Breaking Tariff Orthodoxy

Digital Economy Changes Everything

The Tax Foundation keeps on attacking Trump tariffs by bringing out every text book argument ever made. There are other economists and investors doing the same thing, and they misunderstand what President Trump is actually doing.

First, Trump looks at the world and sees only the United States sincerely believes in free-trade while much of the rest of the world does not and has very high tariffs against US goods. At the same time, much of the world depends on United States military power to defend the trade between countries and to keep the peace. This has been Trump’s complaint for decades and his use of tariff threats are designed to open trade up, not to shut it down. At the same time, he is making similar threats to Canada, Greenland and NATO about the need for vibrant military defense.

Second, in providing this information to you, I had to figure this out all by myself because the vast majority of news sources are either lying or are the most ignorant people in human history. Finding good source material is very difficult.

Third, the argument against tariffs is they cause trade wars, often leading to war. Also tariffs can result in over-inflated pricing. Yes, in a mercantile economy such as the 19th century or actions like the Smoot-Hawley tariff which went too far, these statements are true, but not in a digital economy as I will explain.

Fourth, Iphone started with I, Pencil. Low to no tariffs, makes the pencil available to more people. Today, it is what makes the smartphone, the smallest and most powerful computer device, available to hundreds of millions of people. Milton Friedman demonstrated this in the epidsodic TV program, Free to Choose. The ideas presented are vastly multiplied in a digital economy.

Fifth, Friedman understood free trade. Yet, in this video below, you can see the flaw in his line of argumentation. Yes, cheap steel is good, but we need it for guns and tanks. If the country we are importing it from has poor defenses, and is attacked, our source of steel becomes depleted. The COVID Pandemic made this abundantly clear. But, in the age of drones, the argument for steel may be moot.

Sixth, the digital economy has changed how we interact with each other and how countries make exchanges. Just because Trump pushes a tariff, does not mean it will have as much impact as some claim. Businesses will find ways to adjust which is far easier to do in a digital economy as much more information is available. You call up your credit card company, the airline, or hotel organization, do you really care where the person is who is handling your call? In a digital economy, they can be anywhere. This reality is not factored in to the latest economic arguments.