Great America

Yes, Ben Shapiro Is Still Wrong on Tariffs. Here’s Why

Ben Shapiro likes to say, “Facts don’t care about your feelings.” Shapiro on Thursday responded to my article “Why Ben Shapiro is Wrong on Free Trade” with his own piece: “Yes, Tariffs Are Still Stupid. Here’s Why.” He also talked about my article on theBen Shapiro Show.” Shapiro made it crystal clear: he hates tariffs.

But no matter how Ben feels, the fact remains: tariffs work.

Intellectual Whack-a-Mole

Shapiro begins with two rather embarrassing mistakes. First, he misstates the name of this publication. Second, he commits a call to authority fallacy—precisely the error I accused him of last week. Shapiro writes:

The reality is that my arguments on free trade have been supported by every major free market economist in history . . .

This is a tautology: of course most “free market” (read: Austrian School) economists support free trade—just as most American School economists support tariffs, or most labor economists support unions. Does the fact that most Marxist economists support socialism prove that socialism works? No. This is sophistry.

Shapiro is also a hypocrite: did he not make his name by ignoring the so-called “97 percent of climate scientists” who believe climate change is anthropogenic, or the (I imagine) 100 percent of gender studies professors who think biological sex and gender identity are different? Why is Shapiro so willing to ignore “experts” on climate change or feminism, yet treat them like (false) gods when it comes to economics? Shapiro would be wise to remain ever-skeptical, and heed the aphorism: Take not the merchant at his word, but trust only by the skin of his fruit.

Finally, Shapiro says the articles I cited “do not mention tariffs,” and they are therefore irrelevant. This is like saying a paper on Elizabethan England, that never mentions Shakespeare, is irrelevant to studying Shakespeare—really? This is the difference between scholarship and parroting: my sources lend support to a novel conclusion, while Shapiro clearly googled “path-dependency” and cited the first book he could find—a case study of Microsoft.

While the book does discuss path-dependency, it does so explicitly within the context of a single industry, and makes no claim that the findings should be applied between industries. There is a big difference between supporting Microsoft relative to Apple or Google, and supporting America’s entire IT industry relative to foreign competitors. These are different debates, and the nuance is clearly lost on Shapiro.

Stalin’s Dilemmas

Shapiro claims that I favor “total state control of the economy” because I think it is possible to “simply pick the best industries and subsidize them.” Apparently, tariffs are Communism, and I am Stalin. Not only is this not what I wrote, but Shapiro has it entirely backward: tariffs are the form of taxation most consistent with small government. There are a few reasons why this is so.

First, tariffs are an entirely avoidable tax: if you don’t want to pay them, buy American. Simple. I wish the same could be said of income, property, or general sales taxes.

Second, tariffs are antithetical to big government because they preclude socialism. How? Tariffs make imports expensive. This encourages domestic production and discourages offshoring—thereby boosting demand for American labor. Basically, tariffs create stable jobs and increase wages for American workers. Further, because labor-intensive industries are the first to be offshored, as economist Ian Fletcher notes, tariffs inevitably protect more jobs than free trade generates.

The key to solving this puzzle is recognizing that employed Americans are less likely to elect socialist governments because they will not benefit from the policies. The converse is likewise true.

Consider what happened in America’s Rustbelt. The region used to be a Republican stronghold. However, when millions of people began losing their jobs because of offshoring—caused by asymmetrical trade—the region turned blue. People voted for socialism to insulate themselves from the ravages of economic globalization. Socialism was a direct, and sadly iatrogenic response to free trade. It did more harm than good: Democratic governments raised taxes and imposed regulations that further crippled American industry. They made a bad problem worse.

Shapiro must answer this question: Were the alleged gains from freer trade with Communist China worth the proliferation of socialism in America? Was saving a few dollars on your $1,000 computer worth decades of Democratic governments, which damaged the U.S. economy with higher taxes and more regulations? I doubt it. We cannot limit our discussion of tariffs to their economic consequences—political reality forces Shapiro to choose: tariffs or socialism? What kind of “big government” does he want?

