Trade Wars, Tariffs and History

There is much flap in the news now about the recently imposed 35% tariff the current administration has imposed on Chinese tires imported to the US.  As expected the Chinese are unhappy and already grumbling about retaliation for our moves.  They will take counter action. I wouldn’t predict what it will be but they will respond with a tariff of their own.  They have already talked about chicken feet and feathers as a possible target.  There will be others that they will find.  Of course they could really send a message of discontent if they merely didn’t participate in our next few offerings of our Treasury Bills.  They have been buying them right along for the last year as we run the government on debt rather than current revenues.    I am not smart enough to predict how it will all turn out but I can say quite certainly that it will not have a favorable result.  This was clearly a political pay off to the unions by the administration pure and simple.  It will not protect American jobs even though that is the announced intention.  These trade barriers and trade wars to protect domestic products and the tax revenues that go with them have a long history of not being successful over time.

You are familiar with the Smoot-Hawley Act at the beginning of the Depression and how that only made matters worse by restricting trade and ended up costing more jobs not saving jobs.   But history reveals numerous other examples of efforts to protect a particular industry and the negative results that were the fruit of such efforts.  One example  was entirely domestic in nature but I always get a chuckle out of it because it shows the length to which politicians will go to curry favor and votes.  When oleo was first introduced as an alternative to butter around 80 or so years ago in the US, the dairy industry went nuts.  The dairy farmers were a strong special interest group and this was only a few years after the whole Grange movement and the William Jennings Bryan populist enthusiasm.  To protect their market the dairy farmers went to their various State legislatures to prohibit outright the sale of oleo margarine.  First they attempted to show it was harmful and would cause illness or even death.  That method didn’t really get them very far.  But they were persistent little buggers.  They did get various States to pass laws that really restricted the conditions under which oleo could be sold.  Some of the laws required warnings to the consumers about the potential dangers of oleo and then the pis de resistance–I think it was Wisconsin that passed a law that required that all oleo be dyed green.  They rightly believed that lots of folks wouldn’t find green oleo very appetizing.   Well, they lost in the courts and more importantly they lost in the court of public opinion.  Oleo is dyed green and lots of it is sold and lots of folks still prefer to buy the real thing and you can buy butter at the grocery store today.  The attempt to manipulate the market to protect a special group didn’t work.  Such efforts don’t for the long haul.  They might have a short term benefit but it eventually evaporates.

During the early portion of the 19th century the English were appalled at the amount of money that their consumers were paying for beaver hats that were imported from the US.  You have seen and heard the stories of the Mountain Men out west who trapped those critters for sell.  The pelts would make their way to St. Louis, then down the Mississippi to New Orleans and on the England.  The English imposed tariffs on  the hats to dampen the purchases. We didn’t like it and were set to retaliate with our on duties on machined goods which still were mostly imported from England at that time.  But, those unintended consequences intervened and taste and styles changed and the beaver hats lost their allure.  The tariff became pointless but it riled public opinion in England and here.  More or less about the same time there were squabbles over the use and importation of whale oil.  You know, Moby Dick, Two Years Before the Mast and all that stuff.  Whale oil was a very big deal for several years.  The whalers from the US and Europe were competitors around the globe for that precious commodity.  It was used to light homes.  This was before gas lights or certainly electrical lighting.  Whale oil was cheap for a while and easily transportable and much handier to use than candles.  Millions of barrels of whale oil was shipped west from the East Coast sea ports of the day.  Those “fat oil men” then were the sea captains and merchants from Boston.  It burned relatively clean and odorless compared to most of the cheap candles of the day which were made from tallow.  Pretty rank stuff.   Again attempts were made to regulate and tax the import and uses of whale oil domestically and internationally by the US.  It angered our trading partners, produced little revenue and was subject again to changing circumstances.  Whale oil got passed by with mass produced candles and soon the gas lights and the diminished whale population. 

I think it is not good policy to attempt trade barriers with tariffs unless you are going to take it to the limit.  You can’t pick and choose.  If the idea is to protect American jobs and industry then it has to be like a war.  We could adopt the Fortress America approach.  We could restrict almost everything from being imported.  The fact is we could sustain ourselves better than any other nation around the world with the possible exception of Russia (but it has such a severe political future that it probably can’t compete viably for a couple of generations).  We have consumers and very abundant raw materials.  If every country in the world had to look only to its internal economy to survive we would do much, much better than everyone.  They need us more than we need them.  In for a penny, in for a pound.  I don’t think such an approach is a good idea.  I believe in the long run it would cause serious dislocations and even conflicts with other nations.  It eventually would not be good for our people.  Arguing about free trade is like arguing about gravity.  There is going to be trade in this modern world.  We best adapt to it rather than having our provincial politicians currying favor with the special interests.    http://www.olcranky.wordpress.com

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Filed under business, Economics, Foreign Affairs, history, Politics

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