protectionism

What Thomas Sowell (and Libertarians) Get Wrong About Trump’s Tariffs

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The point of Trump’s tariffs is to get rid of all tariffs.  I can feel the blank stares of my ideological and indoctrinated friends who are hyperventilating about a blip in stock prices and loses for billionaires.  

I get it, Libertarians, you really do not want the government to do anything and Thomas Sowell said stuff about tariffs being bad, so in unison you bleat: “Tariffs are taxes!”

But your sloganeering is not argumentation and—while I generally believe less is more in the case of government—I’m stuck here in the real world with Trump.

Economic theory has it’s place, as do ideals, and yet this isn’t a matter of Sowell said it, I believe it, that settles it.  

Marxists also believe their man’s theory will work if properly applied.  Ideological people can’t accept when their theory doesn’t work in reality, they will always insist “that wasn’t true [insert ideology here]” and continue on their merry way muttering that next time it will work—if they could just brainwash more children and eliminate more enemies of the revolution.  There’s never a reevaluation in light of the actual evidence.

True X hasn’t been tried.

So, without further ado, let’s dive into where free trade fails and Thomas Sowell after we do that…

Can Hell Be Made Worse?

After the devastating earthquake of 2010, I joined a group of young people on a trip to Haiti.  It was a Christian mission and hosted by a Haitian pastor.  This grandfatherly man had, at one point, been in business and ran a factory manufacturing clothes.  

While I’m not going to make a case against charity or giving, there is often a cost that is unseen and a greater dependency created in the end.  The Haitian pastor was forced to shutter his operation and lay off all of his employees after the combination of cheap imports and donations made it impossible to compete in the marketplace.

But the even sadder story was in a place in the country called “little Africa” where rice farmers tried to make ends meet.  No, they were never rich.  However, they had scraped a living out of cultivation up until Bill Clinton started to dump subsidized American rice on the Haitian market.  These people were desperate.  They mobbed our delivery of a bit of relief and aid.

I know, I know, this isn’t real free trade.  But it is the kind of situation we are in.  Putting our favorite theories and fandom aside, and ideals that could possibly work if all abided by the same rules or assumptions, we don’t live in that fantasy land.  In the real world, it is like Haiti where subsidized products are exported and some will disproportionately suffer consequences.  

Yes, in theory, Haiti still benefits, as a whole, from importing cheap or free stuff.  But we can also make the argument that this kind of unfair trade has undermined a situation that was already fragile.  A government that would protect Haitian industries would not let subsidized products be dumped without something stabilizing in return.

Thomas Sowell vs Donald Trump 

Sowell is a great economist and provides a good answer to ‘progressive’ theories.  His being a guest on the Rush Limbaugh show has made him a favorite of conservatives—wanting validation for their free market and small government views.

As an academic, Sowell’s work dealt mostly with economic theory and to argue against all tariffs he uses abstraction “protectionism hurts market efficiency” and that they don’t solve issues like wealth gap, that they favor special interests, and retaliation against tariffs hurts exports, and they lead to long-term stagnation.  And he may be right if we lived in a vacuum sealed petri dish.

Trump, by contrast, lives in the very messy world of politics and negotiations.  He runs on instincts and intuition, not by intellectual exercises or writing papers or creating a set of principles.  He comes in with the big ask, the threat or the bluff, trying to disrupt and even create a bit of anxiety in the other side, before eventually bringing this process to a resolution that makes all parties leave with a feeling like they’ve won.

This is how we got from the “fire and fury” rhetoric—with the political class and corporate media hyperventilating about this being a path to war—to Trump being the first US President to set foot in North Korea and then shaking hand of Kim Jong Un.  It is just his method of changing the conversation or moving the Overton window.  You can’t get from point A to point B without shaking up the old status quo a bit.

Trump isn’t ideological, like Sowell, or trying to live off a written in stone economic code of conduct.  No, when he has leverage, or sees an opportunity, he uses it.  There are many countries tariffing US goods.  And our trade deficit is enormous.  So why is it so out of line for our President to cry foul or use the threat of reciprocal tariffs in other to back these countries down and then get a better deal for his country?

Surely Sowell isn’t against pushing for the elimination of tariffs—which likely is the end game.  And, furthermore, Trump’s brazen actions are far more likely to get results than the fine professor’s best lecture on economics.  Already other countries are lining up to start talks about removing their unfair tariffs against the US.  It is a game of musical chairs and you don’t want to be the last one looking for a seat.

