The Price of Tea in China

The state of American manufacturing has become a major issue in this political season, resonating with voters after eight years of serious declines in labor participation and opportunity that now effect people all across the nation. The continuing decline of the American economy (both as it is perceived as well as its very real socioeconomic impacts) have energized the people this election in a way that could result in major but troubling changes.

We have five major candidates, all but one offering very different ideological solutions without much in the way of actual difference. Bernie Sanders promises his wild eyed supporters naked western socialism, including more government, massive state reforms, more government, subsidization of education and industry the likes of which the United States has never seen nor can afford, and more government. Both Hillary Clinton and John Kasich, despite being from two different parties, offer the same center left sociopolitical interventionism that has been bleeding the American economy for the last twenty years. All of these candidates are pushing policies that suffer from the same ultimate problem. Half of the country cannot produce enough excess productivity to pay for the entire other half of the country. It is literally not possible.

Then we have Donald J. Trump, a self proclaimed captain of industry, billionaire playboy of uncertain virtue, whose personal claims about his personal wealth vary wildly based on the time of day and who you ask. It is, however, his pedigree of being “really rich” that he has staked his political claims on, and the American public has, at least 37% of it, bought into his claim. While he has expressed his belief in “free trade“, he clearly believes government has a role in influencing American education, health care, and industry. It is his protectionist and nationalist positions on trade and industry that most connects with his devoted supporters. These positions are also the most troubling aspect of his potential candidacy.

“Those who cannot remember the past are condemned to repeat it.”
-George Santayana-

On April 27th, 1773, the British Parliament passed possibly the most (and only) infamous government act regarding tea in the history of the world. The rather bluntly titled “Tea Act” was passed to financially shore up the East India Company’s weakening financial position. Being one of the most powerful and extensive companies in history, “The Company” was something of a symbol of Britain’s economic dominance in the world, being deeply tied to British foreign and trade policy, and dominating trade lanes around the world. From Boston to Beijing, the East India Company was, in many ways, the first “too big to fail” corporation.

Even as powerful as the Company was, it was not immune to the laws of the market. The Company habitually fell into financial hardships and, in 1773, found itself with huge surpluses of tea. At the root of the problem were foreign competitors, most prominently the Dutch, undercutting British tea prices in the colonies. Since the tea sold by the Dutch was as good as that provided by the British, the colonists unsurprisingly chose the less expensive Dutch tea, which was smuggled into the colonies in huge amounts in open defiance of the unpopular “Townshend Acts“. Being patriotic British nationalists, the British Parliament passed protectionist measures that eliminated duties owed on teas from England or shipped directly to the North American colonies (from British colonies of origin).

This effectively reduced the overall price of British tea in the colonies, compared to its competitors. The British believed that the American colonists couldn’t possibly find complaint with paying lower prices for British tea. The American reaction to the Tea Act and Parliament’s attempt to pick winners over losers is a matter of American history. How ironic it is, then, that today so many who claim to be patriots are supporting a candidate with a government policy not unlike that which helped spark the American Revolution over two centuries ago.

A traitor is everyone who does not agree with me.”
-King George III-

Now that American manufacturing finds itself struggling on an international stage much the same way as the East India Company did, for many of the same reasons. The leading GOP candidate blusters about solving all of our myriad problems by placing tariffs on foreign manufactured goods, thus making American goods more competitive with foreign made goods. This would, by Trump’s rather simplistic calculus, bring American jobs back to America. Unfortunately for Trump and his many wild eyed supporters, this tariff solution is no more plausible when it is proposed by Trump than it is by Bernie Sanders (who, yes, also suggests a tariff, for exactly the same bad reasoning).

Three facts should be painfully clear to anyone who takes a deep breath:

  • Forcing Americans to pay higher prices on goods coming into our nation does not actually make American goods any more affordable. So Americans are harmed economically.
  • Artificially making American products more competitive in the United States does nothing to make them any more competitive anywhere else in the world and generally instigates retaliation which harms everyone. So American manufacturers are harmed economically.
  • And artificially inflating the price of goods coming into the United States does not make it any less inexpensive to make them somewhere else in the world. So the very problem Trump and Sanders both intend to solve is left conspicuously unsolved.

The failure of American companies to compete on the global market is a complex issue and one that populists candidates like Donald Trump and Bernie Sanders will make a lot of political hay over. Their largely uneducated, working class supporters will respond to these infeasible economic plans with loud applause, no matter how much anyone tries to point out how certain these economic plans are to fail. Though regulation and taxation can have tangential effects on the production decision, the primary reason American manufacturers have moved to international markets has little to do with either environmental regulations or corporate tax rates.

The number one reason that something is made anywhere else in the world other than the United States is exactly the same reason that Dutch tea prices were cheaper in 1773. It was cheaper to make it. When the amount an American manufacturing worker is paid for an hour of work is five times what it costs to have a foreign manufacturing worker for a full day of work, production will not be done by the American worker. Blindly protecting American wages has always been a leftist political platform, and Americans are paying the price for tolerating socialist populist candidates, who have committed politically to devaluing American labor by making it intolerably expensive.

This is not a popular position, but popularity has never had any relevance to the truth of a statement. Incredibly, both Trump’s and Bernie’s proposed solutions would be worse than doing nothing at all, because what they propose would exacerbate an already tenuous trade position by instigating trade wars that the United States is not in a fiscal position to fight, let alone win. To save the American economy, including American manufacturing, we must take a long hard look at our misguided Minimum Wage laws and restore sanity to our fiscal policy, so the American economy can no longer be held hostage by often hostile foreign powers.

True patriots understand that economic liberty requires economic self sufficiency. If we turn to the government to solve our problems, we must violate our principles of Liberty and conservatism to do so. Make no mistake, American manufacturing is crucial to the health and stability of our nation, but it is not up to the government or its politicians, no matter how well meaning, to interfere in the fundamental freedom to contract among its citizens. If more jobs is the goal, removing laws and regulations that directly interfere with employment is where we should start. As a great man once said, “Government is not the solution to our problem; government is the problem.

Liberty is For The Win!


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