Trump’s Inverted View of America’s Tariff History
This article is based on America’s Protectionist Takeoff, 1815-1914: The Neglected American School of Political Economy (ISLET, 2010), my review of the political dynamics and economic theory that guided America’s rise to industrial power.
Donald Trump’s tariff policy has thrown markets into turmoil among his allies and enemies alike. This anarchy reflects the fact that his major aim was not really tariff policy, but simply to cut income taxes on the wealthy, by replacing them with tariffs as the main source of government revenue. Extracting economic concessions from other countries is part of his justification for this tax shift as offering a nationalistic benefit for the United States.
His cover story, and perhaps even his belief, is that tariffs by themselves can revive American industry. But he has no plans to deal with the problems that caused America’s deindustrialization in the first place. There is no recognition of what made the original U.S. industrial program and that of most other nations so successful. That program was based on public infrastructure, rising private industrial investment and wages protected by tariffs, and strong government regulation. Trump’s slash and burn policy is the reverse – to downsize government, weaken public regulation and sell off public infrastructure to help pay for his income tax cuts on his Donor Class.
This is just the neoliberal program under another guise. Trump misrepresents it as supportive of industry, not its antithesis. His move is not an industrial plan at all, but a power play to extract economic concessions from other countries while slashing income taxes on the wealthy. The immediate result will be widespread layoffs, business closures and consumer price inflation.
Introduction
America’s remarkable industrial takeoff from the end of the Civil War
through the outbreak of World War I has always embarrassed free-market
economists. The United States’ success followed precisely the opposite
policies from those that today’s economic orthodoxy advocates. The
contrast is not only that between protectionist tariffs and free trade.
The United States created a mixed public/private economy in which public
infrastructure investment was developed as a “fourth factor of
production,” not to be run as a profit-making business but to provide
basic services at minimal prices so as to subsidize the private sector’s
cost of living and doing business.
The logic underlying these policies was formulated already in the 1820s
in Henry Clay’s American System of protective tariffs, internal
improvements (public investment in transportation and other basic
infrastructure), and national banking aimed at financing industrial
development. An American School of Political Economy emerged to guide
the nation’s industrialization based on the Economy of High Wages
doctrine to promote labor productivity by raising living standards and
public subsidy and support programs.
These are not the policies that today’s Republicans and Democrats
advise. If Reaganomics, Thatcherism and Chicago’s free-market boys had
guided American economic policy in the late nineteenth century, the
United States would not have achieved its industrial dominance. So it
hardly is surprising that the protectionist and public investment logic
that guided American industrialization has been airbrushed out of U.S.
history. It plays no role in Donald Trump’s false narrative to promote
his abolition of progressive income taxes, downsizing of government and
privatization sell-off of its assets.
What Trump singles out to admire in America’s nineteenth-century
industrial policy is the absence of a progressive income tax and the
funding of government primarily by tariff revenue. This has given him
the idea of replacing progressive income taxation falling on his own
Donor Class – the One Percent that paid no income tax prior to its
enactment in 1913 – with tariffs designed to fall only on consumers
(that is, labor). A new Gilded Age indeed!
Screenshot
In admiring the absence of progressive income taxation in the era of
his hero, William McKinley (elected president in 1896 and 1900), Trump
is admiring the economic excess and inequality of the Gilded Age. That
inequality was widely criticized as a distortion of economic efficiency
and social progress. To counteract the corrosive and conspicuous
wealth-seeking that caused the distortion, Congress passed the Sherman
Anti-Trust Law in 1890, Teddy Roosevelt followed with his trust busting,
and a remarkably progressive income tax was passed that fell almost
entirely on rentier financial and real estate income and monopoly rents.
Trump thus is promoting a simplistic and outright false narrative of
what made America’s nineteenth century policy of industrialization so
successful. For him, what is great is the “gilded” part of the Gilded
Age, not its state-led industrial and social-democratic takeoff. His
panacea is for tariffs to replace income taxes, along with privatizing
what remains of the government’s functions. That would give a new set of
robber barons free reign to further enrich themselves by shrinking the
government’s taxation and regulation of them, while reducing the budget
deficit by selling off the remaining public domain, from national park
lands to the post office and research labs.
