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mostlysignssomeportents · 3 months ago

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What’s wrong with tariffs

I'm on a 20+ city book tour for my new novel PICKS AND SHOVELS. Catch me in CHICAGO TONIGHT (Apr 2) with PETER SAGAL, and in BLOOMINGTON on FRIDAY (Apr 4). More tour dates here.

It's not that the Republicans and the Democrats are the same…obviously. But for decades – since Clinton – the Dems have sided with neoliberal economics, just like their Republican counterparts, so the major differences between the two related to overt discrimination, to the exclusion of the economic policies that immiserated working people, with the worst effects landing on racial minorities, women, and gender minorities.

So the Dems stood against discrimination in mortgage lending – but not for the minimum wage that would have lifted the lowest paid workers out of poverty so the could afford a mortgage. They stood for abortion rights, but against Medicare For All, which meant all women had the right to an abortion, but the poorest women couldn't afford one. And of course, in a country where racial and gender discrimination were still the order of the day, the poorest and most vulnerable Americans were racialized, women, disabled, and/or queer.

The Dems' embrace of Reaganomics meant that working people of all types experienced steady decline over 40 years: stagnating wages, economic precarity, increased indebtedness, and rising prices for health care, education, and housing. When Trump figured out that he could campaign on these issues, Dems had no response. Trump's "Make America Great Again" was meant to appeal to a time when working Americans were – on average, depending on their whiteness, maleness and straightness – better housed, better paid, and better cared for.

Of course, those benefits were unevenly felt: America was slow to extend the New Deal to racial minorities, women, disabled people, and other disfavored groups. Trump's genius was to marry white supremacy to economic grievance, tricking white workers into blaming their decline on women, brown and Black people, and queers – and not on the billionaires who had grown so much richer even as workers got poorer.

But Trump couldn't have pulled this trick off without the Dem establishment's total unwillingness to confront the hollowness of their economic policies. From Pelosi's "We're capitalists and that's the way it is" to Hillary Clinton's catastrophic campaign slogan, "America is already great," the Dems' answer to workers' fear and anger was, "You are wrong, everything is fine." Imagine having had your house stolen in the foreclosure crisis after Obama decided to "foam the runways" for the banks by letting them steal their borrowers' homes and then hearing Hillary Clinton tell you "America is already great":

https://www.npr.org/2014/05/25/315276441/its-geithner-vs-warren-in-battle-of-the-bailout

Racial and gender justice matter, of course, but when they're pursued without considering economic justice, they're dead ends. The point of racial and gender justice can't merely be firing half of the 150 straight white men who control 99% of the country's capital and replacing them with 75 assorted women, queers and people of color. The worst-treated workers in America are also its most discriminated-against workers, so the best way to help women, racialized people, and other disfavored minorities is to help workers: protect unions, raise the minimum wage, defend tenants, cancel student debt, and give everyone healthcare. In the same way that a special tax on incomes over $1m will disproportionately affect straight white men, an increase in the minimum wage will disproportionately benefit women and people of color – as well as the majority of straight white men who are also getting fucked over by people with $1m salaries.

Since the Clinton years, Democrats have been trying to figure out how to defend economic policies that help rich people while still somehow being the party of social justice. This has produced a kind of grotesque, Sheryl Sandberg "Lean In" liberalism, which stood for the rights of women who were also corporate executives. It's not that these women aren't treated worse than their male counterparts – misogyny is alive and well in the boardroom. But the number of women who experience boardroom discrimination is tiny, because the number of women in the boardroom is also tiny.

The right saw and opportunity and seized it. As Naomi Klein writes in Doppelganger, they created "mirror world" versions of social justice issues, warped reflections of the leftist positions that had been abandoned by a progressive coalition led by liberals:

https://pluralistic.net/2023/09/05/not-that-naomi/#if-the-naomi-be-klein-youre-doing-just-fine

In right wing, conspiratorial hands, rage at wage stagnation and lack of parental leave turned into reactionary demands for an economy in which women would be full-time homemakers while their husbands recovered their roles as breadwinners. The 1999 Battle of Seattle saw mass protests over the WTO and a free trade agenda that would let capital chase low wages and weak environmental and worker safety policies around the world. But Clinton went ahead and signed more free trade agreements, which were also pursued by Obama. So the right filled the vacuum with a mirror-world version of the Battle of Seattle's rage at billionaires, transforming the anti-free trade agenda into racism, xenophobia, and Cold War 2.0 sinophobia.

