Trade Wars, Tariffs and Free Trade

Dear Friends,

It seems to me, trade wars are always really about political favor, and as such are oligarchical in nature, however, a system of absolute reciprocal tariff system would be fundamentally fair. No matter what form of political favor involved, the foundation of all trade wars is political, possibly the faction in power pays back it’s political backers with tariffs or import restrictions, to lower their exposure to foreign competitors, it could be strategic in the threat itself to pry some concession from a high tariff nation, or it could be in the name of populism, all of which are nakedly political. Anything that is political helps one faction and harms the rest, which makes it oligarchical. Not only are trade wars political and therefore oligarchical, free trade is the best policy if human prosperity is the goal. This seemingly inevitable trade war with China is no exception… in that it is political.

Tariffs say more about what faction is in control than anything about what is best for the people. Government tends to split into factions, that fact has been established for centuries, each faction vying for the best interests of it’s supporters. To that end almost all factions will, when in power, bestow favor on their political backers. If one of those backers comes to them and mentions, a tariff would restore domestic production of this or that, it is better received than if a stranger said the same thing. Initially domestic production might jump up a bit, but the same forces that quashed it in the first place haven’t been addressed and it will falter again. Those issues effecting the ability of domestic producers could be, lack of brainpower, regulatory hurdles that impede startups, cronyism, cultural hostility to new businesses, class issues, infrastructure issues, etc… none of which can be overcome by making domestic producers less efficient. Those issues need to be identified and addressed by any faction that pretends to follow right government.

The only kind of tariff system, that would provide incentives for all nations to lower tariffs and thus create free trade, is reciprocal tariffs. With modern computer technology such a system would be a breeze to set up. Simply establish an international standard of label that must be affixed to every container entering or leaving a port. The container would be scanned and the exact tariffs the sending nation applies to the receiving nation would be applied. The fees would be charged instantly. This would have the effect of creating a strong incentive for any nation that sought to increase it’s level of foreign trade to eliminate all tariffs on all imports. If the US conformed to a reciprocal tariff system, then all tariffs and restrictions on products from that much smaller nation would be eliminated, giving it’s producers a direct unhindered avenue into the US market.

Such a system would benefit all nations. A small nation that eliminated all trade impediments, to gain access to the US market, would then have the cost to consumers of some products drop. Which would increase the standard of living immediately. If the wages of the people can be made to go further, that is equal to raising wages. Nations that drop trade restrictions must also have a corresponding drop in the prices of those imported goods. Even as the demand for workers increased in that nation due to it’s unrestricted access and presumably lower wages, would drive up that wage, even as the money bought more. As long as the smaller nation addressed any underlying problems that prevent small businesses from starting.

Unilateral targeted tariffs are the most obviously political, and therefore oligarchical, but a perfectly reciprocal tariff system would be elegant, provide positive incentives for the US’s trading partners, make US firms operate on a more fair international playing field, hold down inflation, provide positive incentives for US manufacturing to become more efficient, and in the end increase the lot of Mankind. As long as Trump also addresses the problems that have held back US firms, over regulation, a legal system that has become a drag on the economy rather than a facilitator, a tax structure that puts US firms at a disadvantage, cronyism, and any other factor that inhibits small business start up and growth. While a trade war would be tragic and foolish, reciprocal trade would be enlightened and smart.


John Pepin

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