Yves here. While this Richard Wolff article makes a valid point about the sudden US fondness for tariffs as a quick fix to our trade woes as more a cheap (actually not necessarily so cheap) talking point and a sop to some corporate interest, I’m still bothered by the framing.
First, even though Wolff does at the very top define “free trade” as substantially liberalized trade, I’m bothered by his nevertheless adopting that expression. “Free trade” like the other oxymoron “free markets” is a clever marketing term designed to pre-dispose listeners to the supposed virtue of low/no regulation or government intervention.
As William Greider said, there is no such thing as free trade, only managed trade. There is always the friction of dealing with borders, transit costs, and different currencies. Imported goods have to meet the regulatory requirements and market norms of the target country.
Second, Wolff ignores that over the last 15-20 years, development economists have warmed to the idea of protectionist policies, including tariffs, to help infant industries get to the point that they can compete in international markets.
Third is there are other ways to try to rebalance trade other than the blunt instrument of tariffs, such as subsidies (which need to be well targeted so as to assure they are not funding stuff companies would have done anyhow) and local content requirements.
The bigger issue here is Trump and Biden jumped on tariffs because presidents can impose them as part of their executive authority. But as Wolff points out, by themselves they don’t help workers much/at all. But that does not mean they could not be productive as part of a broader industrial policy….except the US does not do that save by default.
By Richard D. Wolff, professor of economics emeritus at the University of Massachusetts, Amherst, and a visiting professor in the Graduate Program in International Affairs of the New School University, in New York. Wolff’s weekly show, “Economic Update,” is syndicated by more than 100 radio stations and goes to 55 million TV receivers via Free Speech TV. His three recent books with Democracy at Work are The Sickness Is the System: When Capitalism Fails to Save Us From Pandemics or Itself, Understanding Socialism, and Understanding Marxism, the latter of which is now available in a newly released 2021 hardcover edition with a new introduction by the author. Wolff’s new book, Understanding Capitalism, will be published and released this summer (2024) by Democracy at Work. Produced by Economy for All, a project of the Independent Media Institute
Both Trump and Biden imposed high tariffs on imported products made in China and other countries. Those impositions broke with and departed from the previous half century’s policies favoring “free trade” (less or minimal government intervention in international markets). Free trade policies facilitated “globalization,” the euphemism for the post-1970 surge in U.S. corporations’ investing abroad: producing and distributing there, re-locating operations there, and merging with foreign enterprises there. Presidents before Trump had insisted that free trade plus globalization best served U.S. interests. Both Democratic and Republican administrations had enthusiastically endorsed that insistence. Dutifully performing ideological support duties, they stressed how globalization’s benefits to U.S. corporations would “trickle down” to the rest of us. Globalizing U.S. corporations used portions of their profits to reward both parties with donations and other electoral and lobbying supports.
Our last two Presidents reversed that position. Against free trade they favored multiple government interventions in international trade, especially imposing and raising tariffs. Instead of advocating free trade and globalization, they promoted economic nationalism. Like their predecessors, Trump and Biden depended on financial support from corporate America as well as votes from the employee class. Many U.S. corporations and those they enriched had shifted their profit expectations in response to the competition they faced from new, powerful non-U.S. firms. The latter had emerged during the free-trade/globalization conditions after 1970, above all in China. U.S. firms increasingly welcomed or demanded protection from those competitors. Accordingly, they financed changes in the political winds and shifts in “public opinion” toward economic nationalism.
Trump and Biden thus endorsed pro-tariff policies that protected many corporations’ profits. Those policies also appealed to those for whom economic nationalism offered ideological comforts. For example, many in the United States grasped the relative decline of the United States and its G7 allies in the global economy and the relative rise of China and its BRICS allies. They welcomed an aggressive counteraction in the forms of tariff and trade wars. Both corporations (including mass media) and their subservient politicians worked to build popular and voter support. That was needed to pass the tax, budget, subsidy, tariff, and other laws that would realize the shift to economic nationalism. A key argument held that “tariffs protect jobs.” A political struggle pitted the defenders of “free trade” against those demanding “protection.” Over the last decade, those defenders have been losing.
