Should Tariffs Be Part of Our Economic Conversation?

Even among progressives today, the idea of tariffs are usually shunned and made fun of like an old racist uncle you have to tolerate at Thanksgiving. Tariffs are what steel workers in out of fashion mustaches support and we are oh so much more urbane than that. In Out of Sight, I also didn’t support the idea of tariffs as a solution to global economic and environmental exploitation. There were a couple of good reasons for that. First, I don’t think they build the international labor solidarity necessary to combat global capitalism. Second, I don’t think they are a political possibility today. They are backwards looking in an age of globalization that mostly we support, even if we don’t think we do. And I stand by both of those points and would not consider myself a supporter of tariffs as a major part of our economic policy, although I do recognize that nations have a very strong interest in keeping its citizens employed.

But should we take tariffs seriously? Should they at least be part of our conversation? We all know what happens when someone suggests them. Annie Lowrey and Dylan Matthews and Matt Yglesias call them moral monsters while these elites blithely ignore the plight of the American working class, calling for minor adjustments to the American welfare state rather than articulating any reasonable job policy for working-class people. This attitude is at least as much social signification as economic policy. But maybe we should rethink them. At least Matthew Cunningham-Cook thinks we should. Now, I don’t think all his arguments are fully fleshed out here. But let’s at least take them seriously.

The decision by progressives to focus exclusively on income and corporate taxation and not tariffs and export taxes is a mistake. Here’s why:

1) Tariffs and export taxes slow down the speed of capital.

As I wrote in November, what Wall Street has always desired is capital that can move at the speed of light. Critical to Wall Street’s success in the last 25 years is its ability to externalize–moving capital that prior was reinvested in Europe and the United States to tax shelters and to (partially) industrialize places like Mexico and Vietnam.

That’s exactly why Wall Street hates tariffs and export taxes. Because they limit the ability to move capital and goods around at will to maximize profitability.

In a way, tariffs perform a similar function to a financial transactions (Tobin) tax: it places sand on the gears of international capital, limiting the ability of banks and hedge funds to manipulate international commodity and capital markets.

There is no question that we have completely failed to slow capital mobility. As I argue in great detail in Out of Sight, this is an enormous problem that we simply have to solve if we want to create stable working and middle classes not only in the United States but around the world. This is also something that apostles of globalization refuse to deal with in their analyses. They wave their hands at the social problems of unrestricted capital mobility. But this is also part (and only part but a real part) of the Trump voter. If you have large numbers of working class people without jobs because their jobs have been shipped abroad, this leads to very real social and political consequences in the nation where you live. It is in everyone’s interest to stop these problems.

So maybe tariffs are useful here. On the other hand, a financial transaction tax and other forms of restricting capital mobility may also work instead.

2) Tariffs and export taxes promote industrialization.

Let’s list some great industrial powers–the UK, the US, Japan, and China. How did such industrialization come about? Very, very high tariffs. By isolating the domestic economy from countries with a higher level of industrialization, it allows for the internal means of production to develop without the specter of commodity-dumping from more advanced nations.

There’s a reason why Britain engineered the infamous War of the Triple Alliance against Paraguay in the mid-nineteenth century–Paraguay’s decision to move towards autarky (basically no foreign trade whatsoever) would inevitably lead to it becoming an industrial powerhouse with the capability to challenge–at the time–Britain’s unquestioning dominance of South America.

I need this argument about the War of the Triple Alliance fleshed out more here. I know a bit about this and given the Opium Wars, it’s hardly unknown for the British to start wars in the poorer parts of the world to promote its own trade. However, the War of the Triple Alliance was not with Britain and somehow, I’m not buying this idea of Paraguay as an industrial powerhouse, even if it doesn’t suffer one of the greatest national disasters in human history as a result of this war. It is true that isolating the domestic economy does help build industrialization, as China shows. But all those industrial products also need to be exported somewhere if domestic consumption can’t handle it so it’s not as if everyone can engage in a protectionist economy if this will work.

This feels like the weakest of the five arguments to me. I could perhaps be convinced otherwise with more evidence.

3) Tariffs and export taxes promote food stability and local supply chains.

It’s the great, barely-told story of the 1990s–the massive migration of Mexican farmers displaced by the dumping of heavily subsidized American grain on the Mexican market. NAFTA’s mandate that Mexico abandon tariffs on grain forced millions of Mexicans off of the land they had tilled for generations.

In another example, as a condition of allowing Jean-Bertrand Aristide to return to power in Haiti, the US mandated that Haiti lower its rice tariff to 5%–completely displacing Haitian rice farmers who could not compete with the grain-dumping from the United States.

For all the talk about local economies, few–if any–advocates have actually argued for the types of policies that allow localized economies to flourish: barriers to entry and exit. Local economies cannot compete with exogenous pricing structures, so the only way to make them sustainable is to separate them via tariffs and export taxes.

