TARIFFS

 Over the last week, I have received requests from Media Realism (MR) readers in four countries plus a few emails from friends asking me to comment on the proposed Tariffs from the United States on countries throughout the world.

While I have strong opinions on the topic, the request gave me pause. I have tried hard (not always successfully) from making overtly political comments in my posts. So, what follows essentially the reasons why I am personally a free trade advocate.

It all began amazingly back in 1969 when I took my first course in Economics. The professor, who had covered Free Trade in a class and I had dozens of questions after class, told me to go to the campus library and dig up one of the copies of AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS (almost universally referred to as THE WEALTH OF NATIONS). The book would be a bit much for this 19-year-old, but he suggested that I first restrict my reading to Smith’s sections on Mercantilism and Free Trade. Two years later, during an amazing independent study, we tackled other Smithian issues when I was better prepared for them. 

Okay, prior to Smith’s Wealth of Nations (published in 1776), a few early economists and politicians also recommended free trade among nations. Among the most prominent, known only today to economic geeks, were Henry Martyn, Sir Matthew Decker, and Josiah Tucker. All felt that open trading with other nations was positive for a country and some prices, especially certain foods, would be less expensive for their poorer citizens.

Prior to these three gentlemen and a handful of others, Mercantilism drove the economic bus. The theory was that wealth in a nation consisted in how much gold and silver that you had on hand. So, the goal was to always have a trade surplus with other nations so that your precious metals stash grew each year as that was real wealth. To insure that you had a trade surplus, Tariffs were initiated. A tariff is a tax placed on items brought in from a foreign country.

Adam Smith took on the “mercantile system” as he called it and said that imports can be a good thing. He stated, “never to attempt to make at home what will cost him more to make than to buy.” He went on to say that if it works for a family, it would work for a sovereign nation.

At one point, he cracked me up with the comment that if Scotland decided to make wine, they could perhaps generate some good grapes with hotbeds and hot walls. The cost of this locally produced wine would be approximately 30 times that of what could be imported from Portugal. Somehow, Scottish wine, no matter how carefully crafted, could never compete with a fine Alberino, Bordeaux or Burgundy. 

His theme was do what you do better than others and buy things that are of better quality and less costly from other nations. Real wealth was not your pile of gold and silver—it was what you produced and how your people lived. Tariffs protected local manufacturers who may be inefficient producers or corrupt and are getting favors from politicians. And they caused inflation which hurt the downtrodden the most.

Smith made it clear that trade was not a zero-sum game with one nation a winner and the other the loser. Imports or a trade deficit were not harmful to the ultimate well-being of a nation. He wrote, “in every country it always is and must be in the interest of the great body of the people to buy whatever they want of those who sell it cheaper.” 

If you look at statistics, trade and economic exchange translate to economic growth. Yes, the affluent tend to do well when profits increase but a growing company or nation has an increased demand for labor which helps many more. And, when you trade with poorer countries, many of their citizens will then be able to buy more of your products. 

Some people tell me that I do not understand, and the proposed Tariffs are really a new industrial policy. They may be right but the precedence for this is a closed economic system known as Autarky. Such a country avoids international trade and strives to be almost totally self-sufficient. Japan tried this in the 1600 hundreds and Mussolini leaned that way in the 1920’s and 30’s. Japan finally opened and had strong trading success, and I find it chilling that we would consider using a modified version of Mussolini’s Italy as an economic role model.

President Trump has said several times since the 1980’s that Tariffs is the most beautiful word in the English language. I am so naïve that I always have thought the most beautiful word was love.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com