These days, most candidates and parties perform this particular ideological task for capitalism: persuading Americans that tariffs protect jobs. Note, however, that over the 50 years before around 2015, the same parties and their candidates mostly performed the opposite ideological task. Then they denounced tariffs as unnecessary, inefficient, and counterproductive government interferences. “Free international markets” would, they insisted, be much better for workers and capitalists. However, we need not and should not have been fooled then or now. Neither ideological claim is true.
Free trade profits some industries, but not others. Those that profit rely on exporting their outputs to foreign markets, invest there, or rely on importing products from there. Similarly, tariffs profit some industries (those they protect), but not others. As industries evolve and change, so do their relationships with international trade. Correspondingly, their attitudes toward free trade versus tariffs change.
Capitalist economies almost always pit pro-free trade against pro-tariff protection industries. Their battles vary from open, public, and intense to quiet and under-the-table. Their weapons include bribes, donations, and other kinds of deals offered to politicians mostly by the employers in the interested industries. Both sides also compete to enlist the public and especially voter support—“public opinion”—in order to swing politicians their way. Employers on each side spend millions to persuade the employee class to support their side. Politicians usually split according to which side offers more donations threatens more opposition in the next election, or has spent more to shape public opinion. Each side seeks to prevail, to make government policies favor free versus tariff-protected trade. One way to achieve that is endless repetition by politicians, business leaders, journalists, and academics of one side’s perspective in the hope and expectation that it becomes “common sense.”
Each side’s arguments are driven by their respective industries’ financial self-interest, not any shared commitment to the “truth” about tariffs versus free trade. As we show below, the truth is precisely that neither tariffs nor their opposite, free trade, necessarily protect jobs. At best, both protect some jobs at the cost of losing others. The truth is that we cannot know—and thus cannot measure—all the effects on profits or jobs caused by either free trade or protectionism. So politicians cannot know what the net effect on jobs will be of either free or protected trade policies of governments.
A simple example can clarify the basic points. Chinese auto-makers currently sell high-quality electric vehicles (EVs), cars, and trucks, globally, at very competitive prices. Those EVs can be found on roadways around the world, but not in the United States. That is because, until recently, a 27.5 percent tariff was applied in the United States. For example, if a Chinese EV’s port-of-entry price was, say, $30,000, it would cost a U.S. buyer $30,000 plus the 27.5 percent tariff (an additional $8,250) for a total U.S. price of $38,250. Recently, President Biden raised that tariff from 27.5 percent to 100 percent, thereby raising the Chinese EV’s price for potential U.S. buyers to $60,000. The EU plans similarly to raise its tariff against Chinese EVs from 10 percent to 48 percent, thereby raising the price to potential EU buyers to $44,400.
Those tariffs protect makers of electric vehicles inside the U.S. and EU precisely because those EV makers need not add any tariff to the prices they charge. Thus, for example, if EVs made in the U.S. and EU had cost $40,000, they would have been uncompetitive with the Chinese EVs priced at $30,000. Prospects of profit for them would have been grim. With the tariffs now imposed by the U.S. and proposed by the EU, their EV makers see profit bonanzas. Makers in the EU can raise their EV price from $40,000 to, say, $43,000, and still be cheaper than Chinese EV imports suffering the planned EU tariff and thus priced at $44,400. EV makers in the U.S. can raise their prices to, say, $50,000, sharply improving their profits while still outcompeting Chinese EVs priced at $60,000 (including the 100 percent tariff).
Barring interference from other factors (possible automation, changing tastes for cars, and so forth), we may assume that the raised tariffs increased the profits of EV makers inside the U.S. and EU. We may also assume that those tariffs also saved jobs at those U.S. EV makers. But that is never the end of the story. EV jobs are not the only jobs affected by raised tariffs on EVs.
For example, many corporations in the United States buy fleets of EVs as inputs. Many compete with corporations outside the United States who likewise buy such fleets as their inputs. The raised U.S. tariff seriously disadvantages EV fleet-buying firms inside the United States. Firms inside the United States cannot buy Chinese electric vehicles for $30,000 each. They have to pay much more for the tariff-protected U.S.-made EVs. In stark contrast, their competitors outside the United States can buy Chinese EVs at the far cheaper $30,000 price. It follows that those outside competitors can offer lower prices for whatever products they sell because they enjoy lower (because free of tariffs) input costs. Those firms will gain buyers for their products around the world at the expense of their inside-the-U.S. competitors.
