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MATTHEW BOOSE: Who’s afraid of tariffs?
President Donald Trump’s decision to slap tariffs on steel and aluminum imports has elicited predictable responses from bankers, establishment Republicans, and advocates of free-trade orthodoxy.
Some have called the tariffs xenophobic. Others have accused them of being a break from Republican trade policy. Some say it’s just plain bad economics.
From what we know, tariffs probably are detrimental to the economy. But the economy isn’t the only factor that an American president must consider when it comes to trade. While it’s far from certain that tariffs will be good for the economy, free trade clearly isn’t working for everyone.
Protectionism is an old American tradition that saw the nation through the more than a century of growth that made it into a world power. While American industry is no longer in its infancy, some think protectionism could help America recover economic independence while strengthening national security. Most of those who advocate it have an eye to China.
More than just a policy, tariffs are clearly a sally in Trump’s culture wars against globalism. And whether tariffs are workable has much to say about the future of American sovereignty in general.
If economic nationalism is no longer possible, is political nationalism far behind?
The free trade wager
Economic orthodoxy gives a pretty clear verdict on tariffs. While steel and aluminum tariffs will almost certainly boost domestic production and put some people back to work in those industries, any benefits will come at the cost of increased prices: American taxpayers will be the ones left to foot the bill.
Meanwhile, companies that depend on aluminum and steel, from MillerCoors to Jeep, could be forced to lay off workers. Those losses could be compounded by blowback from foreign retaliation.
Tariffs trade a marginal benefit for a select group of people for the diffuse of harm throughout the economy.
Free trade allows concentrated harm in certain industries for the diffuse benefits of cheaper goods and, theoretically, jobs kept in other industries that depend on those goods.
The argument for free trade is the classic free-market wager restated: while some people do lose their jobs in a globally competitive market, free trade allows the overall economic pie to grow bigger.
Goods get cheaper for everyone, and eventually, everyone’s slice of the pie gets a little bigger — and while most newly generated wealth ends up with the elite, “diffuse benefits” like cheaper consumer goods spread through the population.
At first glance, the economic argument for free trade is tough to dispute. But the apparently scientific precision of orthodox economics obscures the value assumptions of free trade ideology, which at the outset decides that the good of certain actors — namely, corporations — is worth more than that of others, such as steelworkers.
A question of goods
In every market there are winners and losers. Who wins and loses is determined, to a great extent, by the norms and policies of the economic order.
Free trade orthodoxy doesn’t just describe how objective natural “laws” of economics work in a vacuum. It also describes norms that help us decide who should win and lose when we need to decide, and whose wins and losses we should bother worrying about.
When it comes to steel and aluminum workers versus consumers and capital, free trade is very clear on whose welfare is worth more.
Free trade is obviously a good deal for business leaders. Free trade cheapens labor, and ultimately, the cost of production. It also makes things cheaper for the consumer.
But what about American workers?
Manufacturing has been in steep decline for decades. Since 2000, some five million manufacturing jobs have left the country. Clearly, free trade isn’t working out for everyone.
The plight of a few workers is taken as a marginal loss against the greater good of cheaper commodities for all. But is this an ethical trade?
Are slightly cheaper six-packs of beer worth the cost of no jobs for a considerable population? And what difference does cheap beer mean to a steelworker out of a job?
We might say that domestic steel laborers aren’t necessary when we have cheaper labor abroad. But we don’t “need” domestic labor any less than we “need” dirt cheap six-packs of PBR.
Ultimately, free trade cheapens goods by cheapening labor. This is an indignity to the American worker. Free trade doesn’t deny that many people will lose their jobs in a globalized economy — it just shows them the door.
The tantalizing benefit of cheaper consumer goods causes us to lose sight of American workers and their dignity.
Of course, it isn’t that simple. While aluminum is eventually consumed by consumers in the form of finished products like beer cans, it is also consumed as a primary ingredient by beer companies. And tariffs would make aluminum more expensive for those companies.
As a further disincentive against the folly of protectionism, we are warned that tariffs will result in layoffs at beer companies and other corporations that depend on steel and aluminum.
While it seems likely that some price increases and lay-offs could result, they are only inevitable if we assign enough importance to the corporate interest that we reject outright the idea of spreading the cost of tariffs equally between consumers and domestic producers.
The idea of expecting corporations to cut out of their bottom line does not run counter to some naturally existing economic law. Rather, it runs counter to cultural prejudices which say that profit is the supreme good.
Ultimately, our decision to accept harm dealt to some people in exchange for diffuse goods for others is determined less by rational thinking than we’d like to believe. It is influenced much more by the arbitrary judgment that steel workers and their plight are worthy of less consideration than the consumer made to pay out a few extra cents, and the investor looking out for the bottom line.
Tariffs are a tradition
Contrary to Paul Ryan, Jeff Flake, and Lindsey Graham’s doctrine, protectionism is not an American — or even a Republican — heresy. It was the norm for much of American history. Trump’s tariffs may be a gamble, but they are not an unprecedented one.
Tariffs provided a majority of government funding until the federal reserve was established in 1913. The first bill ever signed into law by President George Washington was a tariff.
Protectionism fostered America through an entire century of industrial growth. Alexander Hamilton and, later, Henry Clay and the Whig Party developed a national “American System” that saw tariffs as essential for unleashing the dynamism and energy of the young nation.
This system lived on as a staple in the party of Abraham Lincoln from the time of its first president well into the 20th century. It’s only recently that free trade has become the Republican standard.
