First, happy St. Patrick’s Day! Now to more serious items. Phil Gramm and Donald Boudreaux’s letter to the Wall Street Journal on March 14th is, well, a very odd re-accounting of the history of tariffs that is devoid of the impacts of other factors such as interest rates and income tax rates on the economy.
First, they start off saying that Trump’s policies “end the trading system that built the modern world,” but they ignore that what really built this country was America’s own self-reliance – not international trade. Global trade really only took off with two events – passage of NAFTA and letting China enter the WTO, which didn’t happen until Clinton signed those into law in the 1990s.
America was built for hundreds of years without a lot of global trade. Remember Walmart’s big promotion of “Made in America”? Manufacturing occurred here. Sales occurred here. The truth is that is was NAFTA and WTO going into law that opened America’s doors to unfair trade – without much in tariffs against foreign products, but without requiring those nations to treat America the same. (Think of Canada’s 240% tariff on U.S. dairy products.)
Their letter then goes on to ignore a whole host of facts that influenced the economy over the last 115 years.
They also go onto to say that Trump “nowhere does he propose real reciprocity,” but in reality, Trump has already proposed direct reciprocity in tariffs, i.e. the U.S. will match the tariffs of other nations, which means if another nation lowers its tariffs to zero, then the U.S. will likewise lower its tariffs to zero for that country. So, I’m confused about how the authors can make such a statement. They even go on to propose that Trump should lower the 25% tariff on imported trucks “as an inducement to other countries to eliminate their tariffs on U.S. automobiles.” Ahh, that’s already been tried, and since those other nations are addicted to the tax revenue from tariffs, they didn’t, and they aren’t going to lower their tariffs. That’s like asking a drug addict to stop snorting his favorite drug.
They also imply that America’s tech industry would be at risk under Trump’s tariff’s policies, saying that the tech industry would be a target, but they fail to recognize a.) that American tech companies are already being targeted, long before Trump, in the form of European lawsuits against those companies and massive awards and penalties that is really just another form of tax or tariff on our tech companies. And b.) Keep in mind that tariffs don’t work on Facebook, X (Twitter), and many similar American technology products. So a lawsuit in which Europe can levy penalties to take the cash they can’t get through a tariff is their only choice.
They also cite president McKinley’s tariff policy in 1920 – but fail to disclose that it had little impact on trade and they also fail to disclose that the Fed raised interest rates significantly for three years leading up to the brief 1920 depression and likewise don’t tell you that Wilson raised income taxes massively leading up to 1920. It was McKinley’s trade off of raising tariffs modestly, while significantly lowering income tax rates and the Fed lower interest rates that kicked off a massive economic boom creating the Roaring 1920’s.
They go on to blame the Smoot-Hawley tariff act of 1930 for the Great Depression by fail to recognize the massive increase in income taxes under Hoover and again under FDR, nor do they tell you about the jump in interest rates in 1932, (although in that case, the Fed realized its mistake and lowered interest rates after that, albeit slowly, through the 1930’s and 1940’s up until the end of WWII). It was the massive confiscation of income through those high-income tax rates and high interest rates that caused the Great Depression.
They also mention that the percent of manufacturing to total employment has fallen by 75% since 1946. Well, dah. You picked a start date that coincided with the decline of manufacturing war goods and failed to mention the massive build up of total employment since then that would reduce the percentage since the base became a much larger total. And if the manufacturing of technology were counted as manufacturing, then the % would be much higher.
Lastly, they claim that protectionism has an “unblemished record of failure throughout American history,” yet they ignore history. The facts are that protectionism has worked throughout history, and only after NAFTA and China’s access to American markets did that open trade policy destroy the American middle class. I mean, what do these two guys think is going to happen when you open up the American market to cheap Chinese labor (at pennies on the dollar)? And the other country doesn’t open its markets to American goods. (And they steal our I.P., cyber attack our companies, etc. etc. – it’s most definitely not an open trade system. The Chinese steal what they want from us while we give them free access to our markets and consumers. They then use government money to subsidize Chinese manufacturing of products to compete with our higher-priced labor.) Gee, hmm, what could go wrong?
It’s the law of economics that labor rates will fall to the lowest common denominator, i.e. to the lowest labor rates in a trade. If two countries start to trade goods, and one of them has a labor rate that is pennies on the dollar, then that country’s lower-priced products are going to undermine the other nation’s labor market. My own family’s business was impacted by NAFTA. My dad had a book rebinding business that was going well, and then NAFTA passed, and all the competitors moved their business to Mexico for the lower labor and lower regulatory costs. Very quickly, that binding division had to move to Mexico or be shut down. They shut it down because the labor costs were so much lower in Mexico that they could not compete. What I don’t get is – what don’t the authors of that article understand about this kind of farmer’s math?
But what really gets me is that Phil Gramm was the tax cut guy under Reagan that proved that reducing tax rates will kick off a massive economic expansion. Yet, he ignores all the evidence – that income tax rates and interest rates have more to do with negatively impacting the economy than tariffs. Tariffs should be there as a baseline – a base of protectionism to protect American manufacturers and labor. I mean, how can an American company possibly manufacture here and employ labor that costs ten times what it does in third-world countries and be able to survive?
Coolidge, Kennedy, Reagan, Trump – that’s the legacy of lower interest rates and lower income tax rates producing economic growth. Higher income tax rates and higher interest rates produce recessions and depressions. Just look at a chart of the history of interest rates – it’s a mess. Ups and downs. It’s no wonder that our economy has acted like a rollercoaster.
The lesson: the Fed’s job should be to maintain stable interest rates and a steady money supply so that the economy can grow without the Fed’s constant disruptions. Likewise, the federal government should maintain steady and level tax rates – 15% to 28% is the sweet spot to maximizing total tax revenue, history has proven. It’s really that simple, but unfortunately, there are too many people in the country who think they’re smarter and believe they can manipulate outcomes, but that’s not the job of the government. The job of the government is to provide a level playing field and then get the hell out of the way! That’s the T. Wall Law of Economics.
Wisconsin Right Now is a news organization focused on covering the news from a conservative point of view, in particular on politics and policy issues through analysis and opinions, and is protected by the first amendment of the United States constitution. WRN does not make endorsements of candidates or direct readers to vote for or against any candidate or issue. On October 18 and November 23, 2023 Donald Trump tweeted out on Trump’s Truth Social account T. Wall’s October 6th column on Trump’s property valuations. T. Wall has appeared on Fox News, Jesse Waters Show on Fox, Newsmax, CBS, NBC, Spectrum News 1, USA Today, X.com, YouTube, and numerous Madison and Milwaukee news programs and local newspapers (Wisconsin State Journal, Capital Times, Middleton Review, Middleton Times Tribune, and Milwaukee Journal Sentinel and a dozen other Wisconsin papers) and previously wrote a column for InBusiness magazine and the Middleton Times Tribune for five years each. T. Wall holds a degree from the UW in economics and an M.S. in real estate analysis and valuation and his full time career is as a real estate developer. Disclaimer: The opinions of the writer are not necessarily those of this publication or the left!