Jobs will likely be lost in such competitively disadvantaged firms inside the United States. While raising tariffs on Chinese EVs may have protected U.S. workers at EV producers inside the United States, it also deprived other U.S. workers of jobs in other U.S. industries competitively disadvantaged by the EV tariff.
In our examples above, U.S. and EU makers of EVs can and likely will raise their prices because of tariff protection. In this way, tariffs tend to worsen inflations. Inflations in turn tend to hurt exports as rising prices lead customers to buy elsewhere. Reduced exports usually mean reduced jobs making such exports.
Still more factors shape tariffs’ job effects. Often “forgotten” by tariff boosters are possible retaliations by affected other countries. Evidence already suggests retaliatory Chinese tariffs coming on imports of U.S.-made large-engine vehicles. If that happens, U.S. exports of such engines to China will shrink or end. Jobs entailed in those exports will also end, offsetting job gains from the U.S. tariffs imposed on Chinese EVs.
Since China is the chief target of U.S. and EU tariff policies it is important to see how China can retaliate in ways that threaten large U.S. and EU job losses. China has now successfully surrounded itself with allies in the BRICS (a total of 11 countries). The economic damage inflicted upon China by U.S. tariffs incentivizes China to offset much or all of that damage by shifting to sell output instead to the world outside of the United States and the EU and especially to its BRICS partners. As China redirects its exports, that will also impact where its imports will be sourced. All those changes will affect many U.S. and EU industries and the jobs they sustain.
Honest economists shrug and plead irreducible uncertainty when asked whether tariffs will “protect” jobs. No matter how hard-pressed or bribed to give a definitive answer, honesty precludes it. Nonetheless, politicians eager to get votes by promising that a tariff they impose will protect jobs can rest easy. They will easily find economists who will give or sell them the answers they want to hear. Trump and Biden did and do.
The implications of this analysis for the U.S. working class are significant. The struggle between free traders and protectionists pits shifting alliances of capitalist employers against one another. One alliance of capitalist employers fights another to win the working class’s votes. Each side promotes its false narrative about what is the best policy for jobs.
The working class should not be fooled or distracted by these free trade versus protectionism struggles among capitalists. Whoever wins them remains profit-driven first and foremost. The ultimate impact on jobs is not a priority for any of them. It never was. The working class’s interest in shaping the quantity and quality of jobs can only be genuinely prioritized if society progresses beyond capitalism. That happens when employees (running democratic worker coops) replace employers (dominating hierarchical capitalist enterprises) in the driver seats of factories, offices, and stores. When employees have become their own employers, they will make the quantities and qualities of a society’s jobs a key policy objective rather than a side-effect of policies focused elsewhere.
Moving massive amounts of manufacturing to China and elsewhere is incorrectly called “free trade”. An economist would say that moving those jobs did not hurt American workers. Thus, we should move all economist (and professor jobs via zoom) to China. We will get cheaper prognostications without hurting anyone.
My cousin married a journaliat from Singapore. While they were engaged, it was *insanely* difficult for her to get a work visa in the US.
I forget the exact details but “journalist” was a explicitly named profession with more onerous çonditions than baseline. “Economist” was another one.
“free trade”, particularly in labor is a scam. Just dig into the regulations promulgated to manage labor-widgets, it is clear someone drafted X, Y, Z provision to favor/protect A, B, C cohort
oohhh, I like the idea. / ;)
What if we called it ” Forcey FreeTrade”?
Western companies earned trillions of dollars by transferring their industries to China, as Chinese workers earned little and even had slave labor. Now that China has learned to manufacture better, the West is closing its doors. happens against Brazil, which uses only 9% of its territory to feed more than 1 billion people. Now Brazil faces barriers to producing more exports. No country in the world can beat Brazil when it comes to food production. If the country used 37% of its size, it would produce food for 4 billion people.
Very interesting. I had no idea! Thanks
I think a lot of people are missing a fundamental point. The US doesn’t have the electrical infrastructure or enough charging stations to support a wide transition to EVs.
They tariffs are a political move so Biden can try to appear being tough on China. Fact is even without tariffs Americans wouldn’t be buying Chinese EVs as there aren’t enough accessible charging stations.
Even for battery swapping stations as in China?
I don’t think they have widely available either. And EV batteries in the US are so expensive that you are better off buying a new car then trying to swap for a new battery for a 15-20 yo car.
