by Spencer P Morrison, NEE
the wisdom of irony
The Democratic People’s Republic of Korea (North Korea) is not democratic—it’s barely even a republic. The same goes for the Democratic Republic of the Congo, and the Lao People’s Democratic Republic (Laos).
In fact, if a country includes democratic in it’s name, you can safely assume that it’s not democratic. This is a classic example of, what I like to call, the wisdom of irony: things are often not what they claim to be, and the more they claim, the less they are.
Consider Reason Magazine. In a recent piece, columnist A. Barton Hinkle argues that tariffs are sanctions, since both limit imports into nations. Basically, Hinkle’s argument rests on the classic logical principle: “if it looks like a duck, it’s a duck.” Unfortunately, Hinkle’s conclusion is fundamentally unreasonable. As always, the Devil’s in the details—details which he conveniently ignores.
strength through adversity
Hinkle begins with a hubristic bang:
No one would ever accuse Donald Trump of meticulous adherence to the rules of formal logic. But even the president ought to realize the strongest argument against Trump’s tariffs on American imports has been made by Trump himself.
Trump’s implied “argument” runs as follows: both sanctions and tariffs restrict imports to the targeted nation. Therefore, since sanctions harm foreign nations (like Iran), then tariffs should likewise harm America. Basically, Hinkle thinks sanctions are tariffs, and tariffs are sanctions.
Hinkle then brands yours truly as one of “Trump’s cheerleaders” for making the rather obvious point that technology drives economic growth, and moving technology-generating industries abroad will slow domestic economic growth. This point is axiomatic and not open to debate. I suspect this is why Hinkle avoids addressing my argument entirely, and instead turns to sophistry, reframing the debate by conflating sanctions and tariffs.
Hinkle’s first mistake is to assume that sanctions cause harm. Often, they don’t. Instead, minor sanctions routinely trigger hormetic responses, causing economic growth. This is because the economy is an organic system, which benefits from stress (to a point) due to the principle of overcompensation. Just as muscles get stronger in response to the stress of lifting weighs, or forests grow more lush in the wake of forest fires, economies get more productive when times get tough (but not too tough).
For example, Great Britain’s Industrial Revolution would likely have been stillborn if not for the French Revolution and Napoleonic Wars. Were it not for the labor shortage caused by war, there would have been far less demand for the productivity-boosting machinery that created the modern world. Likewise, Napoleon’s blockade of the British Isle forced Britain to become economically independent, rather than relying on imports from the Netherlands and Hanseatic States. This greatly diversified Britain’s economy, and opened up additional development paths. Were it not for these stressors, steam technology could have been abandoned in favor of human labor—just as it was in Ancient Greece, Rome, and China.
Of course, sanctions can also be damaging—but only when the damage they cause exceeds the economy’s ability to (over)compensate. Consider Britain’s blockade of the German Empire in World War I. Perhaps the chief reason Germany lost was because it lacked rubber (most of which came from Anglo-French Siam). Without rubber, the Germans couldn’t build conveyor belts, many vital industrial components, and—most importantly—tires. No rubber, no industry.
There are two lessons here. First, Britain’s rubber sanctions worked only because Germany’s economy was unable to compensate fast enough. Second, Germany’s economy did compensate to some degree: the Germans invented a way to make synthetic rubber. Although this technology did not arrive in time to save Germany’s immediate war effort, it did make them immune to Britain’s rubber blockade in World War II. Overcompensation did occur, and it did make Germany stronger in the long run. So did Britain’s rubber sanctions work? Yes and no: it depends on the time-horizon.
My point here is that when debating, never accept your opponent’s presumptions without careful consideration. Hinkle’s argument only makes sense if you agree that sanctions are bad—this isn’t necessarily true. Sanctions only produce harm past a certain tipping point, otherwise they tend to stimulate economic growth. This same logic applies to tariffs.
There is wisdom in the Old English proverb: necessity is the mother of invention.
a dam is not a wall
Let’s assume that everything I’ve said until now is false, and that when America imposes sanctions they always harm our opponents. Would this vindicate Hinkle? No.
Long run economic growth depends upon technological growth—not free trade, not immigration, not low taxes, etc. Technology is the only factor that matters: it’s what separates the West from the rest, and ourselves from our ancestors (economically speaking). Understanding this is the key to understanding why tariffs won’t hurt America in the same way sanctions hurt Iran.
America invents technology and generates knowledge—America is at the cutting-edge of science. This is good, because it means we reap the lion’s share of profits from new discoveries, while everyone else plays catch-up. So long as America stays at the cutting-edge, we will remain the world’s richest nation.
However, many of America’s most advanced industries are currently moving abroad to save money. After all, labor is cheaper in India, and China’s government provides generous subsidies for American firms to relocate. This is a problem, because it decreases the likelihood that the next paradigm-shifting technology will be invented in America. By increasing import costs, tariffs prevent American companies from leaving, thus “locking-in” our advantage.
Tariffs are best viewed as a dam, keeping America’s economic advantage from flowing away.
On the other had, sanctions are best viewed as a wall, preventing American technology from flowing into less advanced nations. Take Cuba, for example. Cuba is a technological backwater—something like a poverty-stricken 1950’s movie set. Since they cannot generate their own new technology, they rely on imported technology. No imports, no economic growth. The same thing applies to Iran (to a lesser degree).
Hinkle, and the rest of the free trade brigade, fail to recognize this rather obvious asymmetry: Cuba needs America, but America does not need Cuba. Thus, American sanctions will harm Cuba, but American tariffs on Cuban goods will not harm America. It’s a one-way street. In fact, tariffs will actually benefit America’s economy by providing a minor stressor that will trigger a hormetic response, and preventing America’s advanced industries from offshoring.
That Hinkle and the editors at Reason would unreasonably confuse tariffs with sanctions is not surprising—after all, there is a wisdom in irony.