It's a cheap trick, but Dems keep falling for it. When the right declares itself to be against something, Dems can be relied upon to be in favor it, no matter how reactionary, anti-worker and authoritarian "it" is. During Trump 1.0, Dems lit James Comey votive candles and passionately defended the "intelligence community," a community that gave us CIA dirty wars and FBI COINTELPRO. Anthropologists call this "schizmogenesis" – when a group defines itself by valuing whatever its rivals deplore, and vice versa:

https://pluralistic.net/2021/12/18/schizmogenesis/

You can see schizmogenesis playing out right now, as "progressives" make Signalgate scandal into a fight over poor operational security (planning a war crime using a commercial app) and not a fight over war crimes themselves.

Signalgate will be out of the headlines in a matter of days, though – unlike tariffs, which will continue to make global headlines throughout the Trump presidency, as Trump continues his "mad king" policy of recklessly and chaotically erecting trade barriers that are certain to make supply chains more brittle and raise prices.

For the most part, the progressive discussion of Trump's tariffs takes the position that tariffs are always a terrible idea – in other words, that Clinton and Obama had the right idea when they created free trade agreements with countries around the world, and Trump is vandalizing an engine of American and global prosperity out of economic ignorance.

Economists support this analysis. But in a new, well-argued editorial in The Sling, University of Utah economists Mark Glick and Gabriel Lozada present a more nuanced version of the tariff debate, one that dodges the trap of neoliberal economics and schizmogenesis:

https://www.thesling.org/the-failed-assumptions-of-free-trade/

Rejecting tariffs is practically an article of religious faith among economists. As the NYT put it in their reporting of the 2025 meeting of the American Economic Association, "free trade is perhaps the closest thing to a universally held value among economists":

https://www.nytimes.com/2025/01/10/business/economy/economists-politics-trump.html

Every Econ 101 class has a unit on David Ricardo's "theory of comparative advantage," which argues that different countries have different capacities and specialties, and that free trade allows these advantages to be shared to the benefit of everyone, making trade a "positive expectation" game. The corollary is that tariffs make everyone worse off.

As Glick and Lozada write, the logic of this argument is unassailable, provided you accept its bedrock assumptions as true – and that's where the problem lies.

Economics has an assumptions problem. The foundational method of economic practice is to create models grounded in assumptions that are either not known, not knowable, or – incredibly – known to be wrong. As Milton Friedman famously wrote:

Truly important and significant hypotheses will be found to have "assumptions" that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense)

https://pluralistic.net/2025/02/17/caliper-ai/#racism-machine

It's actually worse than it seems, because economics, as a field, has been violently allergic to empirically testing its assumptions, so it doesn't even know when it is operating on the basis of one of Friedman's "wildly inaccurate descriptive representations of reality." This is what Ely Devons meant when he said, "If economists wished to study the horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves, ‘What would I do if I were a horse?’"

https://pluralistic.net/2022/10/27/economism/#what-would-i-do-if-i-were-a-horse

What are the assumptions that underpin the orthodox view of free trade, then? As Glick and Lozada write, the case against all tariffs depends on five assumptions, all of which fail empirical investigation.

I. Full employment

The standard model of free trade assumes full employment – "when workers are displaced by imports, they can easily become re-employed at the same wages." This is the crux of the "social surplus" that free trade theoretically produces. This assumption doesn't hold up to empirical scrutiny. After the US dropped its tariffs, it experienced a 74% decline in manufacturing jobs – the best-paid jobs for non-college-educated men. Those workers didn't find equivalent employment – indeed, in many cases, the found no employment at all. From 2001-18, the US lost 1.132m manufacturing jobs to China, and gained 0.176m jobs manufacturing goods for export to China.

II. No externalities

The employment losses from free trade are not evenly distributed – they are geographically concentrated, and the greatest concentrations are in regions that flipped from Democratic strongholds to Trumpish heartlands over the decades since the US dropped its tariffs. The losses to these regions aren't limited to the directly affected manufacturing jobs, but all the other economic activity those jobs supported. The people who sold groceries, cars, and furniture to factory workers also lost their jobs. When young people abandoned the cratering regional economy, that devastated education and other services catering to families.

