By Stephen Smoot
Two of the nation’s largest problems as it exited the 20th century lay in the burgeoning national debt and the shrinking base of manufactures.
The frenetic energy of the first hundred days of Donald Trump’s second administration reveals his grand design to fulfil the promise embroidered on countless numbers of red baseball caps given out or sold since 2016. In essence, President Trump is trying to bring about “greatness” by fixing America’s biggest problems.
First, Trump is using tariffs to restore a level playing field for American industry. Debt has been covered recently, so no need to revisit at this point.
After the Second World War, American cities churned out products that sold in almost every country in the globe. “Made in the U.S.A.” dominated the world and cities from Oakland to Detroit to Baltimore attracted people from all over to work in steel mills, automobile factories, and other heavy industry.
Over time, America’s leading competitors passed tariffs that charged taxes on goods “Made in the U.S.A.” but were sold in their countries. Japan currently charges a 46 percent tariff on United States made goods. China charges 67 percent. The European Union levies a little less that 40 percent.
During the Cold War, American leaders allowed the United States to take the hit for strategic reasons. Many of the nations that emerged as key allies against Soviet expansion had also seen their national economies devastated by the Second World War. Tariffs helped these nations to create robust economies that helped them assume a more secure and stronger position.
That said, the effect of these tariffs came at a cost that can be seen on the American landscape. Cities that grew up around industrial cores, such as Baltimore, Detroit, Gary, Buffalo, Oakland, and, closer to home, Wheeling, Weirton, and others saw their cities experience severe decline or even near complete implosion.
Restricted access to foreign markets, along with some other factors that might have been less problematic otherwise, hurt American industry considerably and left city centers filled with people who no longer had the same opportunities for good paying jobs that provided key benefits.
America bore the burden and paid the cost to allow Western Civilization to restore itself, but this also replaced a sturdy economy based on manufacturing, extraction, agriculture, and similar fields into one whose foundation is the service economy with lower paying jobs that provide few, if any benefits.
President Trump warned the world that the United States needed a better deal. In reply to inaction, he turned up the tariff temperature.
The tariffs sparked hysterical alarm on Wall Street, but fall well short of the damage done by those of other countries. China’s 67 percent tariff rate has earned a reciprocal tariff of 37 percent. A 20 percent tariff was raised against the EU, which again, charges the US almost 40 percent.
The tariffs do not approach an eye for an eye in most cases, but are calibrated to hit the other country hard enough to get them to the table to talk.
Arguments against their effectiveness come from history and also from doctrine.
The historical example often cited is the Smoot-Hawley Tariff of 1930, but the circumstances surrounding that tariff make it almost completely removed from today’s conditions.
First, Smoot-Hawley was passed as a protective tariff of American industry and agriculture to combat the onset of the Great Depression. It raised rates to an average of 40 percent across the board. President Trump’s tariffs are less protective and more aggressive, designed to get other nations to reduce their barriers against US made goods.
Presumably, when the other nations agree to lower their tariffs, the US will follow suit, introducing a freer global trade system than the world has seen in decades. American made goods would have an opportunity to compete in other major markets.
Another problem with the Smoot-Hawley comparison lies in the state of the world. Other nations’ response to Smoot-Hawley lay in pursuing policies of economic autarky, which means basically relying on ones own markets and resources for economic activity.
In 1930, the world was in the final decades of a unique condition that has only occurred once in history and likely never will again. The majority of the surface of the globe was held by either continental sized powers or global colonial empires. For example, Great Britain exercised sovereignty over 25 percent of the land surface of the globe while its Royal Navy controlled the oceans. France, the Netherlands, Belgium, and even Portugal controlled vast areas with significant natural resources and markets to sell finished goods.
Germany, Italy, and Japan embarked on hostile paths against other nations to construct a similar economic base through conquest.
Meanwhile, the United States, Soviet Union, and the Republic of China possessed vast spaces of contiguous land that provided similar advantages as a colonial empire.
Smoot-Hawley kicked off a world drive toward autonomy that deepened the Depression. The list of nations that could pursue such a policy today numbers four – the United States, Red China, India, and perhaps the European Union if it can abandon its industry killing green regulations.
Others attack the President’s tariff policy out of doctrinal reasons. For conservatives Adam Smith’s Wealth of Nations, published in 1776, represents near secular scripture when it comes to economic ideals. Smith wrote the book in part as an explanation of why the heavily regulated and highly tariff centered European mercantilist system held back growth and development.
Smith did argue against tariffs, but included caveats on when a nation should employ them.
“There seem to be two cases in which it will generally be advantageous to lay some burden upon foreign, for the encouragement of domestic industry,” wrote Smith.
First, he stated “is when some particular sort of industry is necessary for the defence of the country.” Smith cited shipping as one area where Britain was right to impose tariffs and restrictions.
One example is Britain passing a law that required bulky items to be brought only in ships flying the flag of the nation that produced the good. Smith notes that this was likely a reciprocal act – much like President Trump’s tariffs, that retaliated against the Netherlands for barring access to British trading vessels.
To put it in more modern terms, Adam Smith is against tariffs but does not advocate that a nation in the face of restrictions against it merely say “Thank you sir, may I have another?”
“The second case,” argues Smith, “in which it will be generally advantageous to lay some burden upon foreign for the encouragement of domestic industry, is, when some tax is imposed at home on the produce of the latter.”
He went on to explain that such a tariff “would only hinder any part of what would naturally go to it from being turned away by the tax.”
Smith’s entire point lies in the notion that goods and services, unless there is an extreme need for it, ought not be channeled by regulations, tariffs, or other burdens in an “unnatural direction.”
The natural direction of goods created by the most productive and efficient economy on earth is to both the domestic and also to less efficient foreign markets. Foreign tariffs on US made goods – which serve as a dam against a flood of American made products – create an unnatural economic dynamic that has kept foreign nations from maximizing efficiency while at the same time contributing hundreds to US manufacturing’s death by a thousand cuts.
Thus creating a situation where President Trump’s tariffs act not against Adam Smith’s ideal of a world with as purely free trade as is possible, but in service of it.
