A lot of people are very confused about what Trump is doing with tariffs.
This is partly because he has not given a full explanation of what he is doing (for tactical reasons) and partly because people don't know history.
Especially for younger people, used to a globalised world with minimal tariffs, it seems like the world has been turned upside down.
Tariffs on Canada & Mexico!!
But actually it is the last 30-40 years of globalisation that has been the aberration.
Tariffs are important and normal tools of State Policy
Tariffs are normal tools that nation states have used to advance their national interests for thousands of years.
It is important to note at the outset that tariffs are NOT simply a tool to create the best economic outcomes - they are a tool to create the best OVERALL outome in a nation's interests. This includes economic, military and social outcomes.
Some history
I remember from my Australian history lessons back in the 1980s that the main political parties at Federation in 1901 were the pro-tariff
Protectionist Party which produced Australia's first two Prime Ministers and the anti-tariff
Free-Trade Party.
Edmund Barton, one of Australia's Founding Fathers, First Prime Minister and founding Justice of the High Court of Australia was a staunch protectionist, advocating extensive tariffs and this policy remained in place in Australia for most of the 20th century.
The United States also has a
long history of Protectionism.
The Costs and Cenefits of Globalisation
Globalisation and the removal of tariff and non-tariff barriers to free trade (the guiding animus of the
World Trade Organisation (WTO)) has reduced the cost of goods and services by allowing them to be produced in the countries that can do so the cheapest. This has arguably increased overall economic growth in the world by making the global economy more efficient and has allowed poorer countries to raise themselves up.
But globalisation and the removal of widespread tariffs has led to countries like the US, Europe and Australia exporting whole industries and masses of jobs to low wage countries. This has had serious negative consequences for those countries:
The US, Europe and Australia have been partly (US) or wholly (Europe & Australia) deindustrialised and lost the ability to wage large scale industrial warfare. Once the USA was "
The Arsenal of Democracy", no longer. The US & Europe combined can't much even Russia's weapon's production, let alone China's. This is a huge problem because
Big War is Back.
It has impoverished the lower and middle classes (particularly men) who used to have well respected, satisfying and well paid jobs making things. Things cost less today, but most people have less money to spend. Only the rich have greatly benefited from globalisation. This has serious social consequences.
It has removed an important and nuanced tool of statecraft to reward allies and punish adversaries. Sanctions - using trade bans to acheive political goals - are a blunt instrument that often backfire. Tariffs can be much more nuanced and carefully calibrated instrument which take economics and national security questions into account.
It has allowed a globalist parasite class to take over countries and undermine democracy and freedom across The West. Romania's cancelled Presidential Election and the arrest of the leading candidate on bogus charges being just the latest example.
It has allowed China to develop into a strategic competitor to the USA.
So while globalisation has been great for China and the Western Elites, it has not been good for the average American or the United States itself.
This is why Trump is trying to reverse Globalisation and destroy the Globalists that almost succeeded in destroying America.
The Demographic Issue
Nations should always play to their strengths and although the United States has sufferred serious de-industralisation and has a huge debt problem, it does have one major economic strength.
The USA is the biggest consumer market in the world and will continue to be so. By biggest I mean in spending power.
There is a massive global fertility crisis with birthrates far below replacement level in the entire developped world, except Israel.
But the US is in much better shape than all other advanced economies (except Israel) because it only dropped below replacement TFR in 2008 and is still at a TFR of 1.6. By contrast much of Europe fell below replacement in the 1970s and 80s & East Asia in the 1990s. Their TFRs are well below 1.6 (except France).
This means the US will maintain its large consumer base with only small declines (which can be offset by carefully managed legal immigration) over the next few decades whereas the wealthy consumer bases elsewhere in the world are collapsing rapidly.
This means Trump is not turing the US into North Korea by imposing tariffs and could indeed fund the Federal Goverment more from tariffs than taxes. All the production in the world needs to find wealthy consumers to buy their products and other markets are drying up.
The US can both re-industrialise, forcing companies to move manufacturing back to the US, and still buy tariffed goods from overseas because it has the market to support it.
Other countries face major problems from Trump's tariffs because they don't have sufficient domestic and non-US overseas markets for their goods and will just have to wear the tariffs.
Having a good Free-Trade Agreement with the US and being a valuable ally that pulls their weight militarily will become far more rewarding than in the past.
Those that don't will suffer badly.
The Theoretical Underpinings of Trump Econonomic Policy
Lest anyone think that Trump is jut riffing it on tariffs, here is a detailed paper by Stephen Miran, recently appointed by Trump as the head of his Council of Economic Advisors.
It seems likely that Trump is implementing these ideas.
The paper has some interesting thigns to say about the US dollar's reserve currency status that are relevant to crypto.
I will write another post on this.