The key policies that led to America’s successful industrial takeoff
Tariffs by themselves were not enough to create America’s industrial
takeoff, nor that of Germany and other nations seeking to replace and
overtake Britain’s industrial and financial monopoly. The key was to use
the tariff revenues to subsidize public investment, combined with
regulatory power and above all tax policy, to restructure the economy on
many fronts and shape the way in which labor and capital were
organized.
The main aim was to raise labor productivity. That required an
increasingly skilled labor force, which required rising living
standards, education, healthy working conditions, consumer protection
and safe food regulation. The Economy of High Wages doctrine recognized
that well educated, healthy and well fed labor could undersell “pauper
labor.”
The problem was that employers always have sought to increase their
profits by fighting against labor’s demand for higher wages. America’s
industrial takeoff solved this problem by recognizing that labor’s
living standards are a result not only of wage levels but of the cost of
living. To the extent that public investment financed by tariff
revenues could pay the cost of supplying basic needs, living standards
and labor productivity could rise without industrialists suffering a
fall in profit.
The main basic needs were free education, public health support and
kindred social services. Public infrastructure investment in
transportation (canals and railroads), communications and other basic
services that were natural monopolies was also undertaken to prevent
them from being turned into private fiefdoms seeking monopoly rents at
the expense of the economy at large. Simon Patten, America’s first
professor of economics at its first business school (the Wharton School
at the University of Pennsylvania), called public investment in
infrastructure a “fourth factor of production.” 1
Unlike private-sector capital, its aim was not to make a profit, much
less maximize its prices to what the market would bear. The aim was to
provide public services either at cost or at a subsidized rate or even
freely.
In contrast to European tradition, the United States left many basic
utilities in private hands, but regulated them to prevent monopoly rents
from being extracted. Business leaders supported this mixed
public/private economy, seeing that it was subsidizing a low-cost
economy and thus increasing its (and their) competitive advantage in the
international economy.
The most important public utility, but also the most difficult to
introduce, was the monetary and financial system needed to provide
enough credit to finance the nation’s industrial growth. Creating
private and/or public paper credit required replacing the narrow
reliance on gold bullion for money. Bullion long remained the basis for
paying customs duties to the Treasury, which drained it from the economy
at large, limiting its availability for financing industry.
Industrialists advocated moving away from over-reliance on bullion by
the creation of a national banking system to provide a growing
superstructure of paper credit to finance industrial growth.2
Classical political economy saw tax policy as the most important lever
steering the allocation of resources and credit towards industry. Its
main policy aim was to minimize economic rent (the excess of market
prices over intrinsic cost value) by freeing markets from rentier income
in the form of land rent, monopoly rent, and interest and financial
fees. From Adam Smith through David Ricardo, John Stuart Mill, to Marx
and other socialists, classical value theory defined such economic rent
as unearned income, extracted without contributing to production and
hence an unnecessary levy on the economy’s cost and price structure.
Taxes on industrial profits and labor’s wages added to the cost of
production and thus were to be avoided, while land rent, monopoly rent
and financial gains should be taxed away, or land, monopolies and credit
could simply be nationalized into the public domain to lower access
costs for real estate and monopoly services and reduce financial
charges.
These policies based on the classical distinction between intrinsic
cost-value and market price are what made industrial capitalism so
revolutionary. Freeing economies from rentier income by the taxation of
economic rent aimed at minimizing the cost of living and doing business,
and also minimizing the political dominance of a financial and landlord
power elite.
When the United States imposed its initial progressive income tax in 1913, only 2 percent of Americans had a high enough income to require them to file a tax return. The vast majority of the 1913 tax fell on the rentier income of financial and real estate interests, and on the monopoly rents extracted by the trusts that the banking system organized.
How America’s neoliberal policy reverses its former industrial dynamic
Since the takeoff of the neoliberal period in the 1980s, U.S. labor’s
disposable income has been squeezed by high costs for basic needs at
the same time as its cost of living has priced it out of world markets.
This is not the same thing as a high-wage economy. It is a rakeoff of
wages to pay the various forms of economic rent that have proliferated
and destroyed America’s formerly competitive cost structure. Today’s
$175,000 average income for a family of four is not being spent mainly
on products or services that wage-earners produce. It is mostly siphoned
off by the Finance, Insurance and Real Estate (FIRE) sector and
monopolies at the top of the economic pyramid.
