Tariffs, Trade, and the NeverTrump Nightmare

By | 2017-06-02T18:30:05+00:00 August 12, 2017|
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In his brief but thoughtful piece, “Raise Tariffs, Secure the Nation,” Spencer P. Morrison recently asked a vital question: “[W]hy the disconnect over tariffs between academics and businessmen, the media and the public?”

That is, what is the nature of the widening divide between academics and the media, on the one hand, and businessmen (like Trump) and the public, on the other, over whether tariffs are a legitimate tool of public trade policy?

The overall point of his article is spot-on. There really can be “no political independence without economic independence.”

This is the crux of the matter: Can we still be economically and politically independent from the rest of the world—and if so, how? Have our Founders left us any clues?—or must we become, as our NeverTrumper friends insist, one with the world?

Our Founders were far more clearer-headed about this issue than are our D.C. policy establishment—or in any case, they were far more honest and explicit about their ultimate policy objectives.

 

“In [Congress’] first act, a national revenue must be obtained; but the system must be such a one, that while it secures the object of revenue, it shall not be oppressive to our constituents. Happy it is for us that such a system is within our power, for I apprehend that both these objectives may be obtained from an impost on articles imported into the United States.”—James Madison

Case in point: one of the first laws on the books of the very first Congress was the Tariff Act of 1789. It established a national revenue based not on income taxes—that choice was considered and consciously rejected—but rather on an ad valorem tariff on foreign-made goods.

This same policy also aimed explicitly to protect our economic independence in what our Founders saw as the least oppressive public policy means possible. By any definition of the term, they were protectionists, and it is time conservatives stopped worrying that the label does any harm to the cause of preserving our national independence and system of republican self-rule. Read the debate over the Tariff Act!

Businessmen and the voting public who know nothing of U.S. tax history generally seem to understand the practical necessity of protective borders, walls, and even tariffs, in their bones. Why are the elite so differently wired on the issue of trade and immigration?

 

“First principles, Clarice. Simplicity. Read Marcus Aurelius. Of each particular thing, ask:  What is it, in itself, what is its nature…?  What does he do, this man you seek?” —Hannibal Lecter

Morrison chalks up support for free trade among intellectuals to “myopia.” They look at things, he contends, through a narrow economic lens, and miss the forest of the public good for the trees of abstract socio-economic utility.

There is some truth to this, to be sure, at least among a subset of the advocates of so-called free trade who are more drawn to the mathematical complexities of the issue than they are driven by philosophical certitudes. Yet while I share Morrison’s interdisciplinary approach to the problem, we differ perhaps on what is really motivating the dogmatic philosophical advocates of free trade.

An unthinking commitment to an abstract notion of “free trade” is a myopia guaranteed to destroy American exceptionalism, the very thing American conservatives say they want to conserve.

Regardless, we both agree that it is time for American conservatism to reassess its dogmatic support for free trade and its ideological doppelganger, “fair trade,” espoused by many on the modern Left. This assessment must be based on a clear-eyed view of what the debate is—and isn’t—all about.

An unthinking commitment to an abstract notion of “free trade” is a myopia guaranteed to destroy American exceptionalism, the very thing American conservatives say they want to conserve. Free trade, understood in this way, also happens to be the one topic that curiously unites the D.C. NeverTrumpers—both Left and Right—who loathe President Trump’s approach to trade even more than they do his tweets.

It is past time for conservatives to reevaluate free trade from first principles. Such an effort, though not easy, should lay bare several distinctly modern misconceptions about political economy that have deceived many Americans, but especially conservatives, into reflexively supporting a dogmatic and unthinking notion of free trade.

 

When asked by his disciples what he would do to solve all the problems of the world, Confucius replied, after a moment of quiet reflection, “I would see to it every term have a precise meaning.” – The Analects of Confucius

What exactly is “free trade” and why does it unite the NeverTrump establishment against the millions of American workers who brushed aside both the ruling class’s admonitions, and their preferred candidates in both parties, and voted instead for Donald Trump in 2016?

The first thing to understand about free trade as it is presented today is that the name does not describe it.

