Tariffying foolishness

To destroy in a moment every piece of good he did, takes a calamitous idiocy. American history books are generally kind to their Presidents’ worst actions, while condemning the minor foible, which is one comfort Donald Trump may take, but whatever distant historians will relate, we are at the start of the Trump Depression.

Adam Smith would be open-mouthed at this atavism of paleo-mercantilist folly.

The reaction from actual economists is universal despair. From politicians, reaction has been a mixture – some running round and round in circles; some demanding that since Trump is burning down his own house, so we must retaliate by burning down our own. The Adam Smith Institute, ever wise in such things, cautions that we are looking at a worldwide recession, and that retaliatory tariffs would make it worse.

Richard Murphy has written:

There is literally not a shred of rationality to what he is doing. There is no point looking for it. It is not there to be found.

I ought at least to try though.

A worrying aspect is that it is not just Trump: the myth that led to this position is common amongst American politicians and the public, and it starts with the idea of ‘trade deficit’.

Over here in the civilised world, we stopped believing in trade deficits decades ago. Over there, it remains a constant theme of American discourse. “They’re killing us on trade!” is a refrain heard from all parties, apart from the Libertarians. (I am not sure what the difference between the two main American parties is, but I am in good company – most Americans do not either, and I doubt that members of the two parties do.) Trump is just doing writ large what many presidents have done before him. Obama, for all his positive points, put heavy tariffs on steel from overseas, to protect a few thousand jobs in the American steel industry – and thus made the whole manufacturing sector pay more for their raw material, costing far more jobs than he saved.

Mainland Britain has got off lightly so far, taxed at 10%, but the Falkland Islands are hit for 42%. Is the economic might of the Falkland Islands harming America – are Kelpers killing ’em on trade? No – it is the logic of the algorithm. The islands are a farming and fishing community; buying little but selling ton upon ton of wool and Patagonian toothfish. It would be as if the East Coast States were to levy a tariff on the Prairie farmers for selling the grain that feeds America without buying so much.

The United States buys more than it sells because it is successful. Taxing imports is whipping Americans for their own success, and it may destroy that very success. It is not a tax on the rest of the world – it is a tax on American consumers: so much for those pledges of lower taxes for the ordinary American.

It is hard to see what Trump wants, or all those politicians before him who have ridden the same rhetoric to destruction. One commentator suggested they are consciously or unconsciously pursuing an ideal of autarky – that self-isolating policy so beloved of such lunatic rulers as Mussolini, Hitler and De Valera. I am not convinced that any thought has gone into it at all.

Next year is the quarter-millennium anniversary of the publication of The Wealth of Nations. Adam Smith in that one book created a new understanding of how the trading world economy. Published in 1776, it was a revolution that laid the ground for the unprecedented economic growth of Britain and then the world, ensuring (after Napoleon’s last gasp of the old world) unprecedented (relative) peace as Britain and the European states became aware of how they relied on their interconnectedness. Somehow the Americans missed 1776 – possibly they were distracted – and isolated in the ocean that interconnectedness is not so obvious. Really they should put aside anything else they were going to do next year, and all read Adam Smith.