Great topic, Peter, and timely. As always, you provide data to substantiate every point of your discussion - a very intelligent and impressive feature I see in few other Substacks, so, thank you! I also agree with your ‘it depends’ assessment.
Policy-makers forget that any attempt to get around free-market mechanisms inevitably results in ‘unintended consequences’. With tariffs, you risk increases in smuggling, buying and selling on the black market, and the organized crime that prospers as a result. So, tariffs have to be thought through and applied carefully. For example, If Trump plans to Impose a high tariff on Chinese silicon chips, he could first notify domestic chip manufacturers, then give them tax credits to spur initial domestic investment, and wait to impose the tariffs until domestic manufacturers are just about up and running. Or, he could negotiate a deal with Mexico that would result in chip manufacturing there, in exchange for their increased vigilance against illegal immigration at the US/Mexico border. The key is: think it through!
And then there is the problem of increased bribery. The US doesn’t have a culture of bribery, so we forget that much of the world runs on bribery. The last time you went to get your driver’s license renewed, it didn’t even occur to you to offer a bribe to the DMV, right? That is not the case in many of the countries we do business with, and we certainly don’t want to enable a bribery-oriented business climate here!
This reminds me of an article I read in the Wall Street Journal forty years ago (back when it was still real journalism). The article was an assessment of which cities were the most expensive for western businessmen to visit, and usually it came out that Tokyo, New York, or London was most expensive. But this particular year, Lagos, Nigeria was the most expensive! Puzzling - until you looked at all of the bribes you had to pay. Any western businessman was assumed to be rich, so he or she was hit up for a bribe at every step of the visit. You had to pay a bribe to get off the plane, a bribe to enter the terminal, a bribe to retrieve your luggage, a bribe to get a taxi, and so on, all day long.
What is often downplayed is the long-term impact on US job creation and retention without tariffs. I would rather pay higher prices to see more Americans working and fewer on government assistance. At least if they are working they are being productive and are contributing to the tax base rather than taking from it. The low unemployment rates being reported the last couple of years are driven by growth in government jobs, not in the private sector, and since the government does not produce and sell goods and services (well, not YET anyway) it is kind of a zero sum game.
One of the confounding realities in arguments about tariffs is that we do not have “free trade” in the modern world, and that there is no way for us to have free trade.
It’s not merely that wage levels are different in different parts of the world. It’s that regulations are different, protections of civil liberties and workers’ rights are different, the potential for workers to exercise even economic autonomy let alone economic power is different.
So long as these differentials exist there can be no level playing field among the nations of the world, and so the idea that we can even have “free trade” is frankly a fiction. Free trade means first countries standardize regulatory systems and wages and levels of market power enjoyed by workers.
Those prerequisites are not only not happening, but if anything are being steadily diminished and undermined in the global economy.
Great topic, Peter, and timely. As always, you provide data to substantiate every point of your discussion - a very intelligent and impressive feature I see in few other Substacks, so, thank you! I also agree with your ‘it depends’ assessment.
Policy-makers forget that any attempt to get around free-market mechanisms inevitably results in ‘unintended consequences’. With tariffs, you risk increases in smuggling, buying and selling on the black market, and the organized crime that prospers as a result. So, tariffs have to be thought through and applied carefully. For example, If Trump plans to Impose a high tariff on Chinese silicon chips, he could first notify domestic chip manufacturers, then give them tax credits to spur initial domestic investment, and wait to impose the tariffs until domestic manufacturers are just about up and running. Or, he could negotiate a deal with Mexico that would result in chip manufacturing there, in exchange for their increased vigilance against illegal immigration at the US/Mexico border. The key is: think it through!
And then there is the problem of increased bribery. The US doesn’t have a culture of bribery, so we forget that much of the world runs on bribery. The last time you went to get your driver’s license renewed, it didn’t even occur to you to offer a bribe to the DMV, right? That is not the case in many of the countries we do business with, and we certainly don’t want to enable a bribery-oriented business climate here!
This reminds me of an article I read in the Wall Street Journal forty years ago (back when it was still real journalism). The article was an assessment of which cities were the most expensive for western businessmen to visit, and usually it came out that Tokyo, New York, or London was most expensive. But this particular year, Lagos, Nigeria was the most expensive! Puzzling - until you looked at all of the bribes you had to pay. Any western businessman was assumed to be rich, so he or she was hit up for a bribe at every step of the visit. You had to pay a bribe to get off the plane, a bribe to enter the terminal, a bribe to retrieve your luggage, a bribe to get a taxi, and so on, all day long.
We don’t want that.
What is often downplayed is the long-term impact on US job creation and retention without tariffs. I would rather pay higher prices to see more Americans working and fewer on government assistance. At least if they are working they are being productive and are contributing to the tax base rather than taking from it. The low unemployment rates being reported the last couple of years are driven by growth in government jobs, not in the private sector, and since the government does not produce and sell goods and services (well, not YET anyway) it is kind of a zero sum game.
One of the confounding realities in arguments about tariffs is that we do not have “free trade” in the modern world, and that there is no way for us to have free trade.
It’s not merely that wage levels are different in different parts of the world. It’s that regulations are different, protections of civil liberties and workers’ rights are different, the potential for workers to exercise even economic autonomy let alone economic power is different.
So long as these differentials exist there can be no level playing field among the nations of the world, and so the idea that we can even have “free trade” is frankly a fiction. Free trade means first countries standardize regulatory systems and wages and levels of market power enjoyed by workers.
Those prerequisites are not only not happening, but if anything are being steadily diminished and undermined in the global economy.
Excelent discussion.
Thank you.
Super informative. Thx.