Free trade is about neither freedom nor trade, but in reality is an instrument of macroeconomic policy designed to create a single-world wage and price structure and, thereby, a global division of labor. It has nothing whatever to do with the traditional concept of trade, which is negotiated exchange of domestic surplus between sovereign nations.

Free trade understood in this way necessarily requires doing away with the idea of the nation-state itself and replacing it with alternate world governance models. This is where free traders disagree amongst themselves, mainly over means, not ends—some preferring a centralized, command-and-control structure, others looking in the direction of heretofore unproven decentralized contractual models (this is what Bitcoin is about, at bottom).

Advocates of global free trade fundamentally believe that the world would be a better place if nations no longer existed as independent geographic entities vying for global natural resources. Traditional nation-states, they contend, must be abolished.

If “free traders” were to be successful in achieving that goal, there would no longer be an economic phenomenon called “trade” because the premise of such a term—i.e., the existence of sovereign nation-states engaging in trade of their domestic surplus—would no longer exist as such.

The first thing to understand about free trade as it is presented today is that the name does not describe it.

Free trade is about neither freedom nor trade, but in reality is an instrument of macroeconomic policy designed to create a single-world wage and price structure and, thereby, a global division of labor. It has nothing whatever to do with the traditional concept of trade, which is negotiated exchange of domestic surplus between sovereign nations.

More can (and later, will) be said about Adam Smith’s articulation of international trade in the wider context of his overall theory of national wealth, which modern free traders tend to argue,  disingenuously, is the basis of their theory. In their correct context, we will see that Smith’s ideas about trade and theirs are very different.

The next thing to know about it is that its philosophical goal—a one-world wage and price system—is neither inevitable nor driven primarily by economic forces.

It requires active, conscious, and continual political choice, as Brexit demonstrated; and in fact, the odds of its success are historically abysmal. From ancient Babel to Brexit, attempts to create a “one-world, ecumenical union of the peoples of the world,” as Frédéric Bastiat put it, have never ended well, and for good reasons.

The economic theory behind such an amalgamation purports to derive from a “law”—specifically, Ricardo’s theory of “comparative advantage.” This is the actual economic doctrine upon which modern arguments for free trade stand (or fall), and it is in fact a refutation of Smith’s justification for international trade on a very profound level, as we will demonstrate.

There is a lot of evidence that America’s Founders deeply understood Smith’s economic rationale, and did something innovative with it, something even Smith didn’t contemplate that is seriously undervalued and often completely misunderstood, for lack of grasping the essential difference between Smith’s and Ricardo’s motivations for international trade. The latter, we will prove elsewhere, is entirely at odds with our Founder’s objectives.

 

“Men, upon too many occasions, do not give their own understandings fair play; but, yielding to some untoward bias, they entangle themselves in words and confound themselves in subtleties.” —Alexander Hamilton, Federalist #31

Ricardo’s theoretical framework for free trade arose as a challenge to Smith’s, which was rooted in what economists call called absolute advantage.

Absolute advantage says that if, given a unit of economic resource, Country A is three times more efficient than Country B in the production of Product X, Country B would have the incentive to obtain Product X from Country A in some kind of trade deal, rather than produce it themselves.

If, for Product Y, Country A is even just two times more efficient than Country B, then Country A would at this point still have no motive to trade with Country B, unless there were other products for which Country B had an advantage—products that could then be traded with A once demand of B’s home market for those products was satisfied.

This is the canonical, Smithian concept of international trade, which we will elaborate upon elsewhere. Modern free trade is not based on this model, but rather Ricardo’s.

Ricardo sought to find an answer that would not preclude trade between wealthy and poor nations, when no particular advantage might be found on behalf of a poor nation. The idea in Ricardo’s time that Country A, superior in the production of every product given the same unit of economic resources compared to Country B, would ever want to trade with Country B was ludicrous.

In his clever scheme, though, the focus shifts to comparative, and away from absolute, advantage. That is, assuming the same fact pattern above, Country A enjoys a greater advantage over Country B in the production of Product X, than it does compared to its advantage in Product Y.

Modern textbooks—starting with Paul A. Samuelson’s—“prove” Ricardo’s genius by showing with simple arithmetic that, if Country A just “shifts” certain units of economic resource away from B and to A, and if Country B commensurately “shifts” resources away from A to B, then mathematically the two combined produce more total of X and Y than they would have done if they produced them separately, again, given the same quantity of capital.

