In 2009, then president Barack Obama and the Democrat controlled congress passed a massive $800 billion stimulus package (in a party line vote) that was intended to propel the economy out of the Great Recession. By injecting hundreds of billions in loans, tax rebates, and raw cash into the “green industry“, banks, and infrastructure, they believed following the Keynesian economic model to the letter could rapidly turn the economy around. It didn’t.
As the economy continued to contract, finally hitting bottom in mid 2009, Obama instituted tariffs meant to punish Chinese tire manufacturers for “unfair trade practices“. Jobs were lost domestically, and consumer buying power declined, entirely because of Obama’s naive policies. Ultimately, Chinese tire manufacturers didn’t really relent, and Americans were simply forced to pay more for foreign made tires from other countries other than the United States. In other words, it didn’t work, either.
This corporate socialism (government intervention in the market at the corporate level) never has positive effects on the economy in the long-term and these measures, be they direct subsidies, indirect tax rebates, loan guarantees, federal grants, or protective tariffs, always push unseen costs onto the government and conceal inefficiencies that the market will eventually correct for. Trump’s Carrier deal, for example, simply delayed the inevitable, and his “easy to win” trade war has put American workers out of the job and shuttered American manufacturers.
We should beware of the demagogues who are ready to declare a trade war against our friends—weakening our economy, our national security, and the entire free world—all while cynically waving the American flag.
– Ronald Reagan
The lessons of just a decade ago have been lost on the Republicans of today, as they blindly push forward with trade policies that failed under Obama and are fairing no better under Trump. It’s clearly time for a refresher course in the economics of foreign trade…
- Natural demand, not capital investment, ultimately drives growth. If there isn’t strong market demand for a product, no amount of capital infusion is going to make consumers want a product they don’t want.
- There are simply too many foreign competitors for protectionist policies to work long-term. If foreign options are less expensive competitors than domestic products, consumers will prefer them.
- Protectionism, particularly tariffs, don’t make domestic products more competitive abroad. In fact, especially if any materials or components are subject to tariffs, domestically manufactured products will be even less competitive.
- These policies damage trade relationships with both friendly and hostile trading partners. This bad faith bargaining creates barriers to future trade and damages natural demand in those foreign markets.
- It saps the American consumer’s buying power, either in the short-term (via higher prices caused by tariffs) or in the long-term (via currency deflation caused by debt). Whether it’s today or tomorrow, eventually every tab comes due.
- Finally, it creates the justification for retaliation and simultaneously undermines the case for free market exchange. It’s very hard to be a beacon of capitalism while so readily abandoning it.
Once upon a short while ago, Republicans feigned acceptance of these principles as properly basic, but now it seems they professed these beliefs in vain. At the same time, it’s hard to imagine the cacophonous opposition to Trump’s misguided policies coming from the left will last beyond his tenure in office, after all, Bernie Sanders has long vocally opposed to free trade, and the left were much less agitated when these were Obama’s ideas.
So it’s up to us few who understand that stupid ideas don’t become less so simply because they are ours. We are conservatives, after all, and we are supposed to conserve what is tested and true.
Liberty is For The Win!