Trump’s Tariffs: A Tool for Free Trade

Trump’s Tariffs: A Tool for Free Trade

Trump’s Tariffs: A Tool for Free Trade
Steve Milloy

This is a special contribution from Steve Milloy, publisher of JunkScience.com and author of “Scare Pollution: Why and How to Fix the EPA” (Bench Press, 2016) in response to my post “Tariffs are the Worst Way to Combat Protectionism“.

Knee-jerk Trump-haters and many free market economists are up in arms over the President’s recent imposition of various tariffs. While the Trump-haters are easily dismissed, what about the free market economists? 

Everyone who believes in free market capitalism supports free trade. That includes President Trump. The current issue is not, as the tariff critics would have you believe, that tariffs are anti-free trade. They certainly are. Instead, the issue is how does the United States persuade other nations to engage in free trade with us.

Consider the ideal of world peace or, more practically, national security. Either can only be achieved through the possession of strong military capability and the willingness to use it. Moreover, the United States has shown that it is willing to kill other people and to sacrifice the cream of its own youth in order to achieve national security and strive toward the ideal of world peace.

Free trade is similar. The only way to rein in nations who discriminate against US exports is to make them pay a price through imposition of significant tariffs. That is the only practical tool available. The point of tariffs is not to prop up domestic industry, but to get other nations to ease their import restrictions. Tariffs are, therefore, a means of achieving free trade, not a permanent economic policy. Will there be some domestic pain? Probably. But that is not a reason for doing nothing. See “peace through strength” argument, above.

Aren’t the World Trade Organization and multilateral free trade agreements better and more civil ways of promoting and achieving free trade? In theory, yes. In reality, no. Both merely create bureaucracies and tangled relationships that can be and are exploited by bad actors. Think United Nations.

It’s easy to envision President Trump working out improved trade deals with our Western trade partners and Westernized Asian economies like Japan and South Korea. Since World War II, we have allowed those trading partners, especially Europe, Japan and South Korea, tremendous advantages so that they could rebuild their post-war economies. But we’ve gotten so used to being taken advantage of that we don’t even notice it. President Trump rightly wants to change those relationships. We defend the countries and get screwed on trade? No thank you.

The worst actor on the global trading stage and the most difficult to deal with is, of course, China. When I was new to the free market movement (circa 1990s), I intuitively accepted the notion that improved information flow, economic liberality and prosperity would eventually vanquish communism from China. That notion has so far been wrong and there is no indication that it will prove correct anytime soon. Learning from the failure of the Soviet Union, China has embraced a piratic form of state capitalism to prop up and empower its repressive government.

Between its low-wage/slave/prison labor, lack of labor and environmental standards, disregard of intellectual property rights, severe limits on imports and outflows of capital and other unsavory practices, China is an economic opponent like no other. Tossing in the China-coddled North Korean menace and the expansion of Chinese military power in the Pacific offers us an unprecedented strategic challenge as well.

In short, China is a very bad actor with its own incomprehensible goals. We don’t want to go to war with China but we have to do something. We are a major part of China’s economy; so targeted tariffs are just about the only weapon available to President Trump. If companies like Google and Apple didn’t aid and abet Chinese repression perhaps there would be a brighter future for the hope of eventually liberating China from communism through information and prosperity. But capitalists will be capitalists. I cannot forget that IBM sold customized punchcard technology to the Nazis, who used it to manage the Holocaust.

Instead of attacking the Trump tariffs – and thereby aiding and abetting China —  free market economists should support the tariffs as a tool or short-term/temporary necessary evil implemneted to achieve a greater economic ideal. Let’s hope the Trump’s tariffs work. The alternatives are worse.

Steve Milloy publishes JunkScience.com and is the author of “Scare Pollution: Why and How to Fix the EPA” (Bench Press, 2016).


 

About Daniel Lacalle

Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Hedgeye, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

3 thoughts on “Trump’s Tariffs: A Tool for Free Trade

  1. This collaborator lives his own reality. I completely disagree and I think that he is underestimating the rest of economies reducing them to servant countries aimed to combat the comunism in order to make of China a prospect country… Like Irak, right?

    To be honest I do not see objective reasons that make me understand well what he is trying to defend.

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