I choose tariffs. Shapiro chooses socialism.

Reality also confronts Shapiro with a second dilemma: whose government? If America imposes tariffs, then our government “controls” the economy. But without tariffs, American companies must compete directly with foreign, government-backed rivals that will outcompete them because of market asymmetries. Thus, America’s economy necessarily will be “controlled” by a government, whether it’s America’s or somebody else’s. 

I choose America. Shapiro chooses China.

Milton Friedman’s Secretary

In his article, Ben Shapiro never directly addresses my argument against comparative advantage’s domain-specificity. Instead, he quotes some dogma from the Mises Institute. This is not compelling.

Shapiro should (re)read 7.18-19 of David Ricardo’s On the Principles of Political Economy and Taxation, in which Ricardo acknowledges that comparative advantage is premised upon capital immobility—otherwise there is nothing to stop offshoring. Likewise, his theory is premised on the exchange of goods-for-goods, which necessitates a balance of trade. The fact that we can sell assets and debts in exchange for goods changes the theory’s application entirely. These facts cannot be denied.

Shapiro does attempt to defend comparative advantage on his show, by parroting Milton Friedman’s lawyer-secretary analogy. The analogy can be found in chapter two of Friedman’s book Free to Choose. It runs as follows: there are a lawyer and a secretary. They do legal research and typing. Although the lawyer is better at both, he is far better at legal research than typing. Conversely, although the secretary is worse at both, she is far better at typing than legal research. Therefore, it makes sense for them to work together and specialize in what they’re best at: the lawyer does all the legal research, while the secretary does all the typing. In the end, cooperation makes them both richer—just like international trade.

This analogy’s power comes from its simplicity—why wouldn’t they work together? Of course, free trade makes sense. The problem is that this analogy, like the theory of comparative advantage, operates only according to endogenous rules and it lacks a time-horizon.

Regarding endogeneity: Friedman’s analogy follows built-in rules, and the conclusions are only valid insofar as those rules are true. If they’re not true, then there is no reason to believe the analogy. In this case, the analogy’s rules are untrue: while the arrangement makes sense from the lawyer’s perspective, it makes little sense from the secretary’s. If the secretary really wants to get rich, she should study law and likewise become a lawyer because, generally speaking, even a bad lawyer earns more than a good secretary.

In reality, it is far better to be bad at a good job than good at a bad job. The same is true of industries—it’s better to have a small slice of the computer industry than a big slice of hay-farming. Comparative advantage does not differentiate between industries, and this is its fatal flaw.

Regarding time-horizons: this simply means that comparative advantage only purports to tell you what trades are efficient today, not if they are good investments tomorrow. As such, it is literally useless when it comes to policy-making. If we want to make America rich again, we need to look to the future, not live in the present. We need to think like businessmen—not economists.

A Pound of Flesh

On his show, Shapiro explains why trade deficits are not a problem. His analogy: you technically have a “trade deficit” with your butcher because you exchange money for steaks, but this isn’t a problem because both parties get what they want. Likewise, you have a “trade surplus” with your employer—but this is also good because both parties get what they want. There is nothing inherently wrong with deficits. Therefore, the same is true of international trade: China gets money, America gets goods. Further, the money we pay to China eventually flows back to us, since American money must be spent on American stuff. In a sense, there is no deficit—the payments are balanced.

This analogy is junk.

America does not run a trade deficit with just China, we run a global deficit. In Shapiro’s analogy, he would not just run a deficit with his butcher, but also with the baker, and the candlestick-maker—indeed, with everyone. Further, he would run this deficit for decades. How would he pay for the goods, you ask? He would either need to sell his furniture (assets) or run-up his credit card (debt). In either case, Shapiro would eventually run out of money and need to reduce his consumption, or increase his earnings.

This is what’s happening to America: we’re funding our trade deficit by selling assets and debt.

