On Free Trade and tariffs
The Hudson Institute economist Irwin Stelzer penned an interesting article on trade: “Trump girds for War with EU.” I sent it around to colleagues, praising it for properly attributing an alleged Churchill quote:
No one doubts that Trump is gearing up to launch a tariff battle with the European Union. For one thing, he is set to sign a deal ending the trade battle with China, and would not be fighting a two-front war should he take on Europe which, he tweeted last week, “has taken advantage of the U.S. on trade for many years. It will soon stop”…. If the EU negotiators think they can use jaw jaw to prevent or delay war war (to borrow Harold Macmillan’s take-off on Churchill’s “Meeting jaw to jaw is better than war”), they are misreading the President…. Trump demonstrates his ignorance of the economics of trade by focusing on bilateral trade deficits. But he demonstrates his New York street smarts by selecting opponents who are relatively weak, as China was when he launched a battle to end its predatory trade practices. Now it’s Europe’s turn.
It’s not too often that Churchill is so carefully referenced. Dr. Stelzer also highlighted my book of quotations, Churchill by Himself, as his recommended reading in that column. So I sent his column to colleagues, saying, “It sweetens his kind gesture by the fact that I agree with him.”
Challenge and riposte
This cost a remonstrance over my Churchillian credentials. A friend wrote:
Tariffs are a tax on domestic consumers, not foreign exporters. It’s crony capitalism for those domestic industries being “protected.” Churchill’s early mentor, Bourke Cockran, understood that; so did his protégé. So sad that someone otherwise so knowledgeable about WSC as you still doesn’t get it! Perhaps a re-read of For Free Trade might help you regain our hero’s wisdom? “Wise words, Sir, stand the test of time.” I saw that in a movie somewhere. [He refers to Young Winston.]
Uh-oh. My day in the barrel? But “never give in, except to convictions of honour and good sense”:
Churchill wrote For Free Trade…
As Conservatives we are convinced that an effective measure of protection for British industry and British agriculture must hold a leading place in any scheme of national self-regeneration.… Only by walking in company together can the races and states of the British Empire preserve their glory and their livelihood.
On to the End
Irwin Stelzer comments
In asking permission to quote him, I showed Dr. Stelzer my words above and asked what he thought. He replied:
You’ve got it right. After all, Trump did not initiate trade wars; they were in place for years. It’s just that America was a non-combatant victim, eschewing Adam Smith’s advice.* If Trump is telling the truth—that his tariffs are a means of getting those in violation of world trading rules to the table so that trade will end up freer and fairer—they are unobjectionable. His insistence that other countries are paying the tariffs is either stupidity or a lie. I prefer to believe it is the latter.
There is an additional problem you might consider. Free traders concentrate on efficiency and maximizing growth. They ignore the distributional consequences: there are winners and losers. The little old lady sewing sneakers in a southern factory is the loser—collateral damage. The American consumer is the winner, at least until forced to pay taxes to support the losers. Since the average unskilled worker subject to competition from cheap labor is probably poorer than the average consumer, free trade involves an income transfer from poorer to richer. Tariffs are a crude way of preventing that regressive transfer. Better to allow it to occur and spend tax money retraining and/or supporting the innocent losers.
*Adam Smith’s advice
…It may sometimes be a matter of deliberation how far it is proper to continue the free importation of certain foreign goods … when some foreign nation restrains by high duties or prohibitions the importation of some of our manufactures into their country. Revenge in this case naturally dictates retaliation … when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. —The Wealth of Nations IV, ii.