August 20, 2019 by Anders Ingemarson
Both long before and during the current administration, SEPARATE! has been a voice of reason in the trade policy debate (here, here, and here). We have steadfastly argued not only the practical folly but also the immorality of tariffs, subsidies and trade related regulations.
Despite our well-connected readership the message doesn’t seem to have reached the White House. So here we are, with the Trump/Navarro/Lightizer troika playing trade policy cat and mouse with China (who’s the cat and who’s the mouse to be determined), while the damaging effects of tariffs both imposed and threatened predictably slowing the economy and reaching the pocketbooks of Americans.
Throngs of economists and political scientists have correctly explained the folly of a trade war. They point to the failure of past protectionist measures such as the Smoot Hawley Tariff Act signed into law by Republican president Herbert Hoover in 1930. The act and subsequent retaliatory tariffs by America’s trading partners caused a reduction in American exports and imports by more than half the next three years. This in turn deepened the Great Depression by raising both prices and unemployment. And by fueling nationalistic protectionism around the world, the act was a contributing factor to the outbreak of World War II.
Less discussed than the devastating practical implications of trade barriers—import and export tariffs, subsidies, and regulations targeting foreign competition—is the immorality of protectionism.
Every tariff levied on, every subsidy granted to, and every regulation preventing entry of a product or service violates our inalienable individual right to trade freely with our fellow men at home and abroad (with a couple of foreign policy related exceptions limiting trade with nations that we are at war with). A tariff violates the rights of every person involved in producing, getting to market, and consuming the tariffed product or service. A subsidy granted to a business for whatever reason violates the rights of the taxpayers who are forced to foot the bill, and of other businesses forced to compete on unequal terms with the recipient of that subsidy. And regulations openly or covertly targeting foreign entities violate the rights to do business on equal terms with U.S. based companies.
It is perfectly moral for our President to use his position to put pressure on other countries to lower their trade barriers and other individual rights violating protectionist policies as long as it does not violate the individual rights of Americans. For example, membership in a military alliance with the United States could be made conditional upon the removal of trade barriers.
Our current bi- and multi-lateral trade agreements are a mix of free and unfree trade. Withdrawing from existing (NAFTA, to be replaced by USMCA) or refusing to ratify new (TPP) trade agreements is moral on two conditions: (1) that the withdrawal does not reintroduce trade barriers that were removed as part of those agreements, and (2) that trade barriers introduced by those agreements are discontinued as part of the withdrawal.
But it is immoral to retaliate against other countries by (1) imposing new, or (2) reintroducing old, rights violating protectionist policies on products and services flowing in and out of the United States, be it in the form of tariffs, subsidies, or protectionist regulation.
Other countries’ refusal to remove trade barriers does not give moral justification to U.S. retaliatory measures. We should loudly advertise the immorality of other countries when they tax and regulate their citizens and prevent them from getting the best deal available on imported goods. But retaliation is still a violation of the individual rights of Americans, and two wrongs don’t make a right.
Our best trade policy is to lead by example at home. We should reinforce the protection of individual rights by unilaterally removing protectionist measures such as tariffs and subsidies. We should reduce tax rates to attract businesses and capital from around the world; the corporate tax cuts of 2017 were a step in the right direction but should be followed by more; ideally, we should lay out a path to eliminating them all together. And we should continue to repeal regulations that force American companies to move abroad in search of a better business climate and that prevent foreign companies from entering the United States.
To allow those dependent on current tariffs and subsidies some time to adjust, a transition period of let’s say five years may be advisable, with for example a 20% reduction in absolute terms each year.
The result will be a massive boost to the American economy that expands the United States’ slice of the ever-growing world GDP pie leaving other countries in catch-up mode. As they see our policies bearing fruit, and as the demands for cheaper goods and services increase at home, they will start to follow our example and become less protectionist.
The business climate improved after Mr. Trump took office but has taken a hit since the China trade war escalated. His administration and Congress deserve credit for the limited tax and regulatory reforms that have been signed into law. Let’s not reverse the gains by re-introducing immoral, individual rights violating protectionist measures.
Mr. Trump has an opportunity to make America great again by showing confidence in the proven power of individual Americans to generate immense wealth when left free to trade with the world without interference. Unleashing this force, he would have nothing to fear from China; like all command economies China is her own worst enemy, and would be left in the dust until she realized the destructive effects of her protectionism and started to copy the U.S. free trade policies that left her behind in the first place.