The private-sector’s debt overhead is largely responsible for today’s
shift of wages away from rising living standards for labor, and of
corporate profits away from new tangible capital investment, research
and development for industrial companies. Employers have not paid their
employees enough to both maintain their standard of living and carry
this financial, insurance and real estate burden, leaving U.S. labor to
fall further and further behind.
Inflated by bank credit and rising debt/income ratios, the U.S.
guideline cost of housing for home buyers has risen to 43% of their
income, far up from the formerly standard 25%. The Federal Housing
Authority insures mortgages to guarantee that banks following this
guideline will not lose money, even as arrears and defaults are hitting
all-time highs. Home ownership rates fell from over 69% in 2005 to under
63% in the Obama eviction wave of foreclosures after the 2008
junk-mortgage crisis. Rents and house prices have soared steadily
(especially during the period the Federal Reserve kept interest rates
low deliberately to inflate asset prices to support the finance sector,
and as private capital has bought up homes that wage earners cannot
afford), making housing by far the largest charge on wage income.
Debt arrears also are exploding for student education debt taken on to
qualify for a higher-paying job, and in many cases for the auto debt
needed to be able to drive to the job. This is capped by credit-card
debt accumulating just to make ends meet. The disaster of privatized
medical insurance now absorbs 18 percent of U.S. GDP, yet medical debt
has become a major cause of personal bankruptcy. All this is just the
reverse of what was intended by the original Economy of High Wages
policy for American industry.
This neoliberal financialization – the proliferation of rentier charges,
inflation of housing and health-care costs, and the need to live on
credit beyond solely one’s earnings – has two effects. The most obvious
is that most American families have not been able to increase their
savings since 2008, and are living from paycheck to paycheck. The second
effect has been that, with employers obliged to pay their labor force
enough to carry these rentier costs, the living wage for American labor
has risen so far above that of every other national economy that there
is no way that American industry can compete with that of foreign
countries.
Privatization and deregulation of the U.S. economy has obliged employers
and labor to bear the rentier costs, including higher housing prices
and rising debt overhead, that are part and parcel of today’s neoliberal
policies. The resulting loss of industrial competitiveness is the major
block to its re-industrialization. After all, it was these rentier
charges that deindustrialized the economy in the first place, making it
less competitive in world markets and spurring the offshoring of
industry by raising the cost of basic needs and doing business. Paying
such charges also shrinks the domestic market, by reducing labor’s
ability to buy what it produces. Trump’s tariff policy does nothing to
address these problems, but will aggravate them by accelerating price
inflation.
This situation is unlikely to change any time soon, because the
beneficiaries of today’s neoliberal policies – the recipients of these
rentier charges burdening the U.S. economy – have become the political
Donor Class of billionaires. To increase their rentier income and
capital gains and make them irreversible, this resurgent oligarchy is
pressing to further privatize and sell off the public sector instead of
providing subsidized services to meet the economy’s basic needs at
minimum cost. The largest public utilities that have been privatized are
natural monopolies – which is why they were kept in the public domain
in the first place (i.e., to avoid monopoly rent extraction).
The pretense is that private ownership seeking profits will provide an
incentive to increase efficiency. The reality is that prices for what
formerly were public services are increased to what the market will bear
for transportation, communications and other privatized sectors. One
eagerly awaits the fate of the U.S. Post Office that Congress is trying
to privatize.
Neither increasing production nor lowering its cost is the aim of
today’s sell-off of government assets. The prospect of owning a
privatized monopoly in a position to extract monopoly rent has led
financial managers to borrow the money to buy up these businesses,
adding debt payments to their cost structure. The managers then start
selling off the businesses’ real estate for quick cash that they pay out
as special dividends, leasing back the property that they need to
operate. The result is a high-cost monopoly that is heavily indebted
with plunging profits. That is the neoliberal model from England’s
paradigmatic Thames Water privatization to private financialized former
industrial companies such as General Electric and Boeing.