Power, Principles, and Persuasion 

Marxism is about the application of power, Libertarians are about strict adherence to a set of principles, but Trump is different.  He is about persuasion.

Marxism is a hammer—raw power of the mob, trying to smashing the old order to hand control to the workers, or so it claims. In reality, it’s a machine for centralization: seize the levers, dictate terms, and dress it up as justice. Think Soviet bread lines or Mao’s famines—equality morphing into control. Libertarians, by contrast, wield a rulebook, not a fist. Their creed—liberty, markets, entirely hands off—is sacred, rigid as stone. Tariffs? Sacrilege. Sowell represents this.  Marxism a power grab, and libertarianism a fortress of unattainable ideals—both are better to be left as theory rather than an approach to real world negotiations.

Marxism would’ve sparked a trade war, not talks; libertarianism would’ve let markets bleed out. Trump’s different—he’s making countries dance. China grumbles but hints at softening; the EU’s haggling too. Stocks have dipped, and Sowell’s costs loom, but the moves are now undeniable: Vietnam’s concessions, India’s play, Japan’s hustle. It’s not a system winning—it’s Trump, raw and loud, proving persuasion trumps power or principle. He’s bending the world his way, one bluff at a time.  He is about persuasion—messy, unscripted, a vibe that bends the room.  

Tariffs are the threat, but trade that is truly free and fair is the actual goal.  And Trump is further along in achieving this simply for his boldness alone.  Maybe he’s not doing it the ‘right’ way or by conventional means, yet who says that we can’t try a new approach to get some better results than we’ve been getting?  The people who have been leaving the American worker behind tot decades now?  As my 13-year-old son would say: Let him cook!

Practical Solutions for Filipino Farmers and Market Fluctuations

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Problem: Small scale Filipino farmers plant not knowing what the price will be by the time the crop is ready for harvest. When the price drops due to oversupply of vegetables the farmers barely make enough and sometimes even end up dumping their crops because the cost of transportation is greater than the value of the vegetables.

The problem is three-fold. First, it is the inability of farmers to see the whole picture of who is planting what crops, which results in overproduction and then drives market prices down. Second, it is a problem of markets being mostly local, with little to no access to other markets, this keeps prices lower. Third, there is not enough coordination between domestic farmers and government agencies that control the importation of agricultural goods.

Solution: The Department of Agriculture (Philippines) needs to study the market to find out what amount of vegetable production is needed. Once they establish a baseline, then they should come up with a voluntary program that will aid farmers in deciding what crops to plant today based on their projections of future demand.

The Department of Agriculture (Philippines) could issue a quota voucher to farmers, who had enrolled in the program, to plant crops based on the projections and granting them certain protections for if the market price does drop. In other words, if there is a market need for a particular amount of green beans then the agency could issue a proportional number of vouchers. This, assuming import controls, would stabilize the markets and prices. And, if the market price dropped anyways, abiding by the voucher system would entitle the farmer to some compensation.

Another way to get better prices for isolated farmers is to facilitate the connection to a broader market. Access to markets beyond the local region is one way to increase the value of crops produced and also to stabilize price fluctuations. Government contracted transportation and distribution could be a part of this or it could be entirely put out to bids with private contractors. The transportation costs to be offset by the better prices in the destination market, the farmer would get the voucher guarantee price and the rest would go to the transportation contractor.

This sort of analysis and organization could also be done independently of the government. But it would take a significant investment. The national government would be in a better position to facilitate this than a private entity of limited resources. That said, universities could help to develop the models of the agricultural markets necessary to determine how many vouchers should be issued for each kind of crop. It would need to be a collaborative effort. Maybe with the help of transportation cooperatives between these small-scale farmers?

And one key is to incorporate the local ‘grassroots’ input, as well, as a strictly top-down central planning agency would likely fail. Central planning generally doesn’t work and especially not when it removes the autonomy of individuals to act in their own self-interest or allow choice. Participantion would need to be voluntary and incentives market-based rather than artificial. Ideally it would be self-sustaining and entirely funded by the beneficiaries.

Finally, yes, protectionism may be bad in excess, as in North Korea. However, any country that wishes to maintain domestic industry and jobs must moderate foreign imports. Haitian farmers learned this lesson the hard way when cheap, subsidized, rice exports from the United States destroyed their already meager profits and forced more of them to compete for the limited opportunities for employment in the cities. So it is incumbent, on the government of the Philippines, to control agricultural imports for the benefit of domestic producers.

Anyhow, some ideas.

Will the Luddites have the last laugh?

