Dear Friends,
It seems to me, now that we are in the age of international corporations, capable of moving manufacturing anywhere, we will see many more tariffs. Each nation charging punitive tariffs to force international firms to move to their country, (at least the manufacturing that serves their people). This has worked in India, China and others. If however, most firms were smaller and national rather than international, as in the past… this strategy would, and has, backfired. Because local firms are denied the best means of production available. This puts local businesses at a disadvantage. Putting a strong disincentive on tariffs. However, international corporations have changed the paradigm, and bring their manufacturing with them, and so tariffs are apparently effective… for large enough nations.
Under the paradigm of international corporations, tariffs drive these conglomerates to manufacture in the local economy, for local consumption. While initially, this is a good thing for the local economy, in the long run it is very harmful. In the short term it brings in higher paying manufacturing jobs, trains locals to work in a structured setting, necessitates the installation of infrastructure to support the factories, and transfers know how to locals. All wonderful things especially where they are lacking. In the longer term however, it crushes the entrepreneurial ethos of the locals. It gives them the tools, but instills a hopeless attitude when competing with the machine… and indeed there is no winning against an international corporate machine wielding political favor, even a zombie corporation.
As little as a few decades ago, tariffs were counterproductive, because rather than drive international corporations to move there, they instead hindered locals from getting the best, newest and most productive devices from around the world. Which puts local entrepreneurs at a disadvantage relative to the rest of the world. Brazil is an example of this. In the 1980s, they put import restrictions on computers, hoping to make Brazil a center of innovation and manufacturing of information technology. It backfired and put every Brazilian company at a huge disadvantage to the world. The result was a vastly slowed Brazilian GDP. Back then, companies in that field were owned and run by entrepreneurs, not international corporations… and so tariffs were counterproductive.
The sea change has been the transfer of tech firms from the entrepreneurs who started them to the hands of Wall Street. As corporations become ever more international, they can move their fabrication facilities at will, bypassing the normal costs associated with moving large plants from one nation to another, and the less they need to be beholding to any nation. Moreover, nations will compete for their plants, which will make nations beholding to corporations. While progressives cheer the demise of the bourgeoisie, the rise of the professional executive class has only exacerbated the very problems they sought to fix, by eliminating the bourgeoisie. Let’s not forget, global corporations disrupt the creative destruction cycles, in otherwise functional economies. The true source of national prosperity.
That is why, despite the long term costs to the nation, the short term gains will drive many to listen to the siren call of tariffs. In the era of international corporations, trade impinging regulations can drive some jobs to one’s home nation, but as I have shown, it is a dead end. Because they will have shut down the natural creative destruction cycle in their economies. With the thicket of regulations the corporations help write, an entrepreneur doesn’t stand a chance, and it becomes impossible to go back. A better way to create prosperity, is to open trade and lower regulations and taxes, so entrepreneurs have access to the world and can eat zombie corporations’ assets… rather than government tying down entrepreneurs, so that zombie corporations can eat their brains.
Sincerely,
John Pepin