Regarding assets: foreign investors, flush with American cash, now own 20 percent of all American equities. This is up from just 12 percent in 2007. Likewise, foreigners buy billions of dollars’ worth of physical property in America—everything from penthouse suites in New York to ranches in Oklahoma. In 2015 alone, foreigners bought more than $100 billion in American real estate. Basically, we are trading ownership of our nation for foreign trinkets.

Regarding debt: foreigners loan us money so that we can buy their goods, otherwise we could not afford them. This is reflected in America’s growing debt burden. For example, foreigners now own 44 percent of America’s national public debt, valued at over $6.3 trillion. They likewise own large amounts of our private debt, including 29 percent of all U.S. corporate bonds. Debt is especially pernicious: not only must we eventually repay the principal sum, but we also owe interest, which will cost taxpayers trillions over the coming decades.

We are living in history’s greatest consumption bubble. Eventually, it will burst. At that point, we will be worse off than if we had never run the deficit to begin with. History and theory attest to this truth. For example, Great Britain ran a large and persistent trade deficit at the end of the Victorian Era, which contributed to the country’s economic decline. Likewise, the Nobel-winning economist Joseph Stiglitz has shown that chronic trade deficits inevitably lead to consumption declines when the bubble bursts. In fact, his models suggest that it’s a “mathematical certainty.” The piper always gets paid.

We are selling our inheritance, and shackling our children with debt to pay for cheap pencils and tacky bobble-heads. Apparently, Ben Shapiro is fine with this.

Semiconductors, Not Soy

Shapiro claims that tariffs are ineffective at spurring economic growth because we cannot know which industries will generate it: “you cannot tell which sectors will be the most profitable, because you cannot tell the future, which means that government is far more likely to ‘lock-in’ particular pathways than to spur future growth. . .”

While it’s true that we cannot know which industries will generate economic growth, we can forecast which are the most likely to generate growth.

Research from the Brookings Institute finds that nearly all of America’s economic growth in recent decades was generated by our advanced industries—those which focus on inventing new technologies. Examples of these include America’s advanced manufacturers like Boeing, and information technology (IT) companies like Apple. Although these advanced industries employ just 9 percent of America’s workforce, they file 85 percent of all patents, provide 90 percent of private-sector research dollars, and employ 80 percent of all engineers. As such, these industries are far more likely to generate growth than are America’s horse-and-buggy industries.

This should come as no surprise, as technological advancement is the engine of long-run economic growth. This observation is supported by both the preponderance of economic history and modern non-linear mathematics.

In his book Antifragile, the stock trader-turned-philosopher Nassim Taleb shows that economic growth is non-linear, and depends upon “black swan” events—those which are both highly consequential yet highly improbable. Good examples of these are the invention of the printing press, the steam engine, or the microchip. Importantly, economies without access to these technologies could never be as wealthy as those using them, no matter how freely they traded.

Tying to this is the fact that invention builds on invention, creativity feeds creativity. That is, a Paleolithic tribe could never invent steel, because they did not know how to work iron, nor could they invent bronze because they did not know how to work copper. Knowledge and technology build upon what came before. So too does economic growth—this is path-dependency.

Shapiro’s claim that we cannot distinguish the growth potential of industries flies in the face history, logic, and common sense. Does he really think America’s soy farms have as bright a future as our IT industry? I doubt it. In fact, I know he doesn’t. On episode 399 of the “Ben Shapiro Show,” Shapiro said (emphasis mine):

There’s a weird misconception about the economy, and that is that every dollar that is spent is equally helpful for the generation of a healthy economy. This is untrue. If I spend a dollar on a hamburger, this is not nearly as helpful to the generation of a stronger economy than if I spend that dollar investing in hiring someone to grow the Daily Wire.

The reason for that is that I’m inventing new products and services at the Daily Wire. The reason that your life is better than 20  years ago, the reason that you have cool new stuff, the reason you can go on a computer. . . is because people were innovative. Because people created new products and services. . .

