So Much for Tax Cuts and Deregulation

2017 ended with tax cuts and deregulation. It was too good to last. The administration has now reversed course, promising higher taxes in the form of tariffs and regulations in the form of import restrictions, as if we didn’t already have enough.

It might seem strange to long for war. It is. But that is exactly what Donald Trump has done in a tweet to cause every economist, and every humanitarian, on planet earth to wince with dread. He wrote this: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore–we win big. It’s easy!”

To end trading with a “country” can never be a win, because it means ending chances for mutual benefit. This is Civilization 101. Trump, despite a lifetime of doing business and making deals, still doesn’t get it. What we have here is a massive intellectual failure.

And let’s be clear that what he perceives as losses amount to accounting fiction. It is the pernicious idea of a “trade deficit” which means simply that “we” buy more from “them” in dollar terms than “they” buy from “us.” You could say you have a trade deficit with the local gas station; you are constantly buying their gas and cigarettes, while they are not buying your consulting services. So what? The point is that there is mutual benefit. If some thug tried to prevent you from shopping there, you are not made better off.

In the 18th and early 19th century, the world struggled toward freer trade and eventually got it. In the late 19th century, the economist named Friedrich List dealt a terrible blow against the liberal order with his economic justification for national sufficiency. For him, liberalism spelled doom for the very idea of nationhood. The way to bring it back was through taxes called tariffs and regulation called import and export bans.

The idea mutated over the decades to eventually create the basis of20th-centuryy nationalism that led to real war, depression, and pointless suffering and poverty. He was dead wrong, and following World War II influential minds had finally had enough. The world said “never again” and worked toward freer markets between nations as a guarantor of peace and prosperity for everyone. Every administration, through fits and starts, has generally (at least in rhetoric) favored freer trade between nations.

This is now changed. And tragically, there is no reason for surprise. It is what Trump always promised and what he has always believed. Many people pretended like it wasn’t real and supposed it was just red meat for the masses. Not so, apparently. Let’s consider the implications.

Professor List lived in a different world. You really could say back then that this product was made in this country and that product was made in that country. That is no longer true. Look around you. There is probably nothing on your person that does contain product or technology, or was made with tools, that doesn’t come from half a dozen places around the world. The world economy is more integrated than ever before and that is the very basis on which you and I enjoy such prosperity. We are increasingly cooperating to our global betterment.

Anything that interferes with trade between nations today amounts to a tax on you and a diminution of your quality of life.

Why would anyone seek to put an end to this system? I speak for tens of thousands of thinkers and writers across many different ideological orientations when I say that I personally never imagined a time that the world’s most powerful man would speak out for trade war, and claim that this would be a glorious thing.

It’s chilling, and especially so because it seems like no one is really in a position to stop him. Control of US trade policy has fallen to the executive state and is not longer a matter of legislation. This change was done in order to prevent petty Congressmen from protecting local industries against competition, and with the idea that the executive state would act better toward the general interest. It was short-sighted; look at what we are dealing with now: Trump has total power.

With tweet after painful tweet, plus real policies to implement 25% tariffs, Trump is throwing away all his bragging rights about having cut taxes and regulations. This tariff idea is a massive tax increase for every American citizen, and it is an egregious regulation on commerce. It is a huge burden on everyone and could tip the entire country back into a slow-growth mode. Even if it does not, it will pillage people of their property and profoundly disturb the commercial landscape.

Like many people, I hoped he would forget about this protectionist stuff, that smarter minds were around him to steer him away from total crankery. Wrong. It is at his core, and what is striking here is just how central “economic nationalism” is to the fascist tradition in general. In every instance, a strange longing for national economic self-sufficiency is central because this path alone underscores the power of the executive state, the dictatorship principle.

People have come to believe that Trump has no real belief structure. I’ve always suspected that he does, even if he doesn’t fully know it. His ideological orientation comes from a rightist-collectivist tradition of thought that stretches far back in history. National economic autarky is a main principle. I should have known better than to think that Trump would conveniently forget about it. He was just waiting until he was politically safe enough to unveil his agenda.

But won’t this help the American steel industry? The real question is: at what cost. Listen to the words of Wisconsin Governor Scott Walker:

“If the President wants to protect good-paying, family-supporting jobs in America, especially here in Wisconsin, then he should reconsider the administration’s position on these tariffs, particularly on ultra-thin aluminum. As I described to U.S. Secretary of Commerce Wilbur Ross last year, there is not a market in America that can support the demand for ultra-thin aluminum for employers here in Wisconsin and across the country.

“Ironically, American companies who will feel the negative impact of the tariffs can actually move their operations to another country, such as Canada, and not face new tariffs on the sale of their products. This scenario would lead to the exact opposite outcome of the administration’s stated objective, which is to protect American jobs.”

And this isn’t only about the price of beer (you won’t say “dilly dilly” to $2 Bud Lights). It is about cars, computers, homes, offices, fixtures, and countless other items you use every day. The costs could very easily take away all the benefits accrued from income and corporate tax cuts. It also makes a joke of the Trump administration’s position against red tape and regulation. If my company can’t shop around for the best deal for my customers but instead must face a terrible trade bureaucracy to decline or permission in my every choice, we don’t have free enterprise.

Thinking of some silver lining here: it is forcing all writers who do not like Trump to think through the economic logic behind free trade. The case for freedom of commerce over borders is exactly the same as it is within borders. Trump’s policies here are anti-capitalist, inconsistent with the liberal order but completely consistent with the right-Hegelian tradition. The way to oppose them is through making the case for liberalism and against all forms of economic planning.

The tragedy is that Trump and a handful of advisers seem completely blind to the benefits of peace and trade. Their protectionist ambitions could bring about another economic stagnation while bearing no culpability for the results. Trump the businessman would surely know better; Trump the president has nothing to lose, or so he believes.

Related Articles – Free Trade