by Spencer P Morrison, NEE
Too often the tariff debate is fought along economic lines: will tariffs create jobs or will they funnel wealth into dying industries? This line of reasoning is fundamentally flawed. Economics and politics—wealth and power—are inseparable, they are two sides of the same coin. Thus, any and all analyses of tariffs that ignore their political utility is a non-starter.
The late Milton Friedman, one of America’s foremost free market economists, grapples with this nuance in Chapter 2 of his book Free to Choose. Friedman argues against tariffs on the grounds that free trade will lead to international peace. Tariffs, meanwhile, are an instrument of war.
Friedman’s logic is elegant: the more freely countries trade the more interconnected their economies grow, eventually these connections will render war redundant—if not impossible. How can Russia invade Ukraine if Ukraine makes Russia’s steel? How can America invade Vietnam if Vietnam makes America’s semiconductors? For Friedman, integration means interdependence, and interdependence means peace.
Sadly, Friedman is wrong: economic integration not only leaves America vulnerable, it actually increases the likelihood of conflict.
if ymir were hollow. . .
In 1949 the Argentine economist Raúl Prebisch published his seminal paper outlining the major tenants of dependency theory, which he thought explained Latin America’s relative economic underdevelopment. Although his theory is contested, the concept of import dependency itself is useful.
Simply put, an economy is import-dependent when it needs imports (of a critical product) to function. For example, before the advent of fracking and offshore drilling, America depended upon OPEC—especially Saudi—oil. This not only enriched the House of Saud, but it gave them a great deal of political power and leverage. America’s (former) dependence is largely why Saudi Arabia sits on the UN Human Rights Council, despite punishing homosexuals with death and funding radical Islamic organizations.
Import dependency applies not just to natural resources, but also to goods and services. Consider that America now buys most of its semiconductors, laptops, and a multitude of other technologically advanced products abroad. In fact, America ran a $110 billion deficit in advanced technology products last year. This is a problem because it tethers our technologically-reliant society to foreign lifelines, and makes it exceptionally easy for thieves to steal American technology. China alone steals up to $400 billion in American intellectual property annually—this is the price we pay for moving our factories abroad.
Import dependency also makes us vulnerable. Imagine the worst happens: China declares war on America, disrupting the world’s trade routes. Logically, America tries to scale-up its industrial production. There’s just one problem: it cannot.
To build more war materials, America needs more industrial machinery. However, we import almost all machine tools. That’s one problem. Here’s another: to build more industrial machinery, America needs industrial components (like ball bearings). But we import a significant portion of our component pieces. Anyone can see this problem compounds exponentially—the only way to solve it is to rebuild our industry root-and-branch.
Economic integration not only make us vulnerable, it also increases the likelihood of conflict. This is because it multiplies the number of potential tensions that could escalate into violence. Consider the fact that (almost) every historical war was fought between peoples who traded together—and the more they traded, the more they fought. For example, Spain and Holland fought the brutal Eighty Year’s War primarily because Spain could not afford to relinquish Holland: direct taxation was the only way Spain could mitigate their trade deficit.
Conversely, economic isolation often walks hand-in-hand with peace: until Japan opened for trade, it was one of the world’s most peaceful nations. The same was likewise true of China and the United States.
America’s 1812 (economic) Overture
Unlike Milton Friedman, America’s Founding Fathers were well aware of the problem of import dependency. After all, they experienced it first-hand during the American Revolution.
In truth, America’s revolution was almost stillborn due to industrial paucity. That is, America was unable to manufacture enough cannon, 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 Revolutionary Army that the tide began to turn. For example, the French provided the Revolutionary Armywith over 80,000 muskets, swords, and even uniforms.
It is no understatement to say that this nation owes its very independence to France’s economic might.
President George Washington knew that although the Treaty of Paris (1783) recognized American independence, his new nation was profoundly vulnerable. How could America defend herself if she could not supply her own gunpowder? How could she resist the British if England supplied her weapons and ships? 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 understood that political and economic independence were inextricably linked. 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. Perhaps these tariffs made America’s economy less efficient—but it was a small price to pay for independence.
Although Thomas Jefferson was initially critical of Washington’s plan, the War of 1812 made him a believer. America and Britain again found themselves at war, but this time America could supply its own firearms and cloth—despite Britain’s blockade. 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 [we would be well-off] . . .
Thomas Jefferson, unlike Milton Friedman, recognizes the difference between theory and reality—economics isn’t about money. It’s about power. This is the real reason America needs tariffs.
a gilded cage
Economists argue that free trade is beneficial because it gives Americans access to “cheap” foreign goods—this may well be true, but we cannot afford to ignore the political costs. Why should American companies be allowed to dodge our environmental laws by relocating their factories to China? Does this not undermine the law’s intent? What of the fact that free trade necessitates a degree of political harmonization? Are Americans comfortable with cabals of lawyers and anonymous arbitrators writing and applying 30,000-page “free trade” agreements—agreements far beyond most legislator’s technical comprehension.
Finally, we need to recognize the fact that import dependency shackles our political freedom: America’s hands are tied in East Asia because we need Chinese imports to maintain our standard of living. Our economic dependence is their political leverage. This is precisely the situation America’s Founding Fathers sought to avoid by imposing tariffs in the first place.
President Trump, like Washington and Jefferson before him, supports tariffs because he understands the link between wealth and power—and power and freedom. We should welcome tariffs even if they increase the cost of imports. After all, freedom is worth the price.
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