This is a pretty good point. The impact of free trade agreements on farming communities is utterly disastrous, unless you have the money for major capital investments, which of course small farmers in Mexico and Haiti and Vietnam do not. Agreements like NAFTA and the Trans-Pacific Partnership are great for American agribusiness. But they are terrible for poor farmers. They lead to people fleeing from their land and a lifestyle they often want to continue living, forcing them into urban poverty and migration, creating the labor force for maquiladoras and sweatshops that American capital takes advantage of. The argument in favor of this is that this cheap food creates lower prices for urban dwellers in Mexico City and Hanoi and Port-au-Prince. It can do this, but it also places those markets squarely within the vagaries of commodity capitalism. And when it becomes of interest for the growers of agricultural commodities to shift their product elsewhere, as it did in for American corn growers during the ethanol craze of the mid-2000s, it can have serious impacts on food prices in those developing countries. Thus you had the rapid rise of tortilla prices in Mexico in 2007, creating a national crisis, as well as rising food prices around the world at that time. American consumers could largely handle this. Mexican and Haitian and Vietnamese consumers could not.

It may well be in the interests of social stability for Mexico, Haiti, and Vietnam to protect its agricultural markets. And as the next argument will suggest, there are real downsides to American agriculture’s massive overproduction of crops that means there’s an environmental argument to be made here as well.

4) Tariffs and export taxes are ecologically sound.

Let’s be clear: the international commodity distribution system is the driver of the climate crisis. Transporting massive amounts of goods around the world constantly requires a huge amount of energy and creates an absurd amount of toxic waste. And then there’s artificial deflation of the actual cost of products because they are produced in countries with little environmental regulation–the radio example that Annie Leonard discusses in the must-watch Story of Stuff.

Were the United States–the world’s largest consumer–to drastically decrease the amount of imports, the result would be an ecological boon. A huge amount of US imports are socially unnecessary, involving a colossal degree of waste that is not internalized into the price.

A similar story exists with exports from the US–a massive reduction could only be a good thing for homo sapiens, a species beset with multiple and converging ecological crises. The top ten list of US exports has oil clocking in at No.3, aircraft and spacecraft at No.5, and plastics at No.8. All three industries need to be significantly reduced in size for humanity to have any chance of surviving the climate crisis.

So this argument has its upside and downside. The U.S. sends its enormous production of corn around the world, producing so much of it that agribusiness has to find new uses for it like High Fructose Corn Syrup or corn-based packing pellets. This comes at a very real ecological cost, as we can see in the dead zone in the Gulf of Mexico and the climate change that results from petroleum-based fertilizers. Reducing our corn production is actually good for the land and probably good for small farmers, if we used some tariffs to reduce import-based agriculture that created new markets for products grown in the U.S. Of course there are limitations to this argument. We aren’t going to grow enough limes and avocados to fulfill the U.S. market. Neither will Mexico grow a lot of crops eaten there today, like apples. So you do have to have something of a global trade in agricultural products unless you are asking people to eat a smaller variety of food. And while you could ask that of them, they aren’t going to like it very much.

Also, the global export market absolutely does market in products that are drastically changing the climate. And those who promote the unfettered globalized economy have absolutely no answer to that problem. But again, if the answer is telling people in developing countries to not live like Americans, which is sort of what Cunningham-Cook is doing here, that’s a hard argument to make effectively, because there is a justice component here that he must account for. And if the protection of national economies through tariffs is just going to stimulate Argentina and India to create their own plastic production, as is his argument about tariffs stimulating national industrialization, I don’t see how this actually then deals with climate change at all.

5) Tariffs stabilize employment and communities.

You can tell that there’s really no intellectual justification for finance capitalism when the best they can come up with is that it engages in “creative destruction.” Who in their right mind would want their system for resource allocation to be based off of “destruction”? Alfred Nobel and other associated war profiteers, but really nobody else.

Drive through the Rust Belt–or take a stroll through the South Bronx–and you’ll see what “creative destruction” looks like.

But because tariffs limit the ability for Wall Street to offshore capital and manipulate the commodities market, high tariff environments mean that unionized plants stay open and people continue to have stable, living wage jobs and community.

This is pretty much true all the way down the line. The arguments for finance capitalism are totally bankrupt when it comes to dealing with local communities. If it’s not policy made from 30,000 feet, the prophets of globalizations lack any sort of answer with what to do with Flint or Buffalo or the Mississippi towns Paul Theroux expressed sympathy for, of course making him the greatest moral monster since Stalin if you are part of the Vox crew.

Say what you will about tariffs, but they do help create stable American communities. And we need stable American communities. If you support unfettered capital mobility and the global economy as it stands, it is your moral and perhaps even patriotic duty to come up with concrete answers that you are willing to tell an unemployed American worker as to what they should do and what you are going to do for them. Similarly, those who do support tariffs need to come up with concrete answers for Bangladeshi workers and Honduran workers too. In a global economy like we have now, we can’t just throw a bunch of workers overseas out of a job too. Or we can, but it’s hardly less problematic than the current situation.

The one difference of course between American workers and Honduran workers is that I and most of you have to live in the United States. Millions of unemployed and underemployed and employed but in three jobs to make ends meet is a recipe for social instability. There are concrete political and social reasons to emphasize putting Americans to work in good-paying jobs where they can have a union if they want one. That has to be a real priority for us, as we are seeing in a period of rising fascism. It can happen here.

Are tariffs part of the answer? They probably can be. I don’t think Cunningham-Cook makes the strongest possible case here, although he is hurt by the lack of space to really lay out his points. At the very least, I think he makes a pretty good case that tariffs should be on the table. And I think those who promote the current economic system have to make a much stronger case as to how this is good for Americans than they ever have to this day.