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Do Tariffs Create Prosperity? Challenging the Populist Right on Trade

  • trade restrictions

Tags Protectionism and Free TradeU.S. Economy

08/05/2022
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Although I am excited about the prospects for liberty potentially offered by the populist Right, I find their misunderstandings regarding international trade frustrating. And their skepticism of trade isn’t a nuanced critique, say, of trade policy with China and the vulnerabilities that may result. Rather, it appears to be an outright hostility to international trade as such. (It seems to me that unfortunately, much of the dissident Right is skeptical of free markets generally and that this skepticism stems from an ignorance of economics, coupled with the inexplicable yet common belief that the GOP establishment is full of free market fundamentalists.)

I encountered this hostility in a recent episode of the This Is Your Country podcast in which the host, Trump’s White House political advisor, Paige Willey, essentially argues that trade restrictions were fundamental to the American founding, which was news to me. Her case for this consisted of quoting mercantilist Alexander Hamilton’s statements in Federalist No. 11.1 (This is reminiscent of Chief Justice Morrison Waite’s reference to Thomas Jefferson’s use of “separation between Church and State” in a private letter—rather than in any record of constitutional debates—as if it represented the singular view of “the Founders” regarding the First Amendment’s Establishment Clause.)

Although Hamilton had promised in his 1791 Report on Manufactures that the protection of infant industries would lead to a permanent reduction in prices, James Bovard comments that Hamilton “neglected to explain why higher prices always lead to lower prices, but that did not deter subsequent generations of protectionists from invoking him as if his report had been handed down from Mount Sinai.”

And for Willey, the main issue for the Founders was not that trade policy should be overseen by an independent and sovereign national government but that import restrictions are necessary for domestic prosperity! She claims that one of the first acts of Congress was the Tariff of 1789 “because that's how you make your country strong and make your economy functional.” She also says that America’s enemies weakened her by flooding her with cheap imports. (Drowning your enemies with inexpensive goods is a bold strategy.)

Willey also seems to think that tariffs create a free lunch for Americans, stating that “tariffs raise revenue without directly taxing U.S. citizens,” as if statutory tax incidence determined actual tax incidence. Even in models of international trade involving “large countries” (that is, those with “market power” and therefore the ability to have some control over the terms of trade), tariffs make consumers worse off. The party that gains the most is the government. It’s rather strange how much some on the right love this particular kind of tax.

(It’s noteworthy that when it comes to economic sanctions, people generally understand them as mutually harmful. For example, Joe Biden was recently asked how long Americans will have to put up with high gas prices because of the war in Ukraine. Clearly it’s easy to understand how restricting oil imports is meant to harm Russia but also comes at a cost to American consumers. But for some reason, protective tariffs are not so easily understood as hurting domestic consumers.)

Willey’s take is interesting in light of what is commonly taught in public schools (and therefore suspect on its face) about constitutional history and about why the Articles of Confederation were replaced with the US Constitution. I was taught that one of the primary shortcomings of the Articles was the central government’s lack of power to dictate trade policy among the states and that a great advantage of the Constitution was to take trade policy out of the hands of the states and turn the union into one large free trade zone.

Regardless of whether this (or the centralization of power) was a primary reason for adopting the Constitution, it is undoubtedly the case that removing trade barriers between the states has led to greater prosperity. This creates a difficulty for  Willey: if import restrictions are necessary for prosperity, it would be disadvantageous (at least for some states in the Union) to have the country be a free trade area.

If restrictions on imports from other countries benefit the domestic economy, why wouldn’t Arkansas benefit from restricting imports from other states? And why stop at the state level? The logical conclusion is that we could avoid the Dickensian dystopia of the Industrial Revolution by going back producing the vast majority of what we consume at home.

As Gary North stated, free trade is the litmus test of economic reasoning. It is difficult to see how the dissident Right benefits from this state of ignorance. If they truly want to put Americans first, they must understand the destructive effects of tariffs, especially in American history.

  • 1. She also quoted John Jay about European powers being rivals in the navigation and carrying trades and those powers not wishing to see those industries flourish in American hands, as well as Thomas Jefferson, who stated: “Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains.” It’s unclear how these quotes justify her claim that the Founding Fathers understood tariffs as the key to prosperity.
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Contact Tate Fegley

Tate Fegley is a Postdoctoral Associate at the Center for Governance and Markets at the University of Pittsburgh. Research Fellow at the Independent Institute.

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