The conventional wisdom, at least for the last 70 years or so, strongly supports international free trade. It is rarely questioned, and the leaders of both political parties lock ranks when the doctrine is challenged. Those old enough to remember may recall Al Gore mocking Ross Perot in 1992 during their great NAFTA debate by using a photograph of the authors of the Smoot-Hawley Tariff, which supposedly ushered in the Great Depression.
Last fall, when Trump called himself a “Tariff Man” and promised to push hard against China, the experts responded with increasingly dire warnings. Former Clinton Labor Secretary Robert Reich, wrote, “Your tariffs could put us into a recession. The world’s other big economies are slowing, too. In 1930, Congressmen Smoot and Hawley championed isolationist tariffs that Herbert Hoover signed into law. They deepened the Great Depression.” Jibran Khan, writing in National Review in September, described the president as an “executive run amok.” Repeatedly, we were told by the business press that tariffs would cost American jobs.
It’s hard not to notice that we never heard any such Cassandra-like warnings when middle-class wages remained stagnant for decades or the Midwest became the Rust Belt, but when it comes to tariffs and free trade, the elite pipes up and speaks with one voice.
Instead of dire results, and in spite of some wobbling in the equities markets, we learned that December was one of the biggest months of job creation on record: 312,000. This far exceeded expectations and included a particular rebound in productive fields like manufacturing and construction.
Economic Science is Not Very Scientific
Economists, free trade zealots, and the establishment will counter by saying something to the effect of: “well, other things being equal, the news would be even better without these tariffs.” This is more incantation than argument. Moreover, this formulation exposes a real defect in the economic conventional wisdom—namely, that the science of economics as a whole is not terribly empirical. I could just as easily say, “Well, maybe it would have been worse.” This kind of irrefutable appeal to some settled axiom of economics is raised on every debatable point of economic policy when real world numbers do not fit the theory.
It is almost impossible for economics to be completely precise, particularly at the macroeconomic level, because so many things are happening at once. We never have a pure free market, and at any given time other factors like innovation, interest rates, taxes, regulations, culture, “animal spirits,” and much else affect the economy, as do the actions of our foreign competitors. But history and economics should not be separated simply because history so often discredits the oh-so-obvious deductive economic wisdom of our elite. Our theories should be drawn from and be refined by facts and events, rather than torturing reality to fit the theory.
Large periods of U.S. history were characterized by high tariffs, particularly the late nineteenth century, when America became an economic and world power. The post-World War-II era was one of comparatively low tariffs, but the United States was also a net exporter at the time, benefiting from the widespread destruction that hobbled our competitors.
And let’s consider the recent history of China. China has enjoyed an economic growth rate two or three times greater than that of the United States for several decades, and its economy is notoriously protective.
All the numbers and charts of economics give it the patina of a science. But, unlike real science, its predictive power is meager. Its theories are not always rooted in firm empirical data—nor are they revised to accommodate troublesome data—and its policy prescriptions suffer accordingly.
Indifferent to National Welfare
Economics—the bridge between pro-business Republicans and centrist, neoliberal Democrats—also conceals a great number of controversial moral judgments.
The “welfare economics” behind free trade do not distinguish between gains to foreigners and gains to one’s citizens. For economists and the media, growth is growth. At their Olympian heights, most economists cannot be bothered to distinguish the welfare of one’s own country versus that of the whole world. This may be admirable in some abstract calculation, but it is a controversial moral judgment on the worth of one’s own people masquerading as scientific objectivity. The question for an American president should be whether a policy helps the United States and its people, not whether it increases global economic efficiency.
In addition to their problematic, hidden value judgments, free-trade fanatics ignore two important matters that may be deemed “meta-economic.” One is close to home, and the other across the oceans. At home, measuring the “growth of the GDP” gives the same weight to five dollars spent on a trinket and five dollars spent on a wage. But we know that the cliff of joblessness is far more costly than employed people having to spend more on towels at Walmart. A job is the key to self-respect and good citizenship, particularly for men, whose structural unemployment is devastating to communities and fatal to the formation of healthy families.
At the same time, much of life has nothing to do with economics—or at least it is not captured by measures of economic exchange. The economy itself depends on these structures, which are sometimes called “social capital.” Citizens benefit from stable families, reliable neighbors, bonds of trust, common habits, a common language, and the ability to help one another without having to reach for their wallets or introduce the power of the state. Economic measures like the gross domestic product do not capture the value of depending on the neighbor to watch your kids while you head to the store, volunteering to plan a block party, or a local hardware store sponsoring the little league.
Free trade fanaticism is an extension of the rationalist impulse that seeks to maximize measurable economic efficiency, while recognizing no important qualitative differences from scale, to include the scale of multinational corporations and an itinerant global workforce. But Amazon hasn’t ever sponsored a Little League baseball team, so far as I know. And it does matter to the nation whether GDP growth consists mainly of marginal reductions in prices for goods, while eliminating gainful employment in entire regions of the country while undermining locally owned businesses more generally.
Economics also affects the country’s collective independence. A wealthy, rising country can use a growing economy to increase its military power. Its military power can, in turn, be leveraged to increase its economic advantage. The United States, of course, notoriously did this in the Banana Wars, strong-arming the weak nations of Central America into giving access and favors to connected American businesses. Today that rising power is China.
China is advancing on all fronts, and our short-sighted, condition-free provision of a large market for its exports has had much to do with it. In other words, the market price of those cheap Chinese televisions and consumer items may not reflect their true cost, which will include Chinese-dictated restrictions on America’s ability to pursue its relations with other nations without interference.
No One Even Tried Before
Trump’s tariff policy is ultimately restorative. It restores the balance between international finance and domestic manufacturing. It restores our country’s ability to be independent by preserving necessary industries like steel refining on which our national defense depends. It restores jobs to the country’s interior and wages to American workers, even if it may have some marginal impact on our mega-wealthy coastal centers.
Maybe most important of all, it undoes the Clinton-Bush-Obama myth that a wealthier and stronger China was simply an inexorable phenomenon, rather than the product of an unimaginative and short-sighted policy that does not incorporate new facts.
Trump’s combination of tax cuts, deregulation, and tariffs have shown it can be done. It’s pretty obvious that when it came to restoring balance with China and the world more generally, no one ever really tried before Trump. Our elites believed the theory that liberal trade policy would liberalize China, even as the facts have shown it has become more repressive domestically and more aggressive internationally.
Trump benefits from having been an actual economic participant rather than a merely academic one. Actual competition includes a great many inchoate lessons about when to apply and when to relieve pressure, when to fight and when to back down, and when to pick a battle, and when to walk away.
Economic theory has its uses. The best economics teaches us the unintended consequences of well-meaning policies. But just as a cookbook won’t turn someone into a great chef, thoughtless repetition of Economics 101 will not ensure our prosperity and power. As the saying goes, “A young man knows the rules, and an old man knows the exceptions.”
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