Why Not Tariffs?

I recently watched this video by John H. Cochrane, who dubs himself “The Grumpy Economist.”

If I were a snarky type, I’d say “the 1980s called and wants its trade policy back.” Dr. Cochrane simply ignores the lessons we’ve learned from trying to implement unilateral free trade with countries that are unwilling to reciprocate and, worse, have weaponized trade to wage economic and even kinetic war on the U.S. This is the core of Trump’s tariff policy, it’s no secret, and I’m really disappointed that Dr. Cochrane fails to even mention this. Economists like him — doctrinaire, ignorant of facts on the ground, arrogant — are why so many Americans disrespect the profession.

Here are my specific thoughts on this video:

• It opens with an appeal to consensus — “economists uniformly dislike tariffs.”  Maybe in 1980 or 1990, but not today. There’s a robust debate over many aspects of free trade, as I’ll mention below. Our experience with the debate over climate change should make us immediately suspect of appeals to consensus.
•  What happens to dollars that go to China? They use them to buy things back from the U.S., or products from other countries that accept dollars, and those countries then use them to buy products from us, or they “invest” in U.S. securities (he means t-bills). This is, in fact, part of the classical case for not worrying about “trade deficits” or surpluses. It’s undeniably true. Here’s the problem: When our trading partners refuse to allow U.S. made products to be sold in their countries or impose high tariffs on them, which they routinely do, the money they get from this asymmetrical trade is used to buy products (particularly energy) from Russia, Iran, Venezuela, and other overtly or covertly communist countries, who then use those dollars to finance the building of military forces, election stealing enterprises, drug manufacturing and smuggling, human trafficking, spying, and the tools of surveillance used  to keep their own populations from protesting the higher prices and fewer choices they are forced to endure.
• Dr. Cochrane pretends this isn’t happening, that if he buys a bicycle from China, someone in China will eventually buy a made-in-the-USA cellphone or pair of blue jeans. That happened only briefly, when China and Russia pretended to be transitioning to capitalism and free societies. Within a decade of being granted membership in the World Trade Organization, “formerly” communist counties were routinely violating international law to steal the technology to make cellphones and counterfeit Levi’s (and countless other products) while forbidding the import and sale of those products to their citizens.
• Dr. Cochrane’s off-hand comments about the long term consequences of huge trade imbalances ought to raise an eyebrow. “Of course, someday that comes due, eventually trade balances,” he says.  Eventually, Americans “will have to work 10 or 12 hours a day” to send products to China. What an admission! Business executives often act on short-term incentives to the detriment of their employees and customers; so too elected officials who don’t think past the next election. It’s disappointing to see an economist thinking this way. But it’s even worse than this: It is, in fact, the intention and plan of the Chinese Communist Party and the many foundations, universities, and governments they have infiltrated to hollow out the manufacturing capability of the U.S., in order to destroy the middle class and fuel class conflict which in turn fuels support for strong government interference in economic affairs. Until Donald Trump came along, they were well on the way to achieving this objective. Right now we are in the discovery process of determining whether in fact Trump was too late to stop our imminent demise.
• “It doesn’t matter if trade is fair or balanced,” Dr. Cochrane says, since both parties benefit from voluntary transactions. This is willful blindness toward the major trade barriers, tariffs, dumping, currency manipulation, fascism, and theft of intellectual property that unilateral free trade has made possible. Threatening to impose tariffs is a highly effective way to bring the political leaders of other countries to the negotiating table to reduce those barriers and keep U.S. dollars from going to countries that are intent on destroying us. Trump has discovered that politicians are willing to remove these barriers in return for security guarantees, foreign aid, access to the U.S. market, and promises of U.S. investments. This is, finally, an administration willing to defend the U.S. from an existential threat from hostile forces around the world. Only an ivory tower pointy-headed academic well past his expiration date could be unaware of how these recent developments have profoundly changed the debate over tariffs.
• Dr. Cochrane concedes that “narrow exceptions for national security” may be necessary to his zero-tariff prescription. Our history of subsidizing the rise of communist regimes and suppressing freedom movements in those countries ought to make him reflect on just how “narrow” the national security exception ought to be. We are now living with the long-term consequences of a naive globalist ideology that failed to see how communist regimes could weaponize our well-intended policies, and the situation is dire indeed.

In my humble opinion.