OAN Guest Commentary by: Theodore Roosevelt Malloch and Nicholas Capaldi
Monday, December 16, 2024
President-elect Trump has repeatedly declared “tariff” to be his favorite word, in fact, “the most beautiful word in the dictionary.”
He plans to utilize tariffs to raise federal revenues, increase jobs in the U.S., and bring back manufacturing. To quote him, “We are going to have 10% to 20% tariffs on foreign countries that have been ripping us off for years.”
He has even said that he is considering a 60% tariff or more on imports from China.
It is obvious that raising tariffs and applying new ones would produce significantly more federal revenues, to the tune of $2 to 3 trillion dollars. Keynesian and so-called free trade (globalist) economists have retorted that such proposals would also raise costs for Americans and reduce economic growth. They say their “authoritative” models tell them this is so.
Wait a minute…
Tariffs are, simply put, customs duties levied on imported goods. They are used to protect domestic industries and as leverage in trade negotiations and disputes. The mainstream economic profession says Trump’s planned policies will have a negative impact and harmful effects on the American economy, reducing both growth and GDP. But this didn’t happen during Trump’s first term in office.
Others see a looming trade war or retaliatory tit-for-tat tariff retribution that will damage the entire global economy.
For Trump, this is a central issue. He ran and won on it. It has long been among his key and overriding concerns. He wants to use tariffs as both a negotiating tool and as leverage leading to more reasonable and desired outcomes. At its worst case, it brings in tons of new revenue to the US Treasury, offsetting our gigantic deficit.
Positively, it would radically improve the terms of trade with our key trading partners and rebuild the American manufacturing base that has been badly eroded.
As of today, there are multiple legal authorities that Trump could rely on to justify the imposition of increased tariffs, including many that he already availed himself of during his past presidency. These include Sections 232 and 301, the International Emergency Economic Powers Act (IEEPA), Section 122 Balance-of-Payments Authority, and Section 338 of the Tariff Act of 1930. While Section 232 requires an investigation by the Department of Commerce and Section 301 requires an investigation and determination by the Office of the U.S. Trade Representative (USTR), these procedural matters could be accomplished in relatively short order by cabinet or lesser officials, particularly since undue delay could put them at risk of getting fired.
A Word on Economics
Economics is not a science.
Real scientific explanations in the physical sciences enable us to explain, predict, and even control natural phenomena. Since the 18th century, and beginning with the French philosophes, some have argued that there are social sciences that give us a comparable social technology. Unfortunately, this reinforces our belief that all bad ideas come from France. They were and are wrong. The only people who still believe in this are academics who advocate and justify the policies of the political left, socialists. If economists were that smart, they would not be seeking tenure but operating successful hedge funds on Wall Street!
Serious students of economics think you might offer an explanation after the fact but not predict or control future events. We still have a plethora of explanations about what caused the Great Depression. Please take your pick.
There is a great deal that can be learned from history, including when context makes all the difference. And yes, sorry, Adam Smith would approve of tariffs under certain known historical circumstances. He was in fact a Britain First political economist and advocate.
Western economists reflect Western culture: a market economy consists of individual buyers and sellers seeking to maximize long-term interests and who communicate through price-signaling, the point at which they will buy or sell labor and commodities.
Eastern (Asian) economists reflect Asian culture: a market economy consists of nations (collectivist wholes) seeking to maximize collective/national long-term interests. This is why China is forever different from America.
Western economists would mistakenly characterize Eastern national collectives as mercantilist. Adam Smith allegedly critiqued or debunked mercantilism. However, what Smith debunked was a mercantilism founded on the accumulation of gold bullion. This critique does not apply to other means for obtaining a monopoly on the production of goods and services.
How does one acquire such a monopoly?
