The Math isn't Mathing

As the kids these days say.

Scott Burns and I offer our third and fourth installations on the ongoing trade war over at the Independent Institute.

Here's a taste:

Today’s tariff defenders should be credited for looking to history to justify their proposals. Wise men should try to learn from history. Alas, their interpretation of the historical record is dead wrong.  

Tariffs did, in fact, play a critical role in financing the early American Republic. But given the exponential growth in the size of the federal government and its spending, they cannot possibly fund today’s leviathan. The math simply doesn’t math. In Melvillan terms, the government that tariffs funded in the 18th and 19th centuries was a veritable minnow compared to today’s Moby-Dick. 

Furthermore, tariffs did not make America into an economic powerhouse. They were simply the least bad way to finance a nascent nation. Because tariff rates were fairly low and uniform for much of early American history, they imposed minimal damage on or distortions to the economy. That said, nothing from history implies that they were popular or advantageous. Far from being a popular and effective policy tool, tariffs were a lightning rod of controversy throughout the 19th and early 20th centuries, exacerbating economic tensions and paving the way for rampant corruption in our politics. 

Fast forward to the 21st century, and the picture is quite different. In the early 1800s, foreign trade comprised less than 10% of our GDP, and the production of most goods was fairly concentrated in only a few nations. Today, trade accounts for more than one-third of GDP, and most supply chains are dispersed across dozens of nations. The global economy today is more entangled than the British monarchy’s family tree. Economies are inextricably linked. The international division of labor is remarkably intricate and advanced (see I, Pencil). Given these seismic changes, President Trump can’t justify returning to an antiquated fiscal model, much less moving us to a brave new world of autarky. 

At the end of the day, the administration’s deep affinity for tariffs betrays an even deeper misunderstanding of U.S. history, not any enlightened policy or a return to the halcyon days of American manufacturing supremacy. Those who don’t learn from history are doomed to repeat it. President Trump might fancy himself a “Tariff Man” in the ilk of Alexander Hamilton or William McKinley. But unless he learns from the mistakes of these earlier tariff men, history will view him as Captain Ahab from Moby-Dick, chasing the white whale of tariffs until it inevitably drags him off to sea. 

Read part 3 here. Read part 4 here.