How’s the tariff debate going? Well, on Wednesday, The Atlantic ran a great essay in favor. Thursday saw twin legislative efforts: In the Senate, Republican leaders Tom Cotton, Marco Rubio, and Josh Hawley joined on a comprehensive bill to finally revoke China’s Permanent Normal Trade Relations status and impose high tariffs on Chinese imports. In the House, conservative Democrat Jared Golden introduced a bill to establish a 10% global tariff and increase it until the U.S. trade deficit is eliminated.
In response, opponents have spent the week really homing in on critical issues like WhO fUnDs American Compass’s work and also trying to decide who is a real economist. After all, real economists say things like: “On this issue there has been only one answer: that welcoming China into the global economic system is right for the American economy.” For an actual argument, they’ve landed on the idea that externalities do not exist and if you disagree you may be a Marxist.
So, it’s going.
Accordingly, your one thing to read this week is my new essay in The Atlantic, “Trump’s Most Misunderstood Policy Proposal: Economists aren’t telling the whole truth about tariffs.”
In many ways, the essay is a sequel to one I wrote last year for the Wall Street Journal, which focused specifically on the idea that “making things matters.” As someone who believes that ideas matter, I think it’s important to decompose a broad argument into its component parts, delineating what someone would have to believe to come down on one side or the other. Economists had generally opposed tariffs, I noted there, because they rejected the idea that a strong domestic industrial base was something worth preserving. From that starting point, of course a tariff would seem silly.
But force economists to concede that making things does matter, and their opposition to tariffs becomes much harder to sustain. What they have done subsequently is to produce skewed assessments of a tariff’s effects, counting costs but not benefits and looking only at the shortest-term impacts. The new essay addresses all that: If you acknowledge that making things matters, and properly analyze the long-term tradeoffs associated with a tariff, the case in favor looks quite strong.
The argument’s strength is most evident in the bizarre angle from which critics are attacking it. If making things didn’t matter, or a proper cost-benefit analysis didn’t support a tariff as an effective tool, one might expect opponents to start there. What they’ve done instead is reject the basics of market logic entirely. Maybe making things matters to the nation, they argue, but individuals pursuing their own private interest will take this into account and ensure the strength of the American industrial base of their own accord. There is no market failure, no externality, and to suggest otherwise is to privilege the collective over the individual’s freedom.
This is indefensible and, bluntly, difficult even to take seriously as an effort in participating in a policy debate. Professor Donald Boudreaux, who teaches economics at George Mason University, provides perhaps the starkest statement. My assertion that corporations and consumers “will probably not consider the broader importance of making things in America” is an “error,” he says. “The value of producing particular outputs in the U.S. as opposed to abroad is captured in the prices, wages, and other market signals that guide corporations’, workers’, and consumers’ choices.” That’s just not true. If a corporation thinks it can earn more profit making something in China, that’s what it will do. There is no market signal rewarding consideration of that decision’s effect on the U.S. industrial base.
A sillier version of the argument came from Richard Hanania. I had written:
A corporation deciding whether to close a factory in Ohio and relocate manufacturing to China, or a consumer deciding whether to stop buying a made-in-America brand in favor of cheaper imports, will probably not consider the broader importance of making things in America. To the individual actor, the logical choice is to do whatever saves the most money. But those individual decisions add up to collective economic, political, and societal harms. To the extent that tariffs combat those harms, they accordingly bring collective benefits.
But that phrase “collective economic, political, and societal harms” was, in his mind, “literally just every collectivist anti-market argument in history.” It should go without saying, but apparently does not, that the use of the term “collective” does not make an idea “collectivist.”
Over at National Review, meanwhile, Dominic Pino declared “the larger point” to be that “Oren Cass does not trust you to make your own economic decisions.” When it comes to national security, for instance, that is indeed the case. Pino’s argument suggests we should do away with taxation to pay for a military—if people want defense, they can buy some at Home Depot. Maybe get together a purchasing group (don’t say collective!) to buy an aircraft carrier or something. No? You don’t trust them?
Pino buttress the point by writing that the case for tariffs is “the same style of argument that environmentalists make when they argue for higher energy prices and more government spending on green energy.” Well, yes. The “style of argument” is the recognition that private actors in markets, pursuing only their self-interest, will not always generate good outcomes when their actions create benefits or costs borne by others. It’s one of the most basic insights in economic policymaking and entirely uncontroversial. The issue for the environmentalists is not that they make this “style” of argument, but that they define the environmental problem poorly and propose spending that won’t solve it anyway. Conservatives want environmental protection too, by the way. Or should we reject this “style” and just trust polluters to make their own economic decisions. What could go wrong?
Otherwise serious economists are remarkably comfortable with such arguments and eager to echo and retweet them—any tool at hand to stand against tariffs, I guess. But if you have to abandon the basic rationale for having government in the first place to make the case against tariffs, you may not be winning.