But that’s the point. The article suggests that battery rental makes them more affordable. Of course, renting rather than owning batteries is communism, so it could only work in China.
IMO, 2006-2010 was when the window closed to relatively painlessly turn the US back onto tne road to some level of autarky,
Now? no way, without shortages and/or inflation.
Beyond EV, look at aftermarket auto parts….China and Mexico. Same with electrical parts….literally everything in an industrial Uline-Grainger catalog would be affected is some way.
and of course the devil is in the details, the most likely scenariois that tariffs cause “goods laundering”…import via Mexico or the components get assembled in Mexico for exportto the US
Anyone seen a theoretical stab at outlining a plan for transitioning back from financial capitalism to industrial capitalism? I’m thinking that was still possible before the human capital left the workforce, but probably no longer.
Orlov and others have pointed out that when the Soviet Union dissolved they had in place a huge industrial plant and a reservoir of skills, so there was a foundation for the subsequent turnaround under Putin. We, on the other hand, can’t figure out how to upgrade our Minuteman missiles because the people who built them are gone and we don’t seem to have documentation.
Could we get there from here?
Absent long-term government support (and lower taxpayer payoffs – aka wealth transfer – to the oligarchs), also called industrial policy, it requires patient capital – something the West no longer does. Compare Western investment in EVs (slow payoff) with social media (fast payoff) investments.
I do not see patient capital arriving from outside while the United States nationalizes foreign investments of the “enemy of the day” (i.e., TikTok drama, Russian Central Bank assets). Perhaps for a fragmented or collapsed US that no longer controls the global financial system, and only once stability returns – perhaps after the more historically typical “century” of civil/internecine wars that are very destructive to infrastructure – think Gaza-fication of US cities).
Until then, the rest of the world follows Napoleon’s maxim – never interfere with your enemy when he is making a mistake.
that requires long-term patient domestic capital (not a Western forte), long-term consistent industrial policy, or long-term patient foreign capital. Both are politically unforeseeable outside the MIC (e.g., Musk / Starlink, SpaceX) or maybe big pharma (apply the concept of regulatory capture to Congress), which are so heavily subsidized that (some level of) domestic production continues. Note that even in these cases, the US cannot make most of its medicines (in the event of a Chinese war or trade war) and a significant fraction (40%*) of chips in US weapons are from China.
*https://www.forbes.com/sites/erictegler/2024/01/09/americas-carriers-rely-on-chinese-chips-our-depleted-munitions-too/
not a new worry
https://www.military.com/defensetech/2012/05/30/smoking-gun-proof-that-military-chips-from-china-are-infected
In an ideal world, what would the US want to happen? I would say that you would want to lose the ‘bad’ jobs. And keep the good ones. Something like textiles seem like they should go to the lowest wage countries, because they are good jobs there. Or did Americans really want the ‘Foxconn’ type assembly jobs that Apple shipped to Asia? On the other hand, you don’t want brute force labor arbitrage to suck everything overseas. For lack of a better idea, some sort of modest 10% tariff seems like it would level the playing field a bit. There are also quota arrangements … where we let in a modest amount of stuff with 0%, and after the quota, hit it with a substantial tariff.
And I think avoiding trying to put too fine a point on it. Look at the lengthy history of “import substitution” schemes, and its relative lack of success. The US, in spite of the rhetoric regarding deindustrialization, has done pretty well in the aggregate. We export airplanes and import cheap stuff for Walmart to peddle. Not because of great management…but because we have a great domestic markets, natural resources, etc. I’ve worked in a factory, and greatly prefer a service economy.
The US still has a lot of capital intensive manufacturing. Although they don’t have so many jobs. Farming in the US is capital intensive, and highly automated. Nobody is lining up for the residual farm labor openings. And they produce grain that sells for $5 bushel.
Even if deindustrialization was poorly managed, it would be a mistake to overly romanticize industrialization.
When anyone talks about tariffs, including those who want to replace income tax with tariffs, I wish someone would ask them if they are familiar with the Snoot Hawley Act. I just like to hear the bs answer they come up with.
Back in the day, the USA used to have something called “The Open Door Policy” with regards to trade with China. I guess the door was never intended to swing both ways.