III. Comparative advantage leads to long-term growth and development

The theory of comparative advantage says that the world is better off when each country gets to do the thing it's best at. What are poor countries best at? Being poor: having a cheap labor force and weak rule of law to protect workers' health and the environment.

Without exception, the poor countries that grew richer did so in the presence of tariffs: "free trade is not a development strategy, it is a static policy that can impede development":

https://2024.sci-hub.se/1864/6d3f610c51446f057a4054080c70ab0e/chang2003.pdf#navpanes=0&view=FitH

IV. Floating currencies keep trade balanced

In theory, adjustments in the currency markets will rebalance imports and exports – countries whose currency declines will have to switch to domestic production, because goods from abroad will become costly. That's not what happened. Instead, foreigners have invested the US dollars they got from selling things to Americans into US securities and real estate, "which does not increase US productivity because it generates no new capital formation (at least directly)."

V. The US provides compensation for trade-related job-losses

While other countries with robust social safety nets offered retraining, income support, and other programs to cushion the blow of trade-related job-losses, the US – with the worst social safety net in the rich world – offered "woefully inadequate" supports to dislocated workers:

https://www.piie.com/bookstore/job-loss-imports-measuring-costs

Now, just because some tariffs are beneficial, it doesn't follow that all tariffs are beneficial. When the "Asian Tiger" countries were undergoing rapid industrialization and lifting billions of people out of poverty, they did so with tariffs – but also with extensive industrial policy and direct investment in critical state industries (Biden was the first president in generations to pursue industrial policy, albeit a modest and small one, which Trump nevertheless dismantled).

Trump is doing mirror-world tariffs: tariffs without industrial policy, tariffs without social safety nets, tariffs without retraining, tariffs without any strategic underpinning. These tariffs will crash the US economy and will create calamitous effects around the world:

https://archive.is/JvRF9

But the fact that Trump's tariffs are terrible doesn't mean tariffs themselves are always and forever bad. Resist the schizmogenic urge to say, "Trump likes tariffs, so I hate them." Not all tariffs are created equal, and tariffs can be a useful tool that benefits working people.

And also: the fact that tariffs can be useful doesn't imply that only tariffs are useful. The digital age – in which US-based multinational firms rely on digital technology to loot the economies of America's trading partners – offers countries facing US tariffs a powerful retaliatory tactic that has never before been seen on this planet. America's (former) trading partners can retaliate against US tariffs by abolishing the legal measures they have instituted to protect the products of US companies from reverse-engineering and modification. Countries facing US tariffs can welcome US imports – of printers, Teslas, iPhones, games consoles, insulin pumps, ventilators and tractors – but then legalize jailbreaking these devices:

https://pluralistic.net/2025/03/08/turnabout/#is-fair-play

That would deprive the largest US companies of their recurring revenue streams – from service, consumables, software, payment processing, etc – creating huge savings for consumers all over the world, and huge profits for the non-US companies that make these jailbreaking tools, and the small businesses that supply them. For example, your country could become the world's leading exporter of iPhone jailbreaking tools, and the world's powerhouse for alternative iPhone stores that charge 1-2% commissions on payments, as opposed to the 30% Apple takes out of every dollar (euro, pound, peso) that iPhone owners spend within their apps. This would tempt in all the biggest app companies in the world – from Patreon to Tinder, Fornite to the New York Times – who could offer their products at a discount and still make more money than they make on Apple's App Store.

But that's just one market this enables: the actual business of iPhone jailbreaking would likely work much like the market for phone unlocking more broadly: thousands of small and medium-sized businesses like dry-cleaners and convenience stores where you can bring your phone and pay a few dollars to have it unlocked and set up with a new app store where all the apps are the same – but everything is 20% cheaper.

This is a development opportunity without parallel. US tech monopolists worked with the US trade representative to rig markets around the world, allowing tech giants to siphon away vast fortunes from America's trading partners. These rich deposits of wealth are just sitting there, begging for some country to sink a shaft into them and pump them dry, secure in the knowledge that Trump has ejected from the global system of free trade and they have nothing to lose.

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2025/04/02/me-or-your-lying-eyes/#spherical-cows-on-frictionless-surfaces

#pluralistic #economism #doppelganger #economics #free trade #tariffs #trumpism #anticircumvention #move fast and break kings #socialism of fools

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