In contrast to the nineteenth century’s takeoff of industrial
capitalism, the aim of privatizers in today’s post-industrial epoch of
rentier finance capitalism is to make “capital” gains on the stocks of
hitherto public enterprises that have been privatized, financialized and
deregulated. A similar financial objective has been pursued in the
private arena, where the financial sector’s business plan has been to
replace the drive for corporate profits with making capital gains in
stocks, bonds and real estate.
The great majority of stocks and bonds are owned by the wealthiest 10
percent, not by the bottom 90 percent. While their financial wealth has
soared, the disposable personal income of the majority (after paying
rentier charges) has shrunk. Under today’s rentier finance capitalism
the economy is going in two directions at once – down for the industrial
goods-producing sector, up for the financial and other rentier claims
on this sector’s labor and capital.
The mixed public/private economy that formerly built up American
industry by minimizing the cost of living and doing business has been
reversed by what is Trump’s most influential constituency (and that of
the Democrats as well, to be sure) – the wealthiest One Percent, which
continues to march its troops under the libertarian flag of Thatcherism,
Reaganomics and Chicago anti-government (meaning anti-labor)
ideologues. They accuse the government’s progressive income and wealth
taxes, investment in public infrastructure and role as regulator to
prevent predatory economic behavior and polarization, of being
intrusions into “free markets.”
The question, of course, is “free for whom”? What they mean is a market
free for the wealthy to extract economic rent. They ignore both the need
to tax or otherwise minimize economic rent to achieve industrial
competitiveness, and the fact that slashing income taxes on the wealthy –
and then insisting on balancing the government budget like that of a
family household so as to avoid running yet deeper into debt – starves
the economy of public injection of purchasing power. Without net public
spending, the economy is obliged to turn for financing to the banks,
whose interest-bearing loans grow exponentially and crowd out spending
on goods and real services. This intensifies the wage squeeze described
above and the dynamic of deindustrialization.
A fatal effect of all these changes has been that instead of capitalism
industrializing the banking and financial system as was expected in the
nineteenth century, industry has been financialized. The finance sector
has not allocated its credit to finance new means of production, but to
take over assets already in place – primarily real estate and existing
companies. This loads the assets down with debt in the process of
inflating capital gains as the finance sector lends money to bid up
prices for them.
This process of increasing financialized wealth adds to economic
overhead not only in the form of debt, but in the form of higher
purchase prices (inflated by bank credit) for real estate and industrial
and other companies. And consistently with its business plan of making
capital gains, the finance sector has sought to untax such gains. It
also has taken the lead in urging cuts in real estate taxes so as to
leave more of the rising site value of housing and office buildings –
their rent-of-location – to be pledged to the banks instead of serving
as the major tax base for local and national fiscal systems as classical
economists urged throughout the nineteenth century.
The result has been a shift from progressive taxation to regressive
taxation. Rentier income and debt-financed capital gains have been
untaxed, and the tax burden shifted onto labor and industry. It is this
tax shift that has encouraged corporate financial managers to replace
the drive for corporate profits with making capital gains as described
above.
What promised to be a harmony of interests for all classes – to be
achieved by increasing their wealth by running into debt and watching
prices rise for homes and other real estate, stocks and bonds – has
turned into a class war.
It is now much more than the class war of industrial capital against
labor familiar in the nineteenth century. The postmodern form of class
war is that of finance capital against both labor and industry.
Employers still exploit labor by seeking profits by paying labor less
than what they sell its products for. But labor has been increasingly
exploited by debt – mortgage debt (with “easier” credit fueling the
debt-driven inflation of housing costs), student debt, automobile debt
and credit-card debt just to meet its break-even costs of living.
Having to pay these debt charges increases the cost of labor to
industrial employers, constraining their ability to make profits. And
(as indicated above) it is such exploitation of industry (and indeed of
the whole economy) by finance capital and other rentiers that has
spurred the offshoring of industry and deindustrialization of the United
States and other Western economies that have followed the same policy
path.3
In stark contrast to Western deindustrialization stands China’s
successful industrial takeoff. Today, living standards in China are, for
much of the population, broadly as high as those in the United States.
That is a result of the Chinese government’s policy of providing public
support for industrial employers by subsidizing basic needs (e.g.,
education and medical care) and public high-speed rail, local subway and
other transportation, better high-technology communications and other
consumer goods, along with their payments systems.