And the math works, no doubt about it—you can grab a textbook, almost any will do, and prove this to yourself in five minutes using only basic arithmetic. In fact, do that before reading further.

The underlying assumption when we’re reasoning only with our pencils is that by “removing all obstacles to trade” this constant shifting around of economic resources would happen naturally, without government intervention. But why should we conservatives, averse as we are to arid abstractions, assume this?

For this reason Samuelson calls the theory behind free trade “irrefutable” on its own carefully reasoned terms. And all our modern politicians believe it, even if they disagree on the particulars of “how much” free trade is a good thing, or what global governance model is best to achieve it.

To what could one possibly object in this analysis? As with most cunning sophisms of the royal elite, only a small amount of common sense is required to denude them.

The objections fall into two categories:

  1. Objections based on the practical application of the theory;
  2. Objections to the effect these practical applications would have on liberty.

Both are equally damning, but I can only summarize them here.

In terms of practical application, you have the fundamental reality that there are not two, but more than 100 countries in existence; and there are millions—not just two—products that enter and leave existence like so many species of fauna. How now to apply this “irrefutable” arithmetic proof?

It is entirely possible to imagine a scenario where, given three countries, the advice for a particular country is contradictory. What if, compared to Country C, Country A was twice as efficient in producing Product X, but three times as efficient in the production of Product Y?

Now what should Country A do? In relation to Country B, it should “shift” units from B to A, but in relation to Country C, it should do the opposite. Really?

Moreover, Ricardian analysis would have to be performed constantly, as the “comparative” advantage of each and every nation would have to change over time as all countries “shift” all these units of economic resource around based on continual “comparative” analysis.

In other words, the reality that shifting capital investment into different industries will have an impact on domestic labor productivity over time is a consideration completely lacking in the simple Ricardian model. It is, however, a central consideration in the Smithian model, and affirmed by modern Austrian theory—and American history.

The underlying assumption when we’re reasoning only with our pencils is that by “removing all obstacles to trade” this constant shifting around of economic resources would happen naturally, without government intervention. But why should we conservatives, averse as we are to arid abstractions, assume this?

As a practical matter, this model requires an army of econometrics majors authorized by nations to tell individuals in each country which economic resources they shall invest in the labor of which country, and that these pencil pushers should be able to compel them to do so in order to ensure “optimal” global economic distribution. Does this sound like a “free” market?

This is why NAFTA, TPP and other so-called “free trade agreements” have to be thousands of pages in size, and negotiated behind closed doors.

But the answer isn’t a “one page” treaty that simply removes all barriers. Rather, as our Founders proved, it is a pragmatic, federal constitution permitting a free people to engage in division of labor within well-defined borders without interference from domestic regulators, or foreign powers. This is the unhampered free market, about which Adam Smith could only have speculated.

Free trade, properly conceived as our Founders envisioned it and perfected by our federal union, is nothing more than division of labor within a national, federated system.

Which leads us to the second line of objections—those regarding liberty.

How can the Ricardian model possibly work in the real world without assuming that authorities exist to compute, and then enforce, these “comparative” advantages? How do individuals decide their own fate, when what must be done is to be fathomed by entities with the power to redirect their capital investments through various inducements?

Free trade, properly conceived as our Founders envisioned it and perfected by our federal union, is nothing more than division of labor within a national, federated system. Not only is such a scheme amenable to mutually beneficial trade with other nations, our Founders saw it as essential to the task. They considered regulation of foreign trade so important that it warranted the immediate attention of the first Congress, and depended on it for the entire national revenue.

Under what conditions does division of labor make more sense than traditional trade relations? The answer to this key question is the answer to whether and how far political and economic union makes sense for a population, because “free trade”—as our Founders understood after the failure of various confederate schemes—requires both to work.

Modern free trade agreements essentially try to have a kind of economic union without real political union. When political union is foisted on the populations after the fact, things fall apart, as they are with the EU after Brexit.

