I was raised to respect the Austrian School of economics. From the hardliners at the Foundation for Economic Education (FEE) and Reason to the more moderate libertarians like Milton Friedman and President Reagan, the conservatives of my generation (I’m 62) knew several things with absolute certainty:
· Taxation is Theft.
· The most important goal of our Founding Fathers was limiting the size and scope of government.
· The Invisible Hand of the Free Market delivers the best results for the consumer.
At the same time, however, we recognized certain other fundamental truths of government:
· Government is instituted to protect society from external enemies and internal criminals.
· Government needs to build roads and bridges.
· Government needs to provide a framework of stable currency, the rule of law, corporate structure, intellectual property protection, and an investment system in which people can work, and earn, and accumulate wealth.
How did we square these two sets of rules – the opposition to government and a clear need for government?
By understanding the importance of both, and balancing them, all with an eye to the cardinal rule of obeying the Constitution.
Yes, we need police and courts and prisons; yes, we need an army and navy and air force. A nation as big as ours will need its government to do many expensive things, so we must always be on our guard to do these things as cost-effectively as possible.
When the left has proposed other expensive things – unconstitutional things – one of our responses has rightly been, “We can’t afford to do the things we have to do; don’t propose more costly unconstitutional things that we can’t afford anyway.” It still happens, of course; the Left is more adept at their goal of violating the law than the right is at obeying it. But at least we have always tried. We of the right always understood this need to find a middle ground between absolutely minimal government and a government that meets its legitimate needs, like B-52s, ICBMS, and modern containerports.
Nowhere is there a better example than in the current debate – referred to online as “What Would Reagan Do?” – about tariffs and free trade.
President Trump has proposed a high tariff barrier to force foreign governments to reduce the massive barriers – both tariff and non-tariff – that they have erected against American exports.
And the natural response of good Reaganites and Friedmanites is to look back in our memories and recall how Ronaldus Magnus and the great professor from the Chicago School referred to trade and tariffs.
Search engines produce plenty of quotes; YouTube finds us wonderful sound bites. Forty years ago, the conservative position was crystal clear: tariffs should be low, if we must have them at all, because high tariffs just serve to reduce options and raise prices for the consumer. Choices and cheapness were the goals of the hour.
We should not be so quick to assume, however, that the proclamations of our youth still apply. The global economy has changed in several ways since then, ways that neither Reagan nor Friedman ever anticipated.
At the time when Reagan and Friedman were rightly singing the praises of the free market, the United States had two general levels of tariffs in place: low duty rates for goods made in most-favored-nation (MFN) countries, and the high rates (ranging from 30 to 60 percent) that we assessed on Warsaw Pact members.
We basically didn’t trade with our main enemies – the Soviet Union, East Germany, Czechoslovakia, Cuba, North Korea, etc. We didn’t export to them and we didn’t import from them … but if by some odd chance we unexpectedly imported something from a third country that had been made behind the Iron Curtain, we walloped it with huge tariffs (known as Column 2 duties) that were five to ten times the rates we assessed on the products of Canada, Western Europe and our other friends.
These high tariffs are still in place, in fact – they never went away – but the list of countries they cover was greatly reduced. Since the Soviet Union broke up, the Column 2 tariffs only applied Cuba and North Korea for years, though Russia and Belarus were recently added back in, due to Russia’s Ukraine invasion.
It’s been a while, and I must admit, I don’t know for sure if the question was ever asked of them, but I don’t recall either Reagan or Friedman ever calling for the elimination of the Column 2 tariffs. They both knew that the Soviet Union, with its continual efforts to spread communism around the globe, was our undeniable enemy. We traded with them as little as possible (we sold basic commodities like grain, more from a humanitarian effort than anything else), and we never even considered opening up broad trade or lowering our high tariffs on the Warsaw Pact countries until the Berlin Wall came down and the Soviet Politburo was tossed out on their ears.
And that’s not the only difference between then and now.
Back in the 1970s and 1980s, Western Europe was still a continent of separate, sovereign nations. West Germany, Italy, France, the U.K., et al. were separate countries that set their tariffs independently of each other. Yes, they all joined the world in adopting the Harmonized Tariff System in the mid 1980s, but they were still relatively reasonable in terms of their import/export processes. Outside of products meriting serious safety concerns, like foods and beverages, most products could be imported freely, with a low duty payment upon importation and then unobstructed entry into their marketplace.
Fortress Europe put an end to all that.
From the 1990s onward, the EU dreamed of building a government that only an Orwellian bureaucrat could love, with non-tariff barriers-to-entry that were never dreamed of in the days when “Free To Choose” was dominating our television screens and our bestsellers’ lists.
Today, an American seeking to sell most products into the European market must appoint an Authorized Representative in Europe, file for CE Mark approval of every model number, spend the money to redo his tooling to mold the EU codes and approval logos into his product, and comply with outrageous constraints on the materials he uses, both for product and packaging alike.
Our Founding Fathers never dreamed that our trading partners would create such things as the CE Mark in Europe and the SASO program in the Middle East, or such regulatory beasts as RoHS, REACH, and PFAS. You simply can’t call it a free market – no matter where the tariffs are set – when your products can’t even enter an ally’s country without years of effort, hundreds of thousands of dollars in tooling changes, applications, and permit fees, and an army of regulatory consultants.
And what of China, which over the past forty years has grown to be the world’s manufacturing behemoth? Do we have free trade with Mainland China?
China has put whole American and European industries out of business through the use of dumping programs (government subsidies to enable companies to sell below cost until they wipe out their competition in the target country). China has used every financial tool — currency manipulation, government partnerships, and subsidies — to take much of the world’s manufacturing from both the Western world and the low-cost countries of the rest of the world.
China requires that all foreign businesses operating in China are either literally or effectively joint ventures with the Chinese government – and therefore the Chinese military. Everything that happens in China serves the politburo in Beijing, whether consciously or not. And intellectual property rights are a joke there, no matter what assurances a Western manufacturer proudly works into his purchasing contracts.
And as if that weren’t enough, China has taken the place of the USSR in spreading its tentacles across the globe.
Oh, they do it differently – contracting as a service-provider to operate ports, mines, logistics centers, laboratories, workers’ apartment buildings, and more, rather than just sending in military advisors to foment revolution, as Stalin and Brezhnev did.
But the end result is the same; China has footholds all over the world, often situated at or near key military locations.
And even as China has taken over Hong Kong and threatened Taiwan — even as it has claimed international waters as its own and engaged in saber-rattling with virtually all its neighbors across both land and sea – the United States, Canada, Mexico and Europe all continue to do business in China, to buy from China, to sell to China, to entrust China with our very livelihood by inextricably linking our supply chains with China’s manufacturing centers.
Is this the situation that Reagan and Friedman foresaw when they cheered the value of free trade?
Or is it infinitely more likely that these great champions of Western Civilization and limited government, these solid anti-communists, would stare in shock at our current codependent, abusive, practically suicidal relationships with China and Europe, and ask us in horror if we’ve gone stark raving out of our minds to put up with such a status quo.
John F. Di Leo is a Chicagoland-based international transportation manager, trade compliance trainer, and speaker. Read his book on the surprisingly numerous varieties of vote fraud (The Tales of Little Pavel), his political satires on the Biden-Harris years (Evening Soup with Basement Joe, Volumes I, II, and III), and his most recent collection of public policy essays, Current Events and the Issues of Our Age, all available in eBook or paperback, only on Amazon.
Image: Monica Showalter, by permission
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