Protectionism and Political Violence

– September 2, 2019 Reading Time: 4 minutes

There are features of the Trump trade war that make it distinct.

It is not usual for protectionism to be mostly focussed on harming a single country or multiple particular countries. The historical pattern is to tax imports from any country. The last time the US tried this country-targeting tariff tactic was in 1807, and it led to the War of 1812 and the burning of the White House.

Another feature is that protectionism is usually pushed by agricultural and industrial monopolists who are trying to fend off foreign competition. In this case, Trump’s tariffs have not enjoyed the support of any substantial domestic producers; in fact, it’s been the opposite. Car manufacturers, farmers, and energy companies have all been vocally opposed. This is because global trade is essential to production today in all countries to a greater degree than at any time in history.

A third feature that is distinct is that the ill-effects have manifested themselves so rapidly, in the form of stalled financials, higher prices for everyone, and a substantial loss in export markets.

But one thing that this trade war has in common with all from the past: it has unleashed forces that are contrary to the stated intentions of the warriors themselves. Not one of Trump’s promises about how this would be easy to win, how it would bring back manufacturing, how it would boost production, and so on, have come true; the opposite has happened. At this point, the reality is obvious to anyone…anyone but the person who launched this disaster.

What the precise results of protectionism will be is often made unpredictable simply because of the complexity of international commerce and the seeming randomness of downstream effects of taxes against trade. This is a major reason why economic historians are so spooked by these arrogant, aggressive, and arbitrary impositions on commerce. They disturb prosperity and they upset the peace. They can even lead to domestic and international violence.

A case in point is magnificently illustrated in a 2018 film now available on Amazon: Peterloo. It was released on the 200th anniversary of the massacre in Manchester, England, of many working people who had gathered to demand parliamentary representation as a fix for their worsening economic plight. The major cause – and the film makes this abundantly clear – were the corn laws (import restrictions on wheat and barley) passed following the defeat of Napoleon at Waterloo. The trade distributions of the war and its aftermath led to a falling of prices for the products produced on the land of the ruling class in England. The import restrictions were supposed to be the fix.

But it became rather obvious to the working class in the north of England that these taxes were nothing but a subsidy to the elites that came at the expense of the poor, who were forced to pay much higher prices for bread and other essentials than they otherwise would. The excuse for the laws was that these higher prices would lead to higher profits and boost domestic production. What they actually did was impoverish consumers and make English grain production inefficient and lacking in innovation relative to the rest of the world.

The massacre of Peterloo was perhaps the first of many political upheavals that resulted from the disruption of trade. And this one ended in violence. Men, women, and children numbering as many as 80,000 came out on Monday, August 16, 1819, to protest for voting rights. While the repeal of the corn laws was not on the docket that day – their sole speaker was Henry Hunt, a case of a landowner who favored free trade – it was clearly in the backdrop because it was their worsening economic conditions that led to the peaceful gathering.

Local magistrates, with the presumed blessing of the King, read the riot act, sent in armed troops on horseback, and ended up killing 18 people and wounding as many as 800 more. The result of this horror was to kick the reform movement that included free trade into high gear. It led to the founding of the Manchester Guardian and eventually the founding of The Economist, which has had an unbroken record of supporting free trade. The corn laws themselves were not fully repealed for another 34 years years, and only then due to the famine in Ireland.

The movie about this massacre strives for and achieves an overwhelming feeling of authenticity. You see it in the clothing. You hear it in the accents of the workers. Even the musical instruments are authentic, from the trumpets in marches to the gut string on violins that are played for amusement. Every effort was made to put the viewer right back in those times and experience the lives of people suffering under economic hardship. (Sadly for many viewers, the pacing of the movie often seems to follow real life, such that the film lasts 2 and a half hours, which is way too long for many people today to experience a historical epic.)

In those days, the battle lines over free trade were rather clean. The workers wanted it while the landed gentry and their politically conservative representatives were firmly against. Indeed, if we can speak this way, the cause of free trade was solidly “left wing” in the sense that it was all about the human rights of the politically underprivileged. It was about the common person. And the same is true today, as average people in the U.S. will be paying these Trump taxes amounting to $400-600 per family over the coming year.

But that is only the start of the cost. The loss of export markets by distilleries, farmers, tech companies, fisheries, and just about everyone who exports, will be high, and probably incalculable. If Trump goes forward with his insane idea of “decoupling” U.S. and China economically, the division of the world in this way becomes extremely dangerous. If markets continue to languish and then fall, and if the U.S. slips into depression, we could see the coming to power of socialists who would inflict further wreckage. The truth is that no economic model can predict the consequences.

We like to think that we learn from history. The movie Peterloo offers all of us a chance to do exactly this. It reveals the poison of protectionism and how its hidden violence can lead to results that are far worse than anyone anticipates.