A lot of the people who generate new things. . . they generate lots of new things. It’s not that they generate one new thing and then they’re done: they generate lots of new things with that money. Or they give it to a bank, and do you know what the bank does? It doesn’t invest in hamburgers, it goes and invests in new businesses that are generating better products.

In this quote, Shapiro acknowledges that not all industries are of equal value when it comes to economic growth; economic growth depends upon technological development; growth is non-linear in that certain individuals (or industries) generate most of it.

Wait a minute! Shapiro just said that we “cannot tell which sectors will be the most profitable.” Which Ben do we believe? This is a perfect example of domain-specific knowledge in action. When Ben Shapiro has his “businessman” thinking-cap on, he acknowledges that you can tell which industries are most likely to generate economic growth—he even gives us an example. Yet when he has his “economist” thinking-cap on, he denies this categorically. This is what happens when you parrot sources without evaluating them for yourself.

Assuming Shapiro acknowledges these three facts to be true, he should also acknowledge that the best way to expand the economy is to cluster those high-value industries that are the most likely to generate new technology in America. To do this, we need tariffs.

Right now America’s advanced industries are moving abroad at an alarming pace. According to the Brooking’s Institute, America’s trade deficit in advanced industries was $632 billion in 2012, which is “in line with similar yearly balances since 1999.” Meanwhile, the U.S. Census Bureau reports that America’s trade deficit in advanced technology products was $110 billion in 2017. Further, America ran a deficit in the sector every year since 2002—before this, America ran surpluses.

Although the reports use different methods of categorization, and thus arrive at different numbers, they tell the same story: America used to build the future, now we buy it.

El Condor Pasa

When Shapiro says he opposes tariffs and supports “free trade,” what he means is that he supports asymmetrical trade. That is, American businesses compete against foreign, state-backed businesses and inevitably lose—regardless of whether they are more efficient or produce better products. Remember: efficient American factories are the ones moving to China, not relatively inefficient German factories. Likewise, American rather than Japanese IT firms are moving to India.

Asymmetrical trade kills American businesses and makes us poor. Consider that Chinese firms can operate in America, but American firms cannot generally operate in China unless they partner with a Chinese firm. This is exceedingly common in the IT industry, where American technology companies trade technology for access to Chinese consumers—only to face insurmountable competition from Chinese copycat companies months later. Tied to this is the fact that Chinese companies (with the government’s tacit blessing), steal more than $500 billion worth of American intellectual property every year.

How can American businesses compete against China’s monolithic government? They can’t. Nor can they compete with Germany’s feudal-industrial system, nor Japan’s keiretsus. Those who demand free international trade must recognize that tariffs are not the only impediment—different legal structures, business models, and economic philosophies preclude free trade and guarantee that liberal “free traders” will get screwed.

This explains why all successful historical economies adopted economic nationalism, as opposed to liberalism, as their modus operandi. History shows us that any time a nation embraced free trade, said nation was plundered by foreign nations. For example, free-trading Britain was flooded with artificially cheap German goods at the end of the 19th century. This undermined British businesses and deprived them of the capital they needed to expand. British industry starved, economic growth plummeted, unemployment increased, and Britain lost her status as the first among nations. What is currently happening to America is eerily similar, and it’s no coincidence, it’s just what happens when the hammer becomes the nail.

Ben Shapiro should step out of the ivory tower and into the trading pit—he should walk the kill-floor, break rocks with his hands. Perhaps then he would learn how economics really works. America doesn’t need more economists. We need businessmen. We need industry. We need tariffs.

In the end, President James Monroe said it best:

. . . whatever may be the abstract doctrine in favor of unrestricted commerce, [the necessary conditions of reciprocity and international peace] have never occurred and can not be expected. . . [reality] imposes on us the obligation to cherish and sustain our manufactures [through tariff protection].

History may not repeat, but it does rhyme. Always remember this.

20 replies
  1. bc3b
    bc3b says:

    Prior to the passage of the Federal Income Tax, tariffs were the federal government’s primary source of income. Like many on the left, ideology often takes precedent over reality for purists like Shapiro.

