A 50% Tariff on Pencil Parts? Welcome to the U.S.-Canada Trade War.

In his 1958 essay “I, Pencil,” Leonard Read used the ordinary pencil to illustrate the extraordinary coordination of a free 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. No single person directs the process.

The United States and Canada are now demonstrating the opposite lesson. Call it “I, Pencil: Trade War Edition.” 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.” A ferrule, for anyone fortunate enough not to speak fluent customs code, is the tiny metal collar joining the eraser to the pencil. Government officials do not know how to make a pencil either. But they do know how to make its parts more expensive.

Canada’s ordinary most-favored-nation tariff on aluminum pencil ferrules is zero. A ferrule imported from almost anywhere outside the United States can continue to enter Canada duty-free. Meanwhile, a qualifying finished pencil imported from the United States can also enter duty-free under the U.S.-Mexico-Canada 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. The policy meant to answer American protectionism may end up protecting American finished goods from Canadian manufacturers.

The ferrule did not become a strategic national resource overnight. Canada did not discover an endangered domestic pencil-ferrule industry. The ferrule was swept into the conflict because of the simple fact that it is made of 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.

This particular absurdity began in 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.

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. 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.

Canada responded as countries on the receiving end of tariffs traditionally do: It imposed tariffs of its own. Ottawa says its countermeasures match Washington’s tariffs dollar for dollar and rate for 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.

Politicians describe this as retaliation, as if their government were striking a foreign adversary. But the first person to pay Canada’s tariff is the Canadian importer. The burden then falls somewhere among Canadian manufacturers, retailers, workers, investors, and consumers.

American tariffs hurt Americans. Canadian tariffs hurt Canadians. Combining the two does not cancel the damage. It compounds 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. The pencil ferrule demonstrates why.

Suppose a Canadian pencil manufacturer buys ferrules from an American 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. None of those choices manufactures a ferrule in Canada or makes the Canadian factory more productive.

At best, the tariff diverts an order from an American supplier to a supplier in another country. At worst, it disadvantages Canadian manufacturing against foreign companies selling completed pencils. Officials may later cite declining imports from the United States as proof that the tariff “worked.” But changing the direction from which a tiny aluminum tube crosses the border is not productive capacity. It is a supply chain reorganized around political punishment rather than price, quality, and reliability.

The duty on a single ferrule may amount to only a fraction of a cent. That is precisely why it is instructive. A modern economy contains millions of modest inputs. Add tariffs, customs compliance, supplier qualification, extra inventory, delays, and uncertainty across thousands of categories, and the fractions become meaningful sums.

Read’s pencil was an autobiography of cooperation. The tariff pencil is an autopsy of protectionism. The ferrule may be tiny, but the conceit behind taxing it is enormous: that governments can create prosperity by punishing exchange. They cannot. And no matter how many erasers officials attach to their tariff schedules, they cannot rub out the costs.