As US tariffs began taking effect against China over the past two weeks, along with the ensuing Chinese tariffs that hit American goods, many politicians, pundits, and economists of every conceivable political stripe began mourning the start of a “destructive trade war.” Some are predicting “serious damage,” while others say it could “go sideways” for President Trump.
Various news organizations, if we can indeed call them that, are touting polling data showing that a majority of Americans do not support Trump’s position on trade. CNN, Politico, Business Insider, the Washington Post, The Hill, Forbes all have negative numbers, as if we should be surprised. But an April Washington Examiner poll showed that two-thirds of Americans favored tariffs on Chinese goods.
So, who do we believe? The truth is far different from that of the mainstream media. That fact is Trump’s policy will not bring on a trade war because we’ve been in a trade war for decades, most particularly with China. They have engaged in very aggressive, predator-like behavior towards us, taking advantage of our lax laws and stealing our technology, but for one reason or another we have refused to recognize or counter it.
The difference now is that we have a President who understands our plight and is willing to fight to protect American workers and their jobs. President Trump has long favored tougher, “fair trade” deals and the protection of our domestic industries, as well as our technology. As far back as the early 1980s, Trump was lamenting the fact that the United States was being “ripped off” by other nations on trade. His language and policy prescriptions have remained very consistent over the past four decades. And now that he is President, he is doing something about the record trade deficits we have accumulated during the recent era of global free trade.
Just since the year 2000, nearly two decades, we’ve lost millions of manufacturing jobs and tens of thousands of factories, fueled by a trade deficit that last year was nearly $800 billion. Since 1980, the US has accumulated trillions in trade deficits, meaning we are buying far more than we are selling. And one reason for that are the restrictions imposed by nations like China, which prevent us from selling a wide variety of our goods in their market.
But we should not fear a “trade war,” for history is on the side of President Trump. Protectionism, now a virtual swear word in American policy, was once a cherished part of the Republican Party platform and remained a vital aspect of US policy for most of our history. For decades, especially after the Civil War, America leveled high tariffs, but prices did not skyrocket nor did the economy shrink. In fact, the opposite happened, as two of our greatest eras of economic growth came during a time of high tariffs.
In 1897, coming on the heels of the Panic of 1893, President McKinley, who ran under the banner of “Peace, Prosperity, Protection,” raised tariffs significantly and the economy averaged 7 percent growth during his time in the White House.
In the 1920s, under Harding and Coolidge, beginning in the midst of the “forgotten depression” of 1920, tariffs were raised to record highs and the economy again averaged 7 percent growth. During Harding’s “Roaring Twenties” the economy produced a surplus every year, the national debt was reduced by one-third, and unemployment, at a time before federal welfare programs, fell to 1.6 percent in 1926 under Coolidge. But listening to today’s “experts,” the economy should have tanked during those times, rather than experience the rapid growth that was produced, an economic expansion the likes of which we haven’t seen since.
And Trump obviously knows his history. His policies not only mirror those of Bill McKinley and Warren Harding but also follow the lessons of Adam Smith. Known as the “Father of Modern Capitalism,” Smith is most known for his 1776 book The Wealth of Nations, which free traders tout as a blueprint for free markets and free trade. But Smith would not have supported our current concept of global free trade. He actually believed in protective tariffs in certain instances.
There are times, Smith wrote, “in which it will generally be advantageous to lay some burdens upon foreign [trade],” such as “for the encouragement of domestic industry” and when foreign nations “by high duties or prohibitions” restrict “the importation of some of our manufactures into their country.” When this happens, Smith advocated “revenge” and “retaliation” by imposing “the like duties and prohibitions upon the importation of some or all of their manufactures into ours.”
Does this not accurately describe President Trump’s trade policy? He is supporting policies to protect our domestic industry from foreign predatory tactics while using retaliatory tariffs to force China and other nations to open their markets to our goods. Smith would have been proud.
But we must hope the President doesn’t end there. In his 2011 book, Time To Get Tough, Trump advocated a 20 percent, across-the-board “import tax,” or what we once referred to as “revenue tariffs.” From George Washington until Woodrow Wilson in 1913, the bulk of US revenue came via the tariff. And if Trump can get a new 20 percent revenue tariff in place, it would bring in $500 billion a year, much needed cash for slashing the deficit and moving toward a balanced budget. It is, historically-speaking, a very wise policy.
The bottom line is this: the pundits are wrong and Trump is right; we do hold all the cards on trade. And the biggest hand of them all is an economy that produces $20 trillion in goods and services per year. But more than that is the wealth owned by the American people. In the first quarter of 2018, US household net worth hit $100 trillion for the first time ever. That, in itself, is not a few cards; it’s the entire deck. China needs us a lot more than we need them, and the President understands this better than most.
As the London Times has observed, “Mr. Trump has more scope to disrupt Chinese exporters than vice versa. If he keeps expanding the list of Chinese goods to be taxed, he wins. Beijing runs out of American exports to target in retaliation long before Washington runs out of Chinese products to clobber.” So, if President Trump continues with his foot on the gas pedal, China will cry “uncle” before we will and the guaranteed result will be a Chinese market with more access than at any time since Hay’s “Open Door.”
Even Merkel’s Germany, a nation that flaunts open borders and free trade but slaps us with restrictions, announced that they were cutting tariffs on US automobile imports, unwilling, it seems, to be the next one in Trump’s crosshairs.
Since Trump’s election in 2016, economic growth rates have consistently hit higher levels not seen in many years, despite the tariffs and threats of trade wars. The stock market is at an all-time high, consumer and business confidence is rising, while unemployment is falling.
This is true even for industries like steel and aluminum that received trade protection. The economists told us those jobs were likely headed for the chopping block with the imposition of tariffs. But American protectionism worked yet again as the heavy metal industry is rebounding, re-opening plants and adding jobs, while wages are rising.
After more than eight years of anemic economic growth and poor job creation, the economy seems to be headed for record territory under Donald Trump. And an “America First” trade policy will help us get there.
Ryan S. Walters is the editor of Mississippi Conservative Daily and an independent historian. A native Mississippian, he is the author of “Remember Mississippi: How Chris McDaniel Exposed the GOP Establishment and Inspired a Revolution” and is currently writing a book on President Warren Harding. You can find him on Twitter: @ryanswalters73