Launching the Economic Version of the Iraq War.
Tariffs are like military actions. They're ‘good’ or ‘bad’ based on specifics: Why, how, at what cost, toward what end. Donald Trump has just committed US power in a profoundly stupid way.
During George Washington’s first term, US tariffs were just a gleam in Alexander Hamilton’s eye. This illustration recreates Hamilton, as Treasury Secretary, presenting Washington with the ‘Report on Manufactures,’ which recommended tariffs as part of a strategy for economic development in the nascent republic. (Ed Vebell/Getty Images.)
This post is about tariffs, the latest bit of chaos through which Donald Trump is satisfying his major need, which is to dominate minute-by-minute news coverage.
I drafted this before Trump delivered his deranged-seeming comments today in the Rose Garden, announcing tariffs on just about everyone. I’m posting it now, after, with a few real-time updates. What you see below is calmer in tone than I feel having seen Trump’s performance. But it’s usually wiser not to hit the keyboard in anger. The substance is still what I’d like to convey, so I’m going ahead as is. More on related topics ahead.1
The purposes today are:
To propose a model for thinking and talking about Trump-era tariffs that I find clarifying and would like to push into more general use.
To suggest a simple timeline for the changing roles of tariffs in US life. Those changes happened over the span of decades during the US’s early industrial development. Like so much else they are accelerating now, including today.
To offer a “what is to be done?” suggestion, plus links to articles, reports, books, graphs, and other resources with chapter-and-verse background for points in the other two sections.
I think this is a historically reckless moment in US economic policy. And even by Trump-era standards it’s a historically shameful moment for the Republican Party. Its leaders know that their alpha-figure is launching a dollars-and-Euros version of the Iraq war. And they stand by, grinning and clapping.
1) Are tariffs ‘good’? Or ‘bad’? They’re both, and here’s how to tell the difference.
Let’s step back from the chaos of the moment and consider tariffs in general. The model I find useful is thinking of these trade barriers as similar to a standing army, or the municipal police:
-These are all instruments-of-force a government can use, when it has to.
-They are all instruments whose mere existence, even when they are not used, can be an effective deterrent. That’s why nearly every country has an army, nearly every city a police force, nearly every economy some controls on external trade.
-They are all instruments a wise government does not use, until it has to. For an army, when enemies threaten. For a police force, when criminals strike.
-And for national economies, trade restrictions can be wise and useful, when a thought-out assessment shows that they will make things better overall (despite the costs) than leaving the outcome to other countries’ policies and whims of the market. Better for communities, for consumers, for innovation and employment, for prosperity and “pursuit of happiness” in the long run.
In all these realms, use of force is ‘good’ or ‘bad,’ depending entirely on the circumstances—the why and how. When it comes to policing, everyone recognizes the difference between good cops and bad cops. When it comes to the military, everyone recognizes the differences between “necessary” wars (I won’t say “good” wars2) and foolish ones.
And when it comes to tariffs, America through its history has had wise ones, and foolish ones. Much as it has had “necessary” wars, and foolish ones. The wise applications of tariffs have mainly involved fostering “infant industries” in the economy’s earliest era. That was most famously argued by the country’s first Treasury Secretary, Alexander Hamilton, in his “Report on Manufactures” in 1791.
More recent “wise” tariffs have involved favoring and fostering economic sectors deemed crucial to long-term American prosperity and strength. Agriculture, starting more than 200 years ago. Transportation through many modes—canals, railroads, farm-to-market roads, paved roads, interstate highways, airports. Communications in all forms, from the telegraph to the telephone and the internet. Health care and now biotech. Almost any other realm that matters.
You could read whole books on this subject—here’s a classic to start with, A Country Made by War, by Geoffrey Perret. Or the many books in the oeuvre of one writer, the late Thomas P. McCraw. Or basically anyone who has written anything about American economic history. Or a very long article I wrote as a survey as these accounts, as an Atlantic cover story more 30 years ago.
The point in all of these assessments is that tariffs have “worked” when—and only when:
They are part of a larger strategy, which combines all the other elements of economic development. (Education. Research. Transportation. Supply chains. Regional development. Et cetera.)
They have a long-term perspective, knowing that factories take years to build and economic strategies may take decades to pay off.
They are precise and planned, in awareness that this use of governmental force—just like the use of military or policy force—always does damage and imposes costs. And so those costs must be minimized and narrowed, like those of a “just” war.
They maximize “public-private partnerships” for economic growth, since there are investments that only public authorities can make, and operating skills that only private enterprises possess. Only the national government could have invested in the nationwide airport or interstate-highway network. Only private companies could have run the airlines or built the cars to operate on them.
