The bottom-line reason tariffs are bad: they are a case of government meddling in private human activity

In there course of poking around the pundit-sphere this morning, I came across two American Greatness pieces that each try with admirable deep diving to make the case for tariffs. (This was in the course of poking around, mind you. That rabidly pro-VSG organ is not one of my daily must-stop-bys.)

Their titles make for a symmetrical juxtaposition: "Why Trump Is Right About Tariffs" and "Why Ben Shapiro is Wrong on Free Trade."  When the main points of both are synthesized, the argument boils down to one of technological breakthrough being necessary for the US to get an economic leg up relative to other countries, and domestically produced steel and aluminum being essential to the possibility of technological breakthroughs.

Spencer Morrison, the author of both pieces, states it thusly:

Better technology is also how we make better stuff. Televisions are a good example. The first TVs were clunky boxes with gritty images. Today, TVs are thin, elegant, and can produce more colors than we can imagine. Even if we were no faster at manufacturing TVs than we were in the 1930s, the improvement in quality still would have expanded our economy by increasing the value of our production. Both quantity and quality are elements of economic growth.

The key takeaway here is that long-run economic growth depends upon technological growth. This is the signal. Everything else—including free trade—is noise.

Killing the Golden GooseThe data confirm my point. In his book Antifragile, Nassim Taleb notes that economic growth depends upon “black swan” events: highly improbable, yet highly consequential inventions that shift the economic paradigm. Good examples of these are the railroad, the lightbulb, or the microchip—economies without access to these technologies could never be as wealthy as those using them, no matter how freely they traded.

Likewise, research from the Brookings Institute finds that nearly all of America’s economic growth in recent decades was generated by our advanced industries—those that focus on inventing new technologies. Examples of these include America’s advanced manufacturers like Boeing and information technology (IT) companies like Google. Although these advanced industries employ just 9 percent of America’s workforce, they file 85 percent of all patents, provide 90 percent of private sector research dollars, and employ 80 percent of all engineers. This is where the economic growth happens, since advanced industries are the most likely to generate new paradigm-shifting technology. Therefore, if America wants to increase its odds at exponential growth, it needs to concentrate more advanced industries within its borders.

He makes it even more explicit in his conclusion:

America needs to impose large tariffs to discourage its advanced industries from moving abroad. This will not only help us retain our technological edge, but it will also create an incentive for foreign technology firms to invest in America, further concentrating advanced industry in our nation. Although we cannot guarantee that America will invent the “next big thing,” we can maximize our odds. To do this, we need tariffs.

But, you see, Mr. Morrison, the precision manufacturing happens on the next tier of the supply chain, downstream from the basic materials, and those industries are opposed to the tariffs, for the obvious reason that the materials become more expensive. How does that discourage them from going overseas, either to purchase the materials they need, or to actually do their manufacturing?

He echoes his point in his attempt to refute Shapiro:

Ben Shapiro seems to think international free trade is in America’s best interests because it lets us maximize our comparative advantage, and therefore use our labor most effectively. The problem is our comparative advantage is in agriculture and resource extraction, by virtue of our relatively low population density and plentiful natural resource deposits. 

Likewise, what comparative advantage America does have in high-tech industries is diminished by the fact that foreign governments heavily subsidize their advanced industries, steal our intellectual property, and benefit from nominally cheaper markets. Under such conditions, many otherwise competitive American industries either cannot compete, get bought out by foreign (often government-backed) rivals, or are forced to move abroad to reap the cost-savings.

As a result, America’s advanced industries—those most likely to generate new technologies, and drive long-run economic growth—are waning. Detroit is moving to Mexico City, Boston is moving to Bangalore. Data from the Brookings Institute confirm this: some 36 percent of America’s advanced industries have already moved abroad, and that the number of “innovation capitals” located in America has dropped by two-thirds since 1980. Bottom line: more and more key technological advances will be made abroad, rather than here at home.

Again I say, you're not going to get more advanced industry by making the raw materials needed more expensive.

Okay, Morrison is correct that among Shapiro's areas of specialization, economics doesn't show up, so let's defer to an indisputably great economist, Walter Williams, writing, coincidentally at Shaprio's Daily Wire:

when the government creates a benefit for one American, it is a virtual guarantee that it will come at the expense of another American — an unseen victim. The victims of steel and aluminum tariffs are the companies that use steel and aluminum. Faced with higher input costs, they become less competitive on the world market. For example, companies such as John Deere may respond to higher steel prices by purchasing their parts in the international market rather than in the U.S. To become more competitive in the world market, some firms may move their production facilities to foreign countries that do not have tariffs on foreign steel and aluminum. Studies by both the Peterson Institute for International Economics and the Consuming Industries Trade Action Coalition show that steel-using industries — such as the U.S. auto industry, its suppliers and manufacturers of heavy construction equipment — were harmed by tariffs on steel enacted by George W. Bush.

Bingo. The way to achieve the high-tech comparative advantage Morrison prioritizes is to let steel and aluminum users get the least expensive steel and aluminum they can buy.

But my beef with Morrison's way of thinking is even more basic. It proceeds from the premise that we, collectively, ought to position the United States to have some sort of predetermined place in the world economy.

The libertarian in me is showing here. This mindset runs counter to what ought to be the premise: that people and businesses ought to engage in their activity based on what those providing the capital want to do. Period. Any tampering with that leads us to industrial policy.

In other words, Trumpists and tariff fans in general fall prey to that dangerous way to begin any sentence about any kind of public-policy matter: "We ought to  . . . "


That's for the free individuals and organizations of our society to determine.

There's no denying that some of the countries from which we buy steel and aluminum engage in subsidization and, in at least one case, intellectual property theft. More market distortion, coming from our end, does not begin to unwind that particular dilemma.

It's not good for economic growth, it's not good for basic human freedom, and, should a trade war break out, may not be good for the prospect of peace.