Most important, China has kept banking and credit creation in the public
domain as a public utility. That is the key policy that has enabled it
to avoid the financialization that has deindustrialized the U.S. and
other Western economies.
The great irony is that China’s industrial policy is remarkably similar
to that of America’s nineteenth-century industrial takeoff. China’s
government, as just mentioned, has financed basic infrastructure and
kept it in the public domain, providing its services at low prices to
keep the economy’s cost structure as low as possible. And China’s rising
wages and living standards have indeed found their counterpart in
rising labor productivity.
There are billionaires in China, but they are not viewed as celebrity
heroes and models for how the economy at large should seek to develop.
The accumulation of conspicuous large fortunes such as those that have
characterized the West and created its political Donor Class have been
countered by political and moral sanctions against the use of personal
wealth to gain control of public economic policy.
This government activism that U.S. rhetoric denounces as Chinese
“autocracy” has managed to do what Western democracies have not done:
prevent the emergence of a financialized rentier oligarchy that uses its
wealth to buy control of government and takes over the economy by
privatizing government functions and promoting its own gains by
indebting the rest of the economy to itself while dismantling public
regulatory policy.
What was the Gilded Age that Trump hopes to resurrect?
Trump and the Republicans have put one political aim above all
others: cutting taxes, above all progressive taxation that falls mainly
on the highest incomes and personal wealth. It seems that at some point
Trump must have asked some economist whether there was any alternative
way for governments to finance themselves. Someone must have informed
him that from American independence through the eve of World War I, by
far the dominant form of government revenue was customs revenue from
tariffs.
It is easy to see the lightbulb that went off in Trump’s brain. Tariffs
don’t fall on his rentier class of real estate, financial and monopoly
billionaires, but primarily on labor (and on industry too, for imports
of necessary raw materials and parts).
In introducing his enormous and unprecedented tariff rates on April 3,
Trump promised that tariffs alone, by themselves, would re-industrialize
America, by both creating a protective barrier and enabling Congress to
slash taxes on the wealthiest Americans, whom he seems to believe will
thereby be incentivized to “rebuild” American industry. It is as if
giving more wealth to the financial managers who have deindustrialized
America’s economy will somehow enable a repeat of the industrial takeoff
that was peaking in the 1890s under William McKinley.
What Trump’s narrative leaves out of account is that tariffs were merely
the precondition for the nurturing of industry by the government in a
mixed public/private economy where the government shaped markets in ways
designed to minimize the cost of living and doing business. That public
nurturing is what gave nineteenth-century America its competitive
international advantage. But given his guiding economic aim to untax
himself and his most influential political constituency, what appeals to
Trump is simply the fact that the government did not yet have an income
tax.
What also appeals to Trump is the super-affluence of a robber-baron
class, in whose ranks he can readily imagine himself as if in a
historical novel. But that self-indulgent class consciousness has a
blind spot regarding how its own drives for predatory income and wealth
destroy the economy around it, while fantasizing that the robber barons
made their fortunes by being the great organizers and drivers of
industry. He is unaware that the Gilded Age did not emerge as part of
America’s industrial strategy for success but because it did not yet
regulate monopolies and tax rentier income. The great fortunes were made
possible by the early failure to regulate monopolies and tax economic
rent. Gustavus Myers’ History of the Great American Fortunes tells the
story of how railroad and real estate monopolies were carved out at the
expense of the economy at large.
America’s anti-trust legislation was enacted to deal with this problem,
and the original 1913 income tax applied only to the wealthiest 2
percent of the population. It fell (as noted above) mainly on financial
and real estate wealth and monopolies – financial interest, land rent
and monopoly rent – not on labor or most businesses. By contrast,
Trump’s plan is to replace taxation of the wealthiest rentier classes
with tariffs paid mainly by American consumers. To share his belief that
national prosperity can be achieved by tax favoritism for his Donor
Class by untaxing their rentier income, it is necessary to block
awareness that such a fiscal policy will prevent the
re-industrialization of America that he claims to want.