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THIS WEEK AT AMERICAN COMPASS
The Compass Point is from former labor leader, entrepreneur, and Assistant Secretary of Labor Marty Manley, challenging organized labor to rethink collective bargaining: To Honor Labor, Rethink Unions
Roosevelt backed the NLRA not only out of sympathy for striking workers, but also because he believed that industrial unrest compromised America’s ability to confront the growing menace of German fascism. Between the perceived fading of the American dream that motivates much of our era’s populism and the need to reindustrialize in the face of China’s rise, perhaps enterprising politicians can find the right catalyst for today.
Also on The Commons
From the ‘Great Connector’ to the ‘Great Sorter’: UVA’s Sam Pressler wants to reimagine transitions into adulthood besides college.
An Unsafe Bet: American Compass’s Drew Holden laments the rapid rise of online sports gambling and the societal harms it inflicts.
A Constructed Crisis in Charleroi: American Compass’s Mike Needham connects America's dependence on migrant labor to the erosion of economic well-being and social cohesion in small towns.
U.K.’s Labour Party Gets Learning Right: The Progressive Policy Institute’s Bruno V. Manno draws lessons from across the pond for building non-college pathways.
And, on the American Compass Podcast this week, Marc Fasteau and Ian Fletcher of the Coalition for a Prosperous America join me to discuss the history and future of American industrial policy.
WHAT ELSE SHOULD YOU BE READING?
Re: Human Resources… CNN discovers that McDonald’s Touchscreen Kiosks Didn’t Destroy Jobs
No matter how many times the introduction of new technology leads to new and more productive jobs, not labor market chaos, the media always manages to be amazed anew. “Self-service kiosks at McDonald’s and other fast-food chains have loomed as job killers since they were first rolled out 25 years ago. But nobody predicted what actually happened. … Today, instead of replacing workers, companies deploy kiosks to transfer labor to other tasks like handing off pickup orders, help increase sales, easily adjust prices and speed up service.” Conversely, kiosks prove to be poor replacements for humans in all sorts of ways, and deployment has been much less universal than many analysts expected.
Bonus link: Among the nobodies predicting what actually happened was yours truly, in this still-relevant deep-dive from 2018 on how technology really affects labor markets.
Re: The Cruelty Is the Point... in The Atlantic, Charles Fain Lehman explains why Legalizing Sports Gambling Was a Huge Mistake
The inescapable reality of the sports gambling industry is that its economic model relies upon compulsive gamblers losing much more money than they can afford. No matter how many of us think our own use of the platforms is harmless fun, and how many ads promote “responsible gaming,” the reality is that the system only works by bankrupting people and causing misery; every incentive of the sports books is to maximize that. Supporting “legalized gambling from your phone but you know, the moderate, responsible kind” is not actually a position.
Bonus link: If you made it this far without already clicking on Drew Holden’s terrific piece about this on The Commons, go read it now.
Bonus bonus link: How did we get here? The New York Times did a nice job describing how the gambling industry buys state legislatures with “Cigars, Cars & Bars.”
Re: The Old College Try… Sara Hendren considers The How and the Why of Higher Education
I spend a lot of time lamenting the college-for-all mentality and insisting on the need for more non-college pathways. But of course, there are many people who should go to college and the way we evaluate their options tends to stink, too. So I found this five-part series on universities, written by someone within higher ed, thinking about the options in higher ed for her own children, quite refreshing and thought-provoking. The blog posts cover a purpose of college, what college should prepare a student for, the importance of learning prescriptive disciplines, good and bad spaces for learning, and some schools the author would consider.
Re: Hard Cases Make Bad Law… Aaron Rothstein in the new National Affairs on Origins of the Modern Euthanasia Movement
A very thoughtful long-read on a very important and difficult topic that I suspect will become much more central to our politics in the coming years. One thing that makes it so challenging, both analytically and emotionally, and that Rothstein accentuates so well, is the distance between the high-minded philosophical ideals and the grubby bureaucratic realities of euthanasia. Conservatives have an especially vital role to play in helping people understand (and hopefully anticipate) what can get lost in the translation from principles to systems.
Enjoy the weekend!
"Conservatives want environmental protection too, by the way. Or should we reject this “style” and just trust polluters to make their own economic decisions. What could go wrong?"
That is where an apolitical judiciary not influenced by corporate dollars provides quick, efficient summary judgements for traceable liability. That hasn't happened. Enforcing environmental regulations (which admittedly sometimes overreach) has been an uphill battle. The whiff of corporate malfeasance taints the endeavor. This undermines local, state, federal trust for marginalized people that they will ever receive any form of remediation.
That we should move production away from geopolitical risk and towards strategic partners makes sense. However, dynamics and rate of change matter. Capital expenditure and production ramp up take time. The lag between the the implementation of tariffs and the supply side capacity expansion will cause a step change in inflation for the consumer.
Tariffs would need to be balanced with industrial policy and staged to match the lag in the increase in production capacity. Without this, the tariffs would simply be a tax on the worker.