They are thought-through to work with larger US strategic goals, rather than against them. After World War II, the US adjusted its trade policies to foster recovery in Europe and East Asia. NAFTA was based on the idea that prosperity in Mexico and Canada would foster US interests in the long run.
And what about the “bad” tariffs?
The one that was known best, for my Depression-era parents and through my Boomer-era childhood, was the Smoot-Hawley tariff of 1930. A generation ago, that name alone conveyed a whole swath of history—as if people more recently said “another 9/11.” Smoot-Hawley meant sweeping, punitive US tariffs that accelerated the world-wide decline into economic depression in the 1930s, and thus indirectly fostered the rise of Hitler in bankrupt Germany and Mussolini in Italy.
What’s the difference, between ‘good’ and ‘bad’? The good ones have had: A plan. A network. A thought-through sequence of ‘and then what?’ answers. An awareness of strategic implications.
The military invasion of Iraq had none of these things. Donald Trump’s latest assault on world trade has none as well.
2) The simple time-line of tariffs in US life.
I think it’s useful to think of them in great waves:
The founding. This is the Hamilton era until after the Civil War. The US as a whole “needed” tariffs to develop its industries against more mature and efficient British and European competitors. That is what Hamilton asked for, and got.
From then through the Civil War, the tariff was a hugely divisive issue, second in national political importance only to slavery itself. The lines of division largely paralleled those of slavery: The industrialized North generally favored tariffs, to promote its industries. The agricultural and plantation-based South generally opposed them, since tariffs raised their costs but did not “protect” their output. (The Brits weren’t competing with cotton from Mississippi or Alabama.)Reconstruction through McKinley. I doubt that Donald Trump could pick a photo of a young William McKinley (below) out of a lineup, or recite anything about his life, his Civil War record, or his death.
William McKinley as a student at Albany Law School, after his combat service in the Civil War and before he reached his full presidential heft. (Photo McKinley Presidential Library and Museum.)
But Trump has seized upon the idea that McKinley’s tariffs were the greatest thing about him, “the most beautiful word in the dictionary.”
According to most people other than Trump, the McKinley-era tariffs (especially the main act of 1890, which raised the average tariff on imports to 50% !!!) were one more part of Gilded Age expansion-and-corruption. Useful to favored industries. Not useful to the country as a whole. Like many of today’s policies, they enriched the rich, and raised prices for everyone else.Bring on Smoot-Hawley. Enough said. Let’s skip through the worldwide Great Depression of the 1930s and all it wrought. No one who has looked into Smoot-Hawley has said, “Let’s do that again!” Until today.
The Cold-War Era and GATT. In its role as Western World hegemon after World War II, the US was aware of two trading realities. One was that on an “open competition” basis its industries would easily out-compete those in practically any other country. So it could afford to lower tariffs. The other is that it was in Western and US interests to have industries and economies develop in the non-Soviet world. Thus it should lower tariffs, and take other measures to help potentially allied countries to recover. (GATT is General Agreement on Tariffs and Trade.)
Clinton, WTO, and NAFTA. In the 1990s, Bill Clinton’s administration lowered tariffs and trade barriers across the board. Bringing China into the World Trade Organization. Connecting the US, Canadian, and Mexican economies through NAFTA. Judge it a success or failure as you will. For now I’m just noting it as an era.3
Biden and the return of ‘Industrial Policy.’ This is the era that I think will get more attention in the long run, but that in the by-wash of Biden’s re-election catastrophe is under-appreciated now.
Biden mostly kept the Trump I-era tariffs against China. But unlike Trump, I or II, he connected them to an “industrial policy” for long-term development of US alternatives. The focus was on exactly the areas most “left-behind” and hollowed-out by Chinese and other competition from Clinton-era changes. (As William Janeway described here.) I’ll have more references about the Biden policies below. For the moment I’m mentioning them as prelude to phase 7, which we’re just now entering.Insane Clown Posse: Trump at the helm. Effective tariffs are long-term. They are precise, rather than splatter-shot. They come from the left brain (rational) rather than the right brain (impulse). They take careful account of larger strategic interests—for example, with the US’s neighbors, Canada and Mexico. They are informed by thinking, “If we do this, will the other side do that?” They show the same care a responsible general, squadron commander, or police chief would use.
What we appear to have, instead, from Trump is trade-policy-as-MAGA-rally. He is mad and wants to flex. He hasn’t thought through to what might happen next.
This is where we stand today. It’s “Blind Into Baghdad” without the Humvees. And it will do at least as much damage.