My fellow Americans. Trade policy in a nutshell. It doesn’t get any simpler than this. Unfettered free trade is good. Tariffs are bad. Y’all can go home now. Class is dismissed.
“But wait,” says the guy in the red hat. “China is stealing our jobs!”
Rob: No, not really. The United States has never been wealthier. Standards of living have never been higher. Free trade reduces prices, increases competition and productivity, creates opportunity and fosters technological advancement. The amount of goods and services at the fingertips of the poorest Americans today would make these poor people rich by the standards of 50 years ago. Since the beginning of time, man’s primary daily function was to secure enough food to eat and live another day. Now, the poorest person in the country can have Amazon deliver food to their front door and has the library of Alexandria on their cell phone. The more hands involved in an economy, the greater the likelihood of some segment of the world making better products and services at lower prices than can be found locally. This phenomenon benefits everybody the world over. If you don’t believe this, let’s engage in a rhetorical exercise called “reductio ad absurdum.”
Suppose your trading sphere was limited to the geographical boundaries of Manhattan Island where 1.65 million people live, not to mention some of the richest people in the world. Without outside trade, no one could even manufacture a pencil, there would be no food, no goods and services from the outside world and 99% of the population would be dead in just a few weeks. Expand the geographical spree to New York state’s boundaries and likely 98% of the population would die off within a year. Those who survived would likely be wearing animal skins and living an existence much poorer than the Lenape Indians were when they sold Manhattan to the Dutch. There are few truths more absolute than “trade is good and the wider the trading area, the better it is for all.” Criminalizing trade in any form is penalizing people for trying to better themselves. Archaeological digs of neolithic graves all over the world find materials that traveled from hundreds, even thousands of miles way. Trade is a natural function of the human condition.
It's fundamental economics that taxing a particular item leads to less of that item. John Marshall famously stated that “the power to tax is the power to destroy.” The principles are the same, taxing trade reduces trade, and in some instances depending on the brutality of the tax, destroys trade. If trade is good, why do we want to do anything to restrict its benefits?
“But wait,” says the guy wearing the United Auto Workers T-shirt. Free trade is not always fair, other countries cheat us, it’s costing us jobs!”
Rob: Let’s say Mexico puts a tariff on American goods which makes American products more expensive in Mexico, but the United States lets Mexican products onto our shore duty free. Don’t we still get the benefits of buying their products at attractive prices, voluntarily with no coercion from our government? Isn’t that the essence of freedom? Doesn’t Mexico hurt its own people by making American products more expensive? Doesn’t the lack of foreign competition mean the Mexican people are likely buying inferior domestic goods and services at higher prices? Doesn’t that make Mexicans poorer, and as a consequence have less capital to invest to spur their economy? Would we be better off matching their tariffs and have goods and services we buy cost more? I don’t think so. In the late 70s, the BIG 3 automakers had much more of a monopoly on the American automotive industry. Back then American cars absolutely sucked. Once the Big 3 had to compete against superior and well-priced Japanese cars, the BIG 3’s quality and pricing improved dramatically. Tariff mania is a myopic understanding of trade. If Americans buy a container of manufactured products from Italy, the materials and components of those products come from all over the world, including the United States. Thus, the US is putting tariff penalties on its own domestic output.
Being a Southerner, I can tell you that the greatest tragedy in American history, the War Between the States was a direct result of the tariff system being deployed to benefit one segment of the country over another. The South had 1/3 of the national population, but contributed over 80% of the federal government government’s revenue, and felt it was a vassal state to Northern crony capitalism. It is inevitable that a tariff system will have the government aligned with big lobbyists to pick winners and losers, and those industries protected from competition will become bloated, and their pricing will balloon. It is a recipe for large scale corruption.
“But wait,” says the ex-textile worker from North Carolina, “what are your solutions?”
Rob: There’s no question that there are economic problems in the US, but the solution is not to slit our wrists by restricting free trade and embracing protectionism. The solution is in understanding the source of all prosperity and embracing this source to fuel economic growth. This source is CAPITAL. The surest way to unprecedented national wealth and opportunity for all is to free capital from the chains of government. All wealth is created in the private sector. Wealth begets wealth, yet the federal government spends 25% of national output. In essence it steals the productivity created in the private sector and misallocates it towards non-market initiatives, creating extraordinary waste. Besides stripping capital from the only place it can be productive, Washington “penalizes” capital through excessive regulation and direct taxation. Look out your window. Everything you see, every building, every business, every road and bridge derives from the wonders of capital creating wealth and opportunity in the private sector. Everything!
The federal government robs the private sector of trillions of dollars of productive capital every year. It is an anchor around the necks of American prosperity. It taxes productivity with its 70,000 pages of IRS regulations. The waste of human capital caused by big government is also enormous. Billions of “smart people man hours” are misallocated each year complying with our byzantine tax code and nonsensical regulations, instead of devoting these energies to voluntary (non-coerced) commercial activities in the private sector. Wherever you find a cluster of smart people, you will find wealth.
The solution to help those feeling left out of the American Dream, especially our young is not through central planning or picking winners and losers through tariffs, it’s reforming how Washington does business. The solution to competitive trade is not restricting trade, it is freeing capital from the clutches of Big Government.
“But wait,” says the Iowa farmer, “does this mean Donald Trump is going to ruin the economy?”
Rob: I trust Donald Trump’s judgment. I think his campaign rhetoric concerning tariffs is more bark than bite, as in telling Mexico if they don’t control the cartels we will kill their economy. I think his strategic vision is much bigger. I think he wants to dismantle the income tax. If the current tax code is eliminated, I’d be willing to listen to some sort of consumption tax on goods and services. Currently, income taxes are embedded in every good and service, making everything cost more. It’s possible that a consumption type tax could increase prices less than income taxes already do. If Washington were to cut $2 trillion of expenses/ year, and we had a tax code that didn’t drive people to tax avoidance, but instead to capital investment, it would be: GOODNIGHT IRENE, WARM UP THE BUS, WE’RE GONNA ALL BE RICH!
All of America: “Wow, that Rob Smith is brilliant. He’d look good on Mount Rushmore!”