    Karl Marx was a huge supporter of free trade.

  2. Dylan Scott
    Dylan Scott says:

    Fantastic response. Ben has no idea how the economy works and it shows every time he talks about it.

  3. Brett baker
    Brett baker says:

    Arguably, the future IS bright for America’s soybean farmers.(agriculture.com/zeihan) But supporting the semiconductor industry is important, too.

  4. hitNsplit530
    hitNsplit530 says:

    Great series of articles. Spencer completely dismantled Shapiro with a point by point refutation.

    And along the way, converted this economic simpleton to a tariff supporter.

  5. perceptionate
    perceptionate says:

    Wow this was a great article. I feel so lied to on free trade. I’m curious what the author means about Germany’s “feudal-industrial system”. Does this have to do with the euro artificially lowering their currency through combining it with weaker nations/economies?

  6. lgp
    lgp says:

    Greece ran a trade deficit with Germany, how’d that work out for Greece? Yes US is a Leviathan compared to Greece, but we’re running a trade deficit with the ENTIRE globe. When China decides to call in their loans, what will the US do? Perhaps offer up Taiwan for a write off?

    Ben is a fast talking lawyer, a mile wide in law, a foot deep elsewhere. If I wish for historical literacy, I read Victor David Hansen, for economic literacy I’ll indulge in Hayek and Freidman, seasoned by nation-state realities.

  7. gthomson13
    gthomson13 says:

    I very much appreciated your first epistle to Ben Shapiro and this one is even better. I had hoped young Ben would think through the information you presented & respond in a thoughtful manner. However, he appears to have an ideologue’s mono-synaptic response regardless of the facts & argument presented. Sad. I generally like most of what he does and says. I heard Hugh Hewitt puppet similar stuff as Ben Shapiro about free trade and wondered what gave him the idea he was an expert on the topic. Please send Mr. Hewitt a note and challenge him to a debate on the topic. Tell him you’ll come on his show. It would make for a good discussion for both him and his listeners. Let’s see if he can stand up to the arguments you make. Ask Seth Leibsohn and Chris Buskirk to make the intro for you, if you don’t know him already. And go on as many talk shows as you can – Prager, Hannity, Ingraham. You need to get the word out. I think those three would gladly host you. And send your two articles to Larry Kudlow and the President.

    • silviosilver ✓ᵀʳᵘᵐᵖ ˢᵘᵖᵖᵒʳᵗᵉʳ
      silviosilver ✓ᵀʳᵘᵐᵖ ˢᵘᵖᵖᵒʳᵗᵉʳ says:

      However, he appears to have an ideologue’s mono-synaptic response regardless of the facts & argument presented.

      True, but I don’t think it’s so much because he’s a free trade ideologue as much as he is a globalist/cosmopolitan ideologue, regardless of the ‘conservative’ noises he makes. Globalism and free trade promote an outward orientation, whereas tariffs are seen as promoting an inward orientation, a concern with what is best for one’s nation rather than what is best for the global economy. Generally, such an orientation frightens the bejeezus out of Jews – it’s 1930s Germany all over again. If you find my reasoning dubious, try the analytic template on for size and apply it to Jewish writers when they’re telling everyone what is best for America and compare to it to their recommendations about what is best for Israel and see if you can’t detect a gaping double standard.

  8. Desdichado
    Desdichado says:

    He doesn’t choose China. He chooses Israel, which he feels can profit from China’s competition with America.

  9. roo_ster
    roo_ster says:

    Ben has zero experience outside academics and writing. He had the opportunity, but never took it, preferring his nice, comfy sinecure. He even urged others to go to war, while he, of an age to go to war, scribbled and studied instead.

  10. Ben
    Ben says:

    It seems so obvious that Shapiro is paid by the corporate orthodoxy to spout the mantras “big business good, it make jobs”. I can’t believe he handles the LGBT nonsense intelligently, then sounds like a total retard when he talks about the economy and racial issues. Weird.

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