Eight ways (thank you, Peter Navarro, even though The Economist magazine wrote that Navarro “is a prolific writer but has no publications in top-tier academic journals”): (a) control labor costs with few laws on minimum wages, workplace safety, medical and retirement benefits; – Asian cultures permit this kind of unquestioned group-think subordination; (b) ignore Western environmental concerns; (c) manipulate currency, that is, keep your currency undervalued [opposite of acquiring more gold bullion] by constant selling of it and buying foreign currencies to keep the exchange where you want it; (d) extort intellectual property from Western companies seeking to gain access to Eastern markets; (e) dump products in the West at costs with which individual Western companies cannot compete; (f) Western companies go bankrupt or are bought out by Asian companies; (g) rely on Western academic economists to ‘protect’ the consumer (and ignore domestic companies and labor) by insisting on the low priced goods and not asking what happens when Westerners no longer have jobs or income to purchase; (h) exploit or bribe greedy American universities or firms to do creative research for Asian nations unwilling to encourage their own citizens to challenge established norms.
Adam Smith’s Economics
Adam Smith was an economic nationalist—one need only read the title of his famous book to realize that. It is about nations, after all. He also foretold all of our problems with the globalists’ unthinking free-trade agenda.
In 1776, Smith posited that free trade among all nations would be a good thing but was unlikely to happen: “Were all nations to follow the liberal system of free exportation and free importation, the different states into which a great continent was divided would so far resemble the different provinces of a great empire … But very few countries have entirely adopted this liberal system.” (IV.v.b, 39) pp. 538-39.
He also posited that it can be dangerous to freely trade with countries that do not reciprocate: “The very bad policy of one country may thus render it in some measure dangerous and imprudent to establish what would otherwise be the best policy in another.” (IV.v.b, 39) Translation: Disdain for tariffs is not always a good idea. They exist for a reason.
Economics, as the West understands it, presupposes a specific political and legal structure. The role of government is to enforce contracts, create and run an effective justice system, protect entrepreneurship and encourage economic development through patents and copyrights, regulate banking, and promote infant industry monopolies by means of tariffs.
No global political and legal structure has been, can be, or possibly should be created to enforce international free trade rules. China enjoys the WTO status of a developing economy—this is a joke. China breaks all the rules, and it breaks all its promises. Some of those broken promises: 1) its promise to respect Hong Kong’s common law, 2) its promise to rein in exportation of fentanyl chemicals to Mexico, 3) its promise to allow third-party audits of Chinese companies listed on U.S. stock exchanges, 4) its promise to lower tariffs, eliminate non-tariff barriers, and protect intellectual property in exchange for accession to the WTO, 5) the debt-trap terms of its promises to build infrastructure in Africa or across its Belt and Road Initiative. It manipulates its currency and uses espionage and other means to manipulate world opinion.
In Wealth of Nations, Smith argued that if one repeals tariffs and trade barriers, cheap foreign goods will replace them in the home market so quickly that it will deprive thousands of ordinary persons employment and the means to support themselves. Indeed, the flood of Chinese goods under the current one-sided (not so) ‘free’ trade policy fostered under the WTO has severely damaged the U.S. economy. Many Americans, especially those in manufacturing, have lost their employment and ended up impoverished and without hope, and not just in the Rust Belt. Even our health is endangered as so many of our pharmaceuticals are now made in China.
In addition to encouraging that goods be manufactured at home, Smith further noted that an investor should invest his or her money near their home. The reasons for this are dual: First, he can more easily see whether those who are managing his money are trustworthy and prudent; and second, if he is defrauded or deceived, he knows how to seek remedy under the law and government of his home nation. If both manufacturing and capital investment are focused on the home nation, Smith postulates providing support to the domestic industry while at the same time bringing money and revenue to the largest portion of the public. The WTO was supposed to encourage “free-er” trade, but it didn’t happen.
In sum, Smith argued in the Wealth of Nations that while global free trade would generally be a good thing, it is unlikely that all nations are likely to agree, and that some are likely to have “bad” policies, policies that are either unproductive for themselves or predatory.
China has exhibited the latter, they dump goods, cheat, and steal intellectual property. They also employ slave labor. Consequently, for the sake of a nation’s home economy, manufacturing and investment should be encouraged. Smith goes on to explain that protection in the form of tariffs should be used to protect against predatory outside manufacturers as well as to safeguard and protect local infant or essential industry.