There is now an awakening realization that this could only be a temporary arrangement, a kind of “living in sin” through regional quasi-economic unions negotiated in the dark. That people are discovering these treaties are designed to promote the eventual unification of all the nations of the world—requiring the abolition of national sovereigns, including the United States—is what terrifies the NeverTrumpers, the bipartisan duopoly in D.C., and the global elite in New York and Brussels.

 

“Poverty befalls any nation that neglects and abandons the care of its own industry, leaving it exposed to the action of foreign powers . . . There is a remedy, and that consists in adopting a genuine American system accomplished by the establishment of a tariff—with the view of promoting American industry . . . The cause is the cause of the country and it must and it will prevail.” —Henry Clay

A truly “America First” economic policy reserves “free trade,” as our Founders did, for ratified states in the federal union, and engages in negotiated trade according to the Smithian model with everybody else.

A return of this traditional American paradigm, more than anything else, is what the establishment fears from a successful Trump presidency, because for them it’s not about America’s political and economic prosperity.

Rather, it’s about the unification of all labor and capital into a single world wage and price structure and a global political union to the exclusive but mutual benefit of the international corporate and bureaucratic elite. These two goals—American economic greatness and international political union under a global division of labor—are not compatible.

There is much more yet to say, and to prove. But for now, let the conservative reassessment of this very foreign ideology begin.

 

 

About the Author:

Bob Calco

Bob Calco is a verified Deplorable who lives in Tampa, Florida, with his wife, two sons, and four cats. A successful software architect by trade, and an inveterate polyglot and world traveler at heart, he studied political philosophy until it was clear that to pay bills he needed a marketable skill. His passion on issues related to trade and economics go back to his formative college days, when he learned to distrust, and independently verify, literally everything he was taught.

  • JamesDrouin

    “[W]hy the disconnect over tariffs between academics and businessmen, the media and the public?”

    Simple: Because academics and the media typically don’t have more than a couple of functioning brain cells at any given moment.

    And it’s no more complicated than that.

  • Brett baker

    Well, for a while I’ve said we need a VAT to replace some of our taxes and give modest protection to our industry. People who claim to want to protect our industry reject it though, “it’ll make things cost more!”

    • RIP_UN_1945_2017

      A VAT would ONLY be acceptable, if the income tax were to be repealed, and unfortunately that is a very remote possibility .

  • BanBait

    Stylistic tip: Ditch the “as we’ll discuss later”. Otherwise, excellent. Thank you.

  • SpeedMaster

    I can simplify this article. Each manufacturing job, depending upon the industry, requires five to fifteen more jobs to support it. Considering that fact ask the question: “Is a ten cent decrease in the price of a T-Shirt at Walmart worth the destruction of our entire textile industry?”
    .
    I use textiles as an example because I saw a town in North Georgia die after its textile plant closed. Even fast food did not survive.

  • Gaius1Gracchus

    Ricardo’s model was flawed from the beginning. Portugal had given up its economic independence in order to secure English support. The treaties had destroyed Portuguese manufacturing, especially textiles, while the English textile industry was heavily subsidized.

    Ricardo came from a family of bankers. He was trying to justify the various banking schemes in overseas loans, which almost always ended up in failure.

    The US adopted the “American System” in direct opposition to the trade philosophy of the British. Clay and the Whigs favored protectionism, infrastructure development, and improving the “General Welfare”.

    Lincoln generally followed Whig economic policies as president and the American School of economics transformed the US into the most powerful nation on earth by WW1.

    By returning to American School economics, we could make America greater than ever before.

  • hamburgertoday2017

    There is a vast difference between thinkers in *political* economy (such as Adam Smith and, from a different perspective, Karl Marx) and those who present themselves as ‘economists’. Mr. Calco makes this distinction nicely and the distinction is *important*. Economies do not exist independent of the social and political domain. All (societies, polities, economies) are *human* creations, and, while essential, they are merely instruments, not ‘things in themselves’. Ideologies attempt to change the relationship between human beings and the products of their creativity such that the products (such a ‘free trade’) appear to have a *life of their own* independent of human beings. Ideologies exist to make people believe that they have no political choices. ‘Free trade’ ideology has functioned this way for some time, but it seems like it’s time may now be passing.