In the midst of an election campaign, Australia is awaiting the expected announcement tomorrow morning of Donald Trump’s new scheme for tariffs on America’s trading partners – billed, with his unerring talent for the wrong phrase, as “liberation day”.
If you have any money in equities you’ll have already seen some of the effects of Trump’s protectionism, with global sharemarkets dipping sharply in the last month or so. Tariffs are one subject on which economists share a rare unanimity: monetarists, Keynesians, Austrians and pretty much everyone else will all tell you that Trump is talking nonsense.
Because tariffs benefit producers at the expense of consumers, and benefit particular favored industries at the expense of the rest, they are popular with politicians who want to be seen as pro-business. That’s one reason why their traditional home has been with more conservative parties. Throughout the nineteenth century and well into the twentieth, the political equation in almost all countries was clear: the right was more protectionist, the left favored free trade.
There was another reason as well. Tariffs weren’t (and aren’t) just about protecting industry; they also raise revenue for governments, and they do so in a regressive way. The burden falls more heavily on the poor, and parties of the right tend to like that. If they weren’t getting tariff revenue, they might have to levy taxes on land or income instead, which their wealthier supporters would have to pay.
There’s a tension between the two objectives: to the extent that tariffs actually succeed in stopping imports, they won’t raise much revenue. This can lead to protectionists often sounding incoherent as they promise incompatible things. But in practice they generally settle for a mix of the two; some consumers switch to domestic products, while others persevere with imports and pay extra for the privilege.
The ruinous effect of tariffs on the world economy in the 1930s convinced a lot of people that freer trade was desirable, so the second half of last century was mostly a period of liberalisation. At the same time, however, some of those on the left had stopped believing in economics, so protectionism (sometimes in the guise of “creating employment”) gained a foothold there. That was particularly the case in Australia, which, most unusually, had produced a left-wing protectionist party under the leadership of Alfred Deakin in the early 1900s.
So by the 1980s there’d been a reversal of form. With Ronald Reagan as president, the Republican Party abandoned its historic protectionism and embraced free trade, opposed by many of the Democrats. And centre-right parties and pundits across much of the world did the same, helped by the fact that with taxes on goods and services (such as Australia’s GST) they now had an alternative way of raising revenue without disproportionately taxing the rich.
It was never likely to last. Even the US, for all of its self-image as the land of freedom, remained more protectionist than most other developed democracies. The Fraser Institute’s rankings for economic freedom, for example, put it in fifth place overall but in 53rd place for “freedom to trade internationally”. The Heritage Foundation’s similar Index of Economic Freedom has it way down at number 68 for “trade freedom”. In each case the hated liberals of the European Union do much better.
Now Trump is on a mission to return his party to its roots. He has met some resistance; investors know that a trade war will be bad for business, and media that cater to the business community, including even News Corp, have engaged in what for them is unusually strong criticism. Genuine free marketers, such as the Cato Institute, have continued to highlight the folly of protectionism.
But much of the right-wing ecosystem, for whom Trump can do no wrong, has obligingly stood itself on its head and abandoned its recent flirtation with free trade. The aforementioned Heritage Foundation, for example, now calls tariffs “a tool of statecraft that can level the playing field,” and derides free traders as “globalist elites” (can “rootless cosmopolitans” be far behind?). Its Australian counterpart, the Institute of Public Affairs, also once a proponent of free trade, has also gone full Trumpist and offered only the mildest criticism of Trump’s tariffs.
The left, on the other hand, terrified of challenging the Trumpist agenda on things like immigration or identity politics, finally has an opportunity to talk about economic issues. Unfortunately for it, opposing tariffs means accepting the logic of the free market, which many of its key figures are distinctly uncomfortable about.
What both sides need to understand is that freedom is a package, and that authoritarianism cannot be neatly contained in one department. Those who attack personal freedom will eventually come for economic freedom as well, and vice versa; those whose politics is based on xenophobia will resist imports as well as immigrants, and terror unleashed on foreigners will one day target domestic opponents too.
.
PS, 9 April: Don’t miss Noah Smith on the subject, arguing that Democrat hostility to free-market policies (or “neoliberalism”, as he calls it) is hampering their ability to attack Trump’s tariffs. As he puts it, tongue in cheek, “After this is all over, if Americans decide that ‘anti-neoliberalism’ means tariffs, they will build shrines to Milton Friedman in their front yards.”