Granted, times have changed. America is no longer a burgeoning industrial power. Henry Clay is no longer the senator of Kentucky. Manufacturing, far from being in its infancy, is now in its twilight years. We now live in a globalized, tightly woven economy in which blockages to trade flows can have harmful, reciprocal effects.
Could tariffs revitalize our moribund manufacturing? Is it worth the risk to put steel and aluminum on life support?
Perhaps we shouldn’t look to America’s past as a role model. After all, America used to be more economically self-sufficient. Americans back then couldn’t depend on a peaceful world order to guarantee reciprocal trade flows, so they depended on protectionism.
Our recent reliance on an international system makes the question of withdrawal, however partial, a potentially dangerous one.
The political populism of tariffs
But that is just the point of tariffs: to win back some economic independence. We shouldn’t lose sight of the fact that tariffs are more than an economic policy. They are also a political weapon.
To see the broader political dimension of the tariff debate, we don’t have to look further than the left’s response to Trump’s tariffs. Whereas the libertarian right sees protectionism mainly as a poor investment, the liberal left contests tariffs also on the grounds that they are xenophobic.
Tariffs, we are told, draw from an us-versus-them mindset that should be left in the past. Leftists see tariffs in much the same way as they do border enforcement: tariffs belong to an unenlightened past that we must move beyond. Where tariffs throw up walls, free trade builds bridges.
On this count, the left is certainly right. Tariffs are indeed a jealous investment.
That’s the whole point.
Whether tariffs have net positive economic effects domestically or abroad, we shouldn’t discount their potential political consequences in the struggle against liberal internationalism. It’s clear that Trump wants tariffs partly for this reason.
Like just about everything Trump does and says, imposing tariffs runs counter to the norms of the liberal international order. The defiance — or foolhardiness, depending on how you see it — of imposing tariffs is inseparable from the Trumpist platform.
While you can reject tariffs on an economic basis, as those on the libertarian right do, we shouldn’t lose sight of the fact that free trade is part and parcel of a broader liberal program of internationalism.
Free trade and weak border policy have shaped America into a porous and economically dependent country. Tariffs look to build back some of the self-reliance and independence that free trade has eviscerated.
Indeed, tariffs have political importance that goes beyond economic considerations. This is no more pronounced than when we consider China and the threat of its eclipse.
President Trump has argued that tariffs on steel and aluminum are needed to secure national defense. The news that Canada and Mexico may be temporarily exempt from the tariffs just drives the point home that Trump sees the tariffs more as a club to wield against China than anything else. And he is right to do so.
How long can we continue to run up a trade deficit with China? For how much longer can we allow China to produce steel that we use to build our aircraft carriers?
Not long from now, China could overtake America as the world’s leading superpower. We need to do everything we can to forestall that possibility.
The president of China recently removed term limits on his presidency. Clearly, America’s biggest competitor is making moves. Do we want to leave critical military resources in the hands of our rivals?
Free trade advocates often minimize trade deficits and assure us that the very concept belongs to a mercantilist way of thinking that should be left in the past. We are told that free trade makes the economic pie bigger for everyone. Even if we have a deficit with China, trade is ultimately making everyone richer. Under free trade, there are no real losers.
But this is disingenuous. The fruits of economic growth under free trade are not distributed equitably either between nations or classes, and certain trade deficits have specific geopolitical implications, such as those in steel and aluminum.
While American steel imports from China are quite marginal for now, we don’t want to be dependent on China — or any foreign producer — for resources important to national security.
Free trade encourages us to see unmitigated growth as an unequivocal good, but the wealth created by free trade comes at the cost of economic dependence on foreign nations that limits our self-sufficiency and the endangerment of national security.
Recovering American independence
The interdependence fostered by our globalized liberal order snuffs out economic, and ultimately, political independence. This isn’t an accident, but part of a broader liberal internationalist program to make the world into a single borderless marketplace.
While liberal internationalism has arguably made the world more peaceful and prosperous, these goods have come at the cost of the political and economic self-determination of the United States and other nations.
It’s not a coincidence that the same people advocating open borders generally favor free trade policy. Both of these positions favor capital investors and elites, at the disadvantage of the domestic working class and American sovereignty.
Is a country really sovereign if it isn’t economically self-sufficient? Pat Buchanan from the American Conservative writes:
The principles behind a policy of economic nationalism, to turn our trade deficits, which subtract from GDP, into trade surpluses, which add to GDP, are these:
Production comes before consumption. Who consumes the apples is less important than who owns the orchard. We should depend more upon each other and less upon foreign lands.
It’s that simple. Cheaper goods mean little if we can’t depend on our neighbors to take care of our national defense, let alone consumer appetite for things like beer.
Of course, tariffs are far from a safe gamble. Our economy is now so dependent on reciprocal trade flows that to begin producing locally again could well have harmful side-effects. But in the long-run, protectionism could revitalize American industry at the cost of growing pains, such as initial price increases, attendant upon weaning American dependence on foreign producers.
It could be too late to win back American economic independence. But if it’s too late for tariffs, then it’s too late for border security, and everything else that a country needs to be sovereign. Free trade and open borders are two sides of the same coin.
If American industry thrived under tariffs in the past, then it was because America practiced a creed of nationalism and self-sufficiency rather than internationalism and foreign dependence.
Some say efforts to revitalize American economic independence will provoke a trade war. But America is already in a trade war — and our competitors are winning.
From the interest of national security, patriotism, and American manufacturing, tariffs deserve more consideration than they’ve been given in the court of elite opinion.
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