I have a rule of thumb which applies here: When an economist makes an absolute statement, they are wrong.
So when Dr. Wolff strongly implies that Tariffs never protect jobs, he is wrong.
Also, looking at tariffs without considering other incentives, direct subsidies in the case of US agriculture and the suppression of labor unions in China, for example misses the whole picture.
The tl;dr as I understand it is:
– tariffs promote higher local prices
– higher local prices promote higher local profits
– higher local profits give the profit-makers more power to do what they want to do.
So if local profit-makers want to restore industrial capitalism, tariffs will help them restore industrial capitalism. If they don’t, tariffs will help them do something different.
Vladimir Putin did say once that imposed tariffs, aka sanctions, gave him the political cover to invest in Russian industries (suppressing some consumer spending) so they could start to replace imports.
Tariffs also forced Russian capital, including Russian oligarch’s, to be invested in Russia (directed by the Russian gov’t) rather than chasing the highest returns globally. Michael Hudson has spoken on this a few times and how it follows the Chinese developmental strategy (and early 20th-century US strategy), but not the IMF strategy.
Broad-based protectionism can have many additional beneficial effects. In the case of heavy industry, it is the biggest driver of secondary industry, research and development, and infrastructure development/construction. All those things require business services. Industry generates ecosystems of parts and service providers, and it, along with much of the secondary industry created and supported by it, generates scientific ecosystems.
A significant amount of global economic redundancy should be sought to create more opportunities. All countries should be cooperatively semi-protectionist to achieve this. As part of this, all countries should agree to have tariffs, with a maximum limit agreed upon. A sales tax at the borders is one of the most straightforward ways to create inhibitors that generate redundancy and diffusion. Very large countries may even want to consider constructing inhibitors within their own borders. Ironically, since demand is the final source of trade, protectionism, including tariffs, can, and in our current global situation likely would, increase trade and competition.
Justin Smith Morrill’ sweeping tariff legislation was one of the most successful policies in economic history, and it was produced quite democratically (yes there was corruption, but there always is and there was a lot less than what we have now).
great response to wolf!!!
THANK GOD FOR TARIFFS,
tariffs do not cause depressions.
there has been no tariff related inflation.
tariffs raise wages.
tariffs give democratic control over trade.
tariffs reverse poverty caused by free trade.
tariffs protect the wealth of a nation.
tariffs promote research and development.
tariffs help labor create a high standard of living, its called a civil society.
tariffs do not blockade ports, otherwise where does all of that tariff money come from.
TARIFFS ARE EXPANSIONARY ALSO
tariffs are like a universal income for the poor.
tariffs are a tax on the wealthy
tariffs are a boon for the poor
tariffs actually lower import prices, and keep them low
without tariffs, the rich can charge more for imports, they do not have to worry about import substitution.
without tariffs, the rich can lower import prices below the costs on domestic production, then raise prices once the domestic production has been eliminated.
Tariffs and export taxes slow down the speed of capital: Tariffs and export taxes promote industrialization: Tariffs and export taxes promote food stability and local supply chains: Tariffs and export taxes are ecologically sound: Tariffs stabilize employment and communities .
i spoke with Greider a few times in the 1990’s about what bill clinton was doing to america, and the world.
he was just as alarmed as i was.
i spoke with him about smoot-hawley and the new deal. i mentioned way back then, that nether would have worked without the other, he agreed.
the free in free trade means to financial parasites, free from labor, free from civil society, free from democratic control through sovereignty.
under free trade, governments become enforcers for the whims of the rich.
https://www.vocabulary.com/dictionary/freebooter
freebooter
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/ˌfriˈbudər/
IPA guide
Other forms: freebooters
A freebooter is a looter or raider. Freebooters are pirates.
Originally, freebooters were pirates: roaming scoundrels who sailed the seas in search of spoils or plunder. In other words, freebooters robbed other ships. The term is now also used for people who steal in other settings. Freebooters, in any case, are robbers. The booty may be free for them, but they came by it through theft.
“don’t be fooled.”
Yeah, the nationalism is to protect the big tech monopolies, not working class jobs. No one is fooled.
“Don’t be fooled.” Tariffs are only good if the political leader I like is promoting them. If the wrong guy endorses them then they suddenly stop having any beneficial effect on jobs.
Sheesh, the motivated reasoning in this article is off the charts.