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Technological advancement has always come at the expense of jobs.  

Today one farmer (with machinery and modern practices) is able to do the work that would have taken a hundred people to do a century ago. 

Did this mean ninety-nine people are now out of work?

No.

For every person who lost a job in farming there was opportunity gained to do something else.  Because of technology one farmer can feed 155 people and these 155 are now free to produce other things.

The progress of the past century would never have been possible without the layers upon layers of technological innovations that cost jobs and created opportunities for people to employ themselves elsewhere.

At each step of the way there were Luddites (those who resist labor saving technologies and innovation that might cost them their current job) and thankfully they could not hold back the march of progress or we might all still be subsidence farmers barely able to feed ourselves.

Those who lost employment due to technological advancement found other profitable work.  Not only did we gain the added production of the machines that replaced human labor, we also gained through freeing people (who once did the work the machines took) to do other profitable things.  

The result has been exponential economic growth and an era of prosperity unprecedented in recorded human history.  Automation may temporarily cost jobs, but the long-term result is greater productivity and with that greater wealth overall.  We have tremendous opportunity over our ancestors because of technological advancements.

Despite this, like the meme above, modern Luddites still resist technology trying to protect jobs.  They do not understand how jobs lost to machines leads to new opportunities and greater productivity that benefits them.  

They would rather do like New Jersey did to protect jobs by making self-serving gas stations illegal.  It is quite literally a counterproductive economic policy because it keeps people tied down to jobs that can easily eliminated without much loss.

Innovations like vending machines, ATM’s and Redbox dispensers have added convenience.  No longer do we need to bank during banking hours or wait until Blockbuster opens to rent and return a movie.  

Sure, in each case there was a potential job opportunity lost, but with each lost opportunity is an opportunity gained to do something else and a chance to add more value to the economy than would otherwise be possible.

The result is quite obviously good in overall terms…

This is not to say there hasn’t been pain for some along the way.  Technological advancements (like globalization and trade) benefits the whole economy, but it also can cause suffering for those who are unemployable because they are unable to adapt and take advantage of the created opportunity.

Not every factory worker who had their job replaced with a machine (or outsourced) is intelligent or skilled enough to take advantage of the opportunity to do something else.  Sure, they do benefit from the lower prices, but also might not earn the wages they once did and can come out on the losing end. 

However, most people, and certainly the economy as a whole, benefit from the greater production, the lower cost for goods and the opportunities created.  Few would actually wish to return to a time before the Industrial Revolution and our age of technological advancement.

For every job eliminated there has always been new opportunities created for more skilled labor and professional work.  That is how things have gone until this point and one might assume this is how it would continue ad infinitum.

But do all good things come to an end?

Up until now machines have been useful for eliminating back breaking and repetitive physical tasks.  As a result more people have been freed to do mental or creative work rather than manual labor.

Technology has now advanced to where we might soon reach a tipping point where all human work can be replaced.

According to the analysis of some (please watch this: Humans Need Not Apply) we are nearing a point when even the most skilled professionals and best of creative minds will be outclassed by technology…

What then?

What happens when there is zero opportunity to do something that can’t be done cheaper, more efficiently and better in every way by machines?

What happens when all human labor is worth next to nothing and only capital like land, mineral resources or machines have value?

Our future seems a paradoxical combination of utopia and hell…

On one hand, in this future we will have the capability to produce more than ever with great ease, innovation and efficiency will reach levels humanly unachievable.  This will mean more wealth than ever before and theoretically we could all eventually go on a permanent vacation.

On the other hand, most people (unless they already own land and machines with productive value) will have little to offer in economic terms and no way to advance.  The price of goods would drop, but wages would drop faster and followed to conclusion we would all be unemployed, unemployable and most of us would have nothing at all.

But it would likely never get to that point.  The real tipping point would be when a critical mass of people become unemployed, know they are unable to compete with those (who by good fortune or superior intelligence) who already are established. 

There would be a revolt against the establishment.  Capital of production (machines and land) would almost need to become the property of all people.  Goods and services created would need to be distributed evenly amongst the people.

At this point, once the revolution is over, assuming the machines don’t rise up against us, all we would have left to do is contemplate our existence in a world where all other work is done.  We would spend our time exploring, being entertained by our machines, building relationships and reproducing—there would nothing else left for us to do.

That will not happen overnight.  But, with self-driving vehicles right around the corner, my current occupation (transportation) will be the first in line to go the way of the horse.  So, at very least, I need to think of what my next move will be…

Your thoughts?