On Tariffs and Trade Wars

Economics is one of the most ideological and least scientific (in the dual sense of objectivity and precision) of the social sciences. Not for nothing Karl Marx, both using and criticizing David Ricardo’s economic theory, emphasized its original name, Political Economy. Just to have an idea of the ideological fog that surrounds the current debate on President Trump’s trade and tariff proposals to force others to deal with him, let’s go back to what Ricardo wrote in 1817 about free trade and the comparative advantage of cheap labor of Portugal over England:

“It would undoubtedly be advantageous to the capitalists of England, and to the consumers in both countries, that under such circumstances, the wine and the cloth should both be made in Portugal, and therefore that the capital and labour of England employed in making cloth, should be removed to Portugal for that purpose.” (Ricardo, On the Principles of Political Economy and Taxation, Chapter 7, Paragraph 7-18).

Since this offshoring of production would result in job loss and economic decline in England, Ricardo argued that 1) Capital is immobile, and 2) English capitalists are altruists who love their compatriots:

“Experience, however, shews, that the fancied or real insecurity of capital, when not under the immediate control of its owner, together with the natural disinclination which every man has to quit the country of his birth and connexions, and intrust himself with all his habits fixed, to a strange government and new laws, check the emigration of capital. These feelings, which I should be sorry to see weakened, induce most men of property to be satisfied with a low rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations.” (Op. cit., Chapter 7, Paragraph 7-19).

Therefore, when an expert with a PhD in Economics wants to explain how free trade is good for everybody, you should ask him about his politics. Those are the same experts who told the USA decades ago, back in the beginnings of globalization, that manufacturing was obsolete and therefore our country would be a “service economy” in the future. The only problem is that they forgot to tell the same thing to Germany, Japan, and South Korea, as we watched them become manufacturing and exporting powers, and as we watched our industries leave the USA one after the other.

Or when the expert says — we see this every day on TV — that when a country imposes tariffs it is creating a tax on the country’s own citizens, he is leaving out the rest of the explanation: if both countries produce, say, similarly priced cars, the high-tariff country can keep exporting its cars to the non-tariff country to compete over there, and also keep selling them to its own citizens, while pushing out the other country’s cars because of their artificially higher price created by the tariffs. A win-win situation.

The British historian Paul Johnson wrote a very revealing book about the English people, The Offshore Islanders. The book’s final  chapter (Part 6) is entirely dedicated to the decadence of England from being at the top of the world in 1870, in the then newly interlocked world economy, to its lowly state one hundred years later. Why did it happen? The partial answer reads very much like the America our experts have been pushing for decades:

“In 1870 England was universally regarded as the strongest and richest nation on earth, indeed in human history … God was the Great Book-keeper, the Ultimate Accountant, the Chairman of the world liberal economy, and His instruments were free trade and the Royal Navy … [But] by 1880, free trade as a world system was dead. The industrialists [In Continental Europe], alarmed by the end of cheap food for their workers, and seeing governments bend to the pressure of the farming interests, sent up their own yelps of fear, and they, in turn, got tariffs on imported manufactures. This, of course, angered the Americans: they had never really abandoned tariffs, and their system of government was peculiarly susceptible to protectionist demands from powerful lobbies. In 1890 they erected the McKinley tariff structure, and this provoked further Continental retaliation. The rapid retreat from free trade left Britain isolated on a lonely sandbank. The immense conservatism of the English, their unwillingness to contemplate radical change without decades of investigation, the huge built-in barriers to reform which existed at every level of the political system, united to inhibit any sharp response. It had taken more than half a century for Adam Smith’s doctrines to win acceptance and implementation. By 1875, however, they were the supreme orthodoxy. Free trade was traditional, had existed … since time immemorial, was almost a supernumerary article in Magna Carta. It was what England was all about. Abandon free trade, merely because some frightened foreign governments had lost faith in it? One might as well propose to abolish the monarchy … The depression of the 1870s exposed the English public mind at its worst: drugged by a dogma which had once enshrined empirical truth.” (The Offshore Islanders, Part 6, pp. 317 – 330)

Because it is all about ideology: the experts’ globalist big business and technology bosses wanted the USA to become a landing ground for cheap foreign products and cheap foreign labor, while they controlled everything with their highly mobile capital secured elsewhere. For exactly the same reasons, national security isn’t important to them and that’s why they see President Trump as an enemy, because he is a patriot, a rare thing nowadays.

In order for those countries to become manufacturing and exporting powerhouses, they had to wage a trade war against the USA, a war that has been going on for decades. They became mercantilist countries, pushing their exports and blocking imports via tariffs, while our “experts” told us to believe in “free” trade. But it’s Trump’s fault if we fight back. When a country levels a 35% tariff on imported American goods, to give just the example of Brazil, there is a trade war going on, and a lopsided one at that. And as our trade deficits show, it is difficult to win a war started many years ago by the other side when our side does nothing.

UPDATED on 06/08/2018