Smith’s reasoning foresaw the WTO’s provisions allowing higher tariffs than a country originally agreed to where an industry faces unfair competition from goods that are sold below cost either because the exporting country subsidizes them to reduce the cost of production (i.e., allowing countervailing duties) or just simply sells them below cost (i.e., dumping). Smith also supported higher tariffs where they were needed either to safeguard an infant industry (see also, Alexander Hamilton’s Report on Manufacturing) or for national defense. His points on this are as follows: The appropriate use of retaliatory tariffs is to combat dumping/subsidies and increase reciprocal trade. This is precisely President Trump’s plan.
Smith argued that the imposition of retaliatory duties is likely to encourage another country to either cease dumping or lower its own high duties: “The recovery of a great foreign market will generally more than compensate the transitory inconvenience of paying dearer during a short time for some sorts of goods.” According to Smith, deciding whether the use of a retaliatory tariff is likely to be efficacious is not likely to be the province of a lawmaker, but should be the task of “that insidious and crafty animal, vulgarly called a statesman or politician,” who is more likely to be able to respond quickly to the vagaries of the market and who is skilled in the art of negotiation. (IV, ii, 38; p. 468)
Using tariffs to protect and encourage an infant or critical industry is important to national prosperity. In addition to suggesting that tariffs be used to encourage freer trade from another country, Smith also wrote that imposing tariffs on foreign imports can be used to encourage the domestic industry. While it faces serious and justifiable criticism for other things, WTO rules allow member countries to raise tariffs for both reasons.
Smith’s major economic insight is the importance of the division of labor, as poetically expressed in his pin factory. All innovation comes from the division of labor and competition. If a country fails to develop and protect an infant industry or even an established industry, then it begins to lose the capacity to innovate in that field and in related fields.
Multiplying production in a wide variety of fields, in concert with the division of labor, allows a well-governed society to grow economically and increases the quality of life for even the poorest people. Each working individual produces far more than he has need of and therefore disposes of it in exchange for a great quantity of another individual’s production or for the price of a great quantity of that other person’s work. That general plenty thereby becomes diffused through all ranks of society. (Wealth of Nations, I.i.10) As one could phrase it succinctly now, “a rising tide floats all boats.”
National defense is another area where Smith recommended the use of tariffs. In addition to using tariffs to retaliate against unfair trade from another country or protect an infant home industry, Smith argued that tariffs can be used as part of national defense. Specifically, he argues that tariffs are justified to protect industries “necessary for the defense of the country.” In his time, Britain’s shipping and banking industries were the engines that enabled it to become a great world power and defend itself against other aggressors. All the statistics in the world about the cost of tariffs are irrelevant in the face of such conflict. The fact that China was allowed through subsidization to dominate 90% of the production of antibiotics and then unleash the Wuhan virus on us should be enough to show the truth of the argument Smith made 248 years ago.
We need to ask why so many Westerners are blind to the existence of trade wars or disputes. Many journalists are blind because they deal solely in ideas acquired from Western academic economists. Journalists (such as the NY Times, Tom Friedman, among others) for the same reason are secretly enamored of the myth of social technology because it is easier to pontificate than to compete with real-life entrepreneurs who actually run a business or meet a payroll. They are more likely to accept trade-war policies if they emanate from their own Democrat party. Western CEOs are judged by ignorant investors who look only at the company’s present bottom line or whether it is climate compliant and DEI-oriented, rather than answer questions about the surrender of intellectual property. Too many corporations just lack any patriotic sympathies to the United States and run on globalist (World Economic Forum) dictates of stakeholderism. The entire financial industry suffers from a myopia akin to the French generals who fought the last war with imaginary Maginot lines rather than foreseeing that the future of war lay in air power—and now in robotics and other technological innovations.
We close with a question: What would Queen Victoria have said if told in 1894 that Britain would become a second-rate power in just about fifty years?
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Theodore Roosevelt Malloch and Nicholas Capaldi are two of the leading conservative thinkers in America. They both come from Philadelphia, the City of Brotherly Love and the birthplace of American independence. Professors and authors of many books on political economy, their book, America’s Spiritual Capital, is a testament to the economic logic of modernity and all those down the ages who have given their lives, limbs, and spirit to the defense of liberty.