The World is Not Enough 
Ronald Reagan November 26, 1988
My fellow Americans:
This week, as we prepared for Thanksgiving, Canada held an important election, and I’m pleased to again send my congratulations to Prime Minister Mulroney. One of the important issues in the Canadian election was trade. And like our own citizens earlier this month, our neighbors have sent a strong message, rejecting protectionism and reaffirming that more trade, not less, is the wave of the future.
Here in America, as we reflect on the many things we have to be grateful for, we should take a moment to recognize that one of the key factors behind our nation’s great prosperity is the open trade policy that allows the American people to freely exchange goods and services with free people around the world. The freedom to trade is not a new issue for America. In 1776 our Founding Fathers signed the Declaration of Independence, charging the British with a number of offenses, among them, and I quote, “cutting off our trade with all parts of the world,” end quote.
And that same year, a Scottish economist named Adam Smith launched another revolution with a book entitled “The Wealth of Nations,” which exposed for all time the folly of protectionism. Over the past 200 years, not only has the argument against tariffs and trade barriers won nearly universal agreement among economists but it has also proven itself in the real world, where we have seen free-trading nations prosper while protectionist countries fall behind.
America’s most recent experiment with protectionism was a disaster for the working men and women of this country. When Congress passed the Smoot-Hawley tariff in 1930, we were told that it would protect America from foreign competition and save jobs in this country — the same line we hear today. The actual result was the Great Depression, the worst economic catastrophe in our history; one out of four Americans were thrown out of work. Two years later, when I cast my first ballot for President, I voted for Franklin Delano Roosevelt, who opposed protectionism and called for the repeal of that disastrous tariff.
Ever since that time, the American people have stayed true to our heritage by rejecting the siren song of protectionism. In recent years, the trade deficit led some misguided politicians to call for protectionism, warning that otherwise we would lose jobs. But they were wrong again. In fact, the United States not only didn’t lose jobs, we created more jobs than all the countries of Western Europe, Canada, and Japan combined. The record is clear that when America’s total trade has increased, American jobs have also increased. And when our total trade has declined, so have the number of jobs.
Part of the difficulty in accepting the good news about trade is in our words. We too often talk about trade while using the vocabulary of war. In war, for one side to win, the other must lose. But commerce is not warfare. Trade is an economic alliance that benefits both countries. There are no losers, only winners. And trade helps strengthen the free world.
Yet today protectionism is being used by some American politicians as a cheap form of nationalism, a fig leaf for those unwilling to maintain America’s military strength and who lack the resolve to stand up to real enemies — countries that would use violence against us or our allies. Our peaceful trading partners are not our enemies; they are our allies. We should beware of the demagogs who are ready to declare a trade war against our friends — weakening our economy, our national security, and the entire free world — all while cynically waving the American flag. The expansion of the international economy is not a foreign invasion; it is an American triumph, one we worked hard to achieve, and something central to our vision of a peaceful and prosperous world of freedom.
After the Second World War, America led the way to dismantle trade barriers and create a world trading system that set the stage for decades of unparalleled economic growth. And in one week, when important multilateral trade talks are held in Montreal, we will be in the forefront of efforts to improve this system. We want to open more markets for our products, to see to it that all nations play by the rules, and to seek improvement in such areas as dispute resolution and agriculture. We also want to bring the benefits of free trade to new areas, including services, investment, and the protection of intellectual property. Our negotiators will be working hard for all of us.
Yes, back in 1776, our Founding Fathers believed that free trade was worth fighting for. And we can celebrate their victory because today trade is at the core of the alliance that secure the peace and guarantee our freedom; it is the source of our prosperity and the path to an even brighter future for America.
Until next week, thanks for listening, and God bless you.
https://www.reaganlibrary.gov/archives/speech/radio-address-nation-canadian-elections-and-free-trade?
LikeLiked by 1 person
A measure of how far the Republican Party has moved, in more ways than one.
The 1988 Canadian election was particularly interesting because the Liberals had abandoned their traditional support for free trade in an effort to capitalise on anti-Americanism. They lost badly, especially in Quebec, which has always been more supportive of the US as a counterweight to the anglo Canadians.
LikeLike
What both sides need to understand is that freedom is a package, and that authoritarianism cannot be neatly contained in one department. Those who attack personal freedom will eventually come for economic freedom as well, and vice versa; those whose politics is based on xenophobia will resist imports as well as immigrants, and terror unleashed on foreigners will one day target domestic opponents too.
I wish more people understood this point. Authoritarianism starts in one place and spreads as it tries to control as much of the political, social and economic life of a country as it can reach.
LikeLiked by 1 person