Mr. Trump's Tariffs

A word on trade wars, comparative advantage and strange bedfellows...

(Is the Free Trade Jenga tower toppling? Substack Image Generator)

“The effect of a tariff, therefore, is to change the structure of American production. It changes the number of occupations, the kind of occupations, and the relative size of the industry as compared with another. It makes the industries in which we are comparatively inefficient larger, and the industries in which we are comparatively efficient smaller. Its net effect, therefore, is to reduce American efficiency, as well as to reduce efficiency in the countries with which we would have otherwise traded more largely.”

~ Henry Hazlitt, Economics in One Lesson (1946)

Joel Bowman with today’s Note From the End of the World: Buenos Aires, Argentina...

Is Donald Trump a bona fide genius... or an unhinged madman?

Is he playing 4D chess... or giant, rubber Jenga?

Will he Make America Great Again... or drag the world into a Greater Depression?

With global markets in turmoil and motion-sick investors on tenterhooks, inquiring minds want answers. Our guess: they’ll have to wait a while yet.

Panic Plays Cupid

Of course, that won’t stop the legacy media from delivering their pre-meditated verdict. “Guilty of all charges,” they bleat in unison. And lo! Now Wall Street’s elite join the chorus of the president’s detractors. From the usual outlets:

The Wall Street Journal:

Wall Street Starts to Speak Out Against Trump’s Tariffs

Jamie Dimon, Stan Druckenmiller, Bill Ackman and Larry Fink publicly raising concerns about the president’s global levies

Politico:

Wall Street titans push back on Trump’s trade war

JPMorgan CEO Jamie Dimon warned that the global conflict could threaten economic alliances that have made the U.S. the world’s most powerful country.

Bloomberg:

Wall Street Is Collateral Damage in Trump’s Trade War

The American investor class — that top 10% that owns almost all of the stocks — is quickly coming to terms with its new, much-diminished status in the era of Donald Trump’s trade offensive.

Oh, dear reader! Panic plays Cupid for strange bedfellows indeed! Witness Democrat bullhorns standing cheek-by-jowl alongside the jilted “investor class,” rallying behind Wall Street’s “titans.” The party of the factory floor has, apparently, become the party of the corner office.

Or could it merely be an acute case of combat convenience... “the enemy of my enemy is my friend,” and all that? One wonders how much Congress’s deca-millionaire class lost in the recent rout.

Paging Pelosi? McConnell? Poca-Warren?

As for our own opinion on The Donald, we are rabidly, radically indifferent. Some readers accuse us of being “pro” Trump; others of being “anti” Trump. But we are neither for nor against the man, neither deranged nor devoted.

Harboring a soft spot for the Shining City on the Hill, we naturally wish to see the president – any president – do a decent job. To that end, we are interested in ideas, not personalities. And, like most of our fellow sapiens, Mr. Trump has both good ideas and bad ideas. We take them as they come.

The basic idea behind DOGE, for example, is to cut government “waste, fraud and abuse,” of which there is certainly no shortage. Great. We never met a government program we didn’t think could benefit from a bracing dose of free market competition...and the unforgiving bite of a giant chainsaw.

But tariffs... trade wars... and own goal taxes? Love Trump or hate him... there’s a wealth of historical evidence which suggests such policies are – prima facie – a bad idea.

The Wealth of Nations

As patient readers know, our beat here is free markets, free minds and free people. To the extent that any one policy advances these objectives, we allow for a measure of optimism... tempered by skepticism, caution and experience.

So when we hear about ending wars... deregulating markets... promoting government efficiency (an oxymoron?) and a generally laissez-faire state of affairs, we hoist a tattered Gadsden flag and imagine a world in which humans are free to make moronic decisions and suffer the consequences, just as the Gods, in their infinite jest, intended.

But tariffs are not pro-market as much as they are pro-business... certain, connected business. For all the pontificating and bloviating about them, tariffs are in the end a net drag on the economy, delivering lower wages and lower productivity where they advertise just the opposite.

Here’s what little-known economist, Adam Smith, had to say on the matter two centuries ago, back before nations did naughty things like engage in slave labor, manipulate their currencies or otherwise enact unfair trade and production practices (which, naturally, are entirely unique to our own moment in time)...

“The [free trade] proposition is so very manifest, that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common-sense of mankind.”

Instead of the self-inflicted wounds of additional taxes and tariffs, which ultimately fall on American consumers – including businesses – Mr. Trump could give his countrymen an edge by making America the freest, most open economy on the planet... the destination for (and beneficiary of) the cheapest imports on the one hand... and the engine room for the next generation of value-added innovation on the other.

Freedom attracts go-getters, entrepreneurs, risk-takers, geniuses, start-ups. And, critical to the process of capitalism itself, capital. That was the American success story of the 19th and 20th Centuries. Not burdensome trade barriers, onerous taxation, strangulating regulations and meddling from a managerial class of politicians, who claim to know the value of goods and services better than those who produce and trade them.

Mr. Trump might let the CCP impose its own top down central planning... and watch the whole thing go the way such experiments always go: to the dogs. Trying to “out manage” a communist regime, with myriad internal problems of its own, seems like a waste of resources, effort and ingenuity that might better be employed elsewhere...like developing a competitive advantage at home. And should America’s trading partners inflict the horror of cheap goods on her citizens?

As the aforementioned economist, Mr. Smith, wrote in his obscure treatise, The Wealth of Nations (published, as it so happens, the same year as the United States of America was founded):

If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it from them with some part of the produce of our own industry employed in a way in which we have some advantage.

~ Adam Smith, from An Inquiry into the Nature and Causes of the Wealth of Nations, (1776)

Comparative Advantages

For now, America is still the brain magnet of the world, attracting the best and brightest to its technical colleges and institutions of higher learning. The country still enjoys massive technological advantages, as well as access to far deeper capital markets that her trading partners and a sound legal and commercial regulatory framework which invites businesses from around the world.

Why not let Sri Lankan factory workers make the cheap socks... while American workers, possessed of all the advantages of the world’s most dynamic labor market, instead apply their talents and skills to higher level vocations? Why scrap and fight for the lower end of the production value chain, when such tasks can be outsourced for pennies on the dollar, and domestic workers (enjoying the benefits of cheap socks, etc.) thereby liberated to shoot for brighter stars?

Of course, there are those who maintain that all this tariff tough talk is just that, a masterclass in Art of the Deal-style negotiation from a president who is always thinking three steps ahead, designed not to stoke a global trade war... but to incentivize governments around the world to ultimately lower tariffs.

Do they have a point? We’ll take a look at the other side of the trade coin next time.

Stay tuned for more Notes From the End of the World...

Cheers,

Joel Bowman

P.S. A final reminder that you still have a few hours to register for tomorrow’s LIVE event!

As noted in this space before, we’re hosting our next online event tomorrow – Wednesday, April 9, at 3-5pm US Eastern Time. It’s called:

The Crisis & Opportunity at the End of the World Virtual Summit

With special guests Chris MacIntosh, from Capitalist Exploits, George Gammon, of Rebel Capitalist, and Charles Sizemore, from The Freeport Society.

P.P.S. A heads up that space is limited and seats are filling up fast. As usual, Notes members will be given preference… as well as access to full audio-video recordings of the event and a complete PDF transcript to peruse at their convenience.

Not already a member? Join us today and unlock all the benefits, right here…