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Free Trade Dogmatism Is for Losers

 Do you want a nation or do you just want the numbers to go up?

Karl_Wenzel_Zajicek_A_Christmas_market_in_Am_Hof_Vienna_1908
Credit: Carl Wenzel Zajicek

My family got its Christmas tree yesterday. Since moving up to my wife’s hometown, the little seat of a rural county perched on the top of Maryland, we’ve taken to cutting our own trees at one of the several Christmas tree farms in the area. It is an agreeable outing, despite the children’s penchant for wandering off and finding trouble.

Christmas tree farms are a minor miracle. It takes five or six years for a blue spruce to reach a respectably festive height. The tree farmer simply has to predict the future: What will demand and prices be six years hence? How much of the stock should be kept back to make for the huge trees in town squares, which are more expensive but fewer of which are sold? How much should be sold off early to make little trees for apartment-dwellers? And so on. As you drive past the farms, you see the long lines of trees, arranged by gradation of height; against these will the farmer’s wisdom or folly be measured in coming years. 

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Starting up is the most difficult thing. Six years is a long time to wait for revenue on a venture. Farmers subsidize the tree concern with their other work—around here, mostly corn and soy—until it can start to pay for itself. You might say that he is protecting the Christmas tree business until it can develop.

Protectionism, still a dirty word in some circles, is swirling back into the news as the election cycle warms up; President Trump, having completely recast the Washington consensus on trade in his four years, is promising an even heftier schedule of tariffs in his second term. 

The Wall Street Journal’s opinion section is on the case, naturally. Andy Kessler, an economist, Journal columnist, and writer of novels for Kindle, has penned a piece titled “Tariffs Are for Losers.” His argument: “We have the world’s strongest economy. Tariffs are a sign of weakness. Let markets, not vote-buying politicians, decide which industries will bloom from the ground up. Tariffs and industrial policy are for losers.”

There is an admirable chutzpah in sticking to your guns despite the changing tides and currents of public opinion. Less admirable is lazy thinking and hidebound dogmatism against the tides and currents of reality. Kessler makes a single concession, but a revealing one: “About the only government trade policy that makes sense is denying our enemies advanced technology, and that’s really a defense policy.” 

Don’t send for an economist when it comes to politics or war. Markets are built on certain assumptions: general peace, the rule of law, reciprocity of contracts, and so on. The creation and maintenance of these premises are the sphere of the political, of the state. Markets in places without policemen and courts quickly fall prey to coercion and piracy (which, you might note, tend to be anti-competitive). Without the state guaranteeing market conditions—in the modern era, this means specifically the nation-state—commerce becomes risky. 

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The last century’s era of free trade was underwritten by a few conditions: the fact that the U.S. was the only industrial power left after the Second World War, but perhaps more importantly by the fact that the West was a closed bloc dominated by American policy. The Soviet world preferred a closed system for ideological reasons; none of the Third World nations were strong enough to kick against American interests very successfully. Under these conditions, a heavy protectionism would have been otiose.

Yet time has passed. The dream of doux commerce has failed. China has become more, rather than less, aggressive since its integration into the world economy. After a period in which the world was very small, it is growing big again; the American century is over. America is neither so dominant nor so assured of foreign goodwill as it once was. If Kessler were to read the opinion section that hosts him, he would learn that there are several wars afoot in the world and several more congealing on the horizon; his editors think we should be involved in just about all of them. Where are we gonna get the guns, Andy? 

From the perspective of defense, we are, in many respects, starting from next to scratch industrially. Kessler points out that “U.S. industrial capacity [is] already near an all-time high”; so it is. Yet not all manufacturing is the same. Not all widget factories can be converted for the production of artillery shells, something that we are running out of in this curiously bloody peace of ours. Heavy manufacturing is capital-intensive and relies on skill sets that can fall (and have fallen) out of the labor pool. “Tariffs denote weakness, not strength,” Kessler says, pointing out that China uses them to promote its inferior products domestically. The unhappy fact of the matter is that we are weak in certain vital sectors, and we must catch up. (And, contrary to Kessler’s insinuation, we can catch up without relying on shoddy products; anyone who knows a thing or two about guns knows that Chinese steel isn’t winning because of its superiority to the American counterpart.)

It looks increasingly likely, if not inevitable, that the U.S. will be involved in a large-scale conventional war in this century; sooner rather than later, if the Journal’s editors have their way. There has, to date, never been a successful free-market war effort. Enterprising soldiers who think they can do it better do not break off to form their own armies; the invisible hand does not organize armaments and send them to the front; the manufacturers of materiel are strenuously discouraged from choosing between combatants to see who can bring the best incentives to bear. The anticompetitive regime is total. All things being equal, you want the state to be able to commandeer everything from the mines to the steel mills to the ammunition factories. That means preferring those vital industries be within the territory of that state, or, as during the Cold War, in other countries whose policy is more or less in lockstep with your own. There is a reason Stalin focused on building heavy industry rather than the agricultural sector. (Russian harvests didn’t reach pre-Revolution levels until the 1960s.) It’s easier to buy grain than to buy guns, or the stuff for making guns.

“Tariffs steal the opportunity cost of doing something better,” Kessler writes. In strictly economic terms, that may be true; but national sovereignty is not measured only or even primarily in economic terms. The early Republic’s tariffs allowed the fledgling nation to escape the mercantilist subordination to Great Britain that persisted even after the Revolution. Even in the period of ideological free trade dominance in the British Empire, the viceroys of India tariffed imports from Old Blighty into the subcontinent to cultivate domestic manufacturing. (A successful venture, by the way—this created the conditions for the Indian textile industry to establish and flourish.)

There are smart ways and dumb ways to do most things. Kessler mentions the CHIPS Act in passing; many of the provisions of that bill are in fact dumb, as we have written. Yet Germany has managed to do things the smart way; the Germans have an advanced, tech-forward economy without having sacrificed the industrial base. Kessler points out the failed subsidy programs of yesteryear; he passes over the fact that much of the technological sector he fetishizes is downstream of massive government investment in defense firms. (You can literally point to the building in Arlington where the Internet as we know it was invented by federal contractors.) 

Kessler makes much of how tariffs are the state “picking winners and losers.” Well, yes. We want the American people to win, and those who wish to better themselves at our expense to lose. Times change. Calvin Coolidge, not exactly a big-government radical, kept tariffs high because it made sense in the environment of the time. A period in which lower trade barriers were advantageous came; we are now back in an era where some protective measures are in order. It is as stupid to be a free-trade radical in 2023 as it would have been to be a protectionist radical in 1953. The hobgoblin of little minds seems to be hard at work at the Journal.

So we return to the Christmas tree farm, where something that needs protection now may be profitable in the future—or needful. Stewart Brand tells a story:

One of the Junior Fellows stuck his neck out and suggested that there might be some worthy oaks on the College lands. These colleges are endowed with pieces of land scattered across the country which are run by a college Forester. They called in the College Forester, who of course had not been near the college itself for some years, and asked him if there were any oaks for possible use.

He pulled his forelock and said, “Well sirs, we was wonderin’ when you’d be askin’.”

Upon further inquiry it was discovered that when the College was founded, a grove of oaks had been planted to replace the beams in the dining hall when they became beetly, because oak beams always become beetly in the end. This plan had been passed down from one Forester to the next for over five hundred years saying “You don’t cut them oaks. Them’s for the College Hall.”

Protecting our industrial base is a decision we have to pay for now; not protecting our industrial base is a decision we will have to pay for, with heavy interest, in the future.

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