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The Political Case for Tariffs
The Financial Times accuses President Trump of suffering from an odious, if tongue-in-cheek malady called trade deficit disorder (TDD). The symptoms? A bizarre and unjustified desire to impose tariffs, thereby ensuring America sells as much as it buys on the international markets.
Of course, Trump is not suffering alone with this malady: many prominent billionaires from Carl Icahn to Warren Buffet have it, too—along with a majority of the American public. This raises the question: why the disconnect over tariffs between academics and businessmen, the media and the public?
In a word: myopia.
Economists and media pundits think inside the box, looking at the potential impact of tariffs on America’s economy. However, they neglect the bigger picture: raw economic growth is not the exclusive, or even primary objective of statecraft. Preserving America’s national security, and freedom are far more important, and worthy goals. And therein lies the justification for tariffs—they are an economic means to a political end, and this is why economists fail to understand their value. They are naïve.
Have you ever heard of import dependency? The concept is simple but important. Basically, it is when a country depends upon imports of a critical product, without which it would collapse. A good example is the United States and oil. Before the advent of fracking, offshore drilling, and the exploitation of unconventional reserves in Canada, America depended heavily upon Saudi Arabia’s oil. This gave the Saudis not only wealth, but leverage and power. It is why Saudi Arabia sits on the UN Human Rights Council, despite punishing homosexuals with death, and why they are considered a strong American ally despite funding radical Islamic terror groups.
Of course, import dependency not only applies to natural resources, it also applies to manufactured goods. For example, China supplies America with the vast majority of its semiconductors, laptops, and a multitude of other random products—many of which are technologically advanced. Because of this, we depend upon them more than we like to admit. This gives China leverage, and it is why Beijing can act with virtual impunity in Tibet (light scoldings do not count), Africa, and the South China Sea—to say nothing of the situation in North Korea. We need the Chinese and they know it. The bottom line: import dependency hamstrings our foreign policy.
It was not always like this. America used to understand the link between economic and political independence. America used to be free.
The lesson was first learned during American Revolution, which was almost stillborn because of insufficient colonial industry: we were unable to manufacture enough cannons, muskets, and gunpowder to resist the British (our former supplier). It was only when other European powers, particularly the French and Dutch, began supplying the Continental Army that the tide began to turn. For example, the French provided the Continental Army with more than 80,000 muskets, swords, and even uniforms.
America’s first president, George Washington got the message. He recognized that the fledgling republic was vulnerable. How could America defend herself if she could not supply herself with gunpowder? In Washington’s own words:
A free people ought not only to be armed, but disciplined; to which end a uniform and well-digested plan is requisite; and their safety and interest require that they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies . . .
Washington observed that political independence depended upon economic independence. To this end, his first major piece of legislation was the Tariff Act of 1789, which raised taxes on imported manufactured goods, thereby encouraging American industry. Maybe these tariffs made America’s economy less efficient, but they were invaluable in political terms.
Washington’s tariff policy paid off during the War of 1812, when the United States and Britain again found themselves at loggerheads. But this time, America made its own muskets and cannons, despite Britain’s naval blockade. America was self-sufficient. America was safer. At this point even the famous free-trader President Thomas Jefferson recognized the wisdom of Washington’s tariffs. In a letter from 1816, Jefferson admitted:
. . . experience has taught me that manufactures are now as necessary to our independence as to our comfort: and if those who quote me as of a different opinion will keep pace with me in purchasing nothing foreign where an equivalent of domestic fabric can be obtained, without regard to difference of price it will not be our fault if we do not soon have a supply at home equal to our demand, and wrest that weapon of distress from the hand which has wielded it. . . .
Jefferson recognized the difference between the ideal and the practical, between theory and reality. While free trade, and trade deficits, with the developing world may make sense in a vacuum, the real world is more complicated. Today, the United States faces a problem with so much of its military equipment made overseas or reliant upon foreign sources. What happens when our guns come from foreign suppliers?
When we manufacture our semiconductors in China we are not simply getting a “good deal” as economists would have us believe, we are also gifting China our latest technology, building up the Chinese computer industry (which is our future competition), and giving them political leverage over us. And do not be naïve: China plays hardball. If they have leverage, they will use it.
Without economic independence, there is no political independence. President Trump, like Washington and Jefferson before him, understands this fact, and it is why he is right on trade and domestic manufacturing. America should always come before blind ideology. It is time to reconsider tariffs.