly For rates to lower prices, it is quite unlikely. Best Case Scenario, the rates simply make the status quo again, but with more steps. Since rates are not costless (there are administrative costs such as collection and enforcement), this suggests that the use of rates for lower prices would still be a worse outcome than the outcome of the free market.