The U.S. economy cannot be re-industrialized without freeing it from rentier income
The most immediate effects of Trump’s tariff policy will be
unemployment as a result of the trade disruption (over and above the
unemployment flowing from his DOGE cutbacks in government employment)
and an increase in consumer prices for a labor force already squeezed by
the financial, insurance and real estate charges that it has to bear as
first claims on its wage income. Arrears on mortgage loans, auto loans
and credit-card loans already are at historically high levels, and more
than half of Americans have no net savings at all – and tell pollsters
that they cannot cope with an emergency need to raise $400.
There is no way that disposable personal income will rise in these
circumstances. And there is no way that American production can avoid
being interrupted by the trade disruption and layoffs that will be
caused by the enormous tariff barriers that Trump has threatened – at
least until the conclusion of his country-by-country negotiation to
extract economic concessions from other countries in exchange for
restoring more normal access to the American market.
While Trump has announced a 90-day pause during which the tariffs will be reduced to 10% for countries that have indicated a willingness to so negotiate, he has raised tariffs on Chinese imports to 145%.4
China and other foreign countries and companies already have stopped
exporting raw materials and parts needed by American industry. For many
companies it will be too risky to resume trade until the uncertainty
surrounding these political negotiations are settled. Some countries can
be expected to use this interim to find alternatives to the U.S. market
(including producing for their own populations).
As for Trump’s hope to persuade foreign companies to relocate their
factories to the United States, such companies face the risk of him
holding a Sword of Damocles over their heads as foreign investors. He
may in due course simply insist that they sell out their American
affiliate to domestic U.S. investors, as he has demanded that China do
with TikTok.
And the most basic problem, of course, is that the American economy’s
rising debt overhead, health insurance and housing costs already have
priced U.S. labor, and the products it makes, out of world markets.
Trump’s tariff policy will not solve this. Indeed, his tariffs by
increasing consumer prices will exacerbate this problem by further
increasing the cost of living and thus the price of American labor.
Instead of supporting a regrowth of U.S. industry, the effect of Trump’s
tariffs and other fiscal policies will be to protect and subsidize
obsolescence and financialized deindustrialization. Without
restructuring the rentier financialized economy to move it back toward
the original business plan of industrial capitalism with markets freed
from rentier income, as advocated by the classical economists and their
distinctions between value and price, and hence between rent and
industrial profit, his program will fail to re-industrialize America.
Indeed, it threatens to push the U.S. economy into depression – for 90
percent of the population, that is.
So we find ourselves dealing with two opposing economic philosophies. On
the one hand is the original industrial program that the United States
and most other successful nations followed. It is the classical program
based on public infrastructure investment and strong government
regulation, with rising wages protected by tariffs that provided the
public revenue and profit opportunities to create factories and employ
labor.
Trump has no plans to recreate such an economy. Instead, he advocates
the opposing economic philosophy: downsizing government, weakening
public regulation, privatizating public infrastructure, and abolishing
progressive income taxes. This is the neoliberal program that has
increased the cost structure for industry and polarized wealth and
income between creditors and debtors. Donald Trump misrepresents this
program as being supportive of industry, not its antithesis.
Imposing tariffs while continuing the neoliberal program will simply
protect senility in the form of industrial production burdened by high
costs for labor as a result of rising domestic housing prices, medical
insurance, education, and services bought from privatized public
utilities that used to provide basic needs for communications,
transportation and other basic needs at subsidized prices instead of
financialized monopoly rents. It will be a tarnished gilded age.
While Trump may be genuine in wanting to re-industrialize America, his
more single-minded aim is to cut taxes on his Donor Class, imagining
that tariff revenues can pay for this. But much trade already has
stopped. By the time more normal trade resumes and tariff revenue is
generated from it, widespread layoffs will have occurred, leading the
affected labor to fall further into debt arrears, with the American
economy in no better position to re-industrialize.
The geopolitical dimension
Trump’s country-by-country negotiations to extract economic
concessions from other countries in exchange for restoring their access
to the American market no doubt will lead some countries to succumb to
this coercive tactic. Indeed, Trump has announced over 75 countries have
contacted the U.S. government to negotiate. But some Asian and Latin
American countries already are seeking an alternative to the U.S.
weaponization of trade dependency to extort concessions. Countries are
discussing options to join together to create a mutual trade market with
less anarchic rules.
The result of them doing so would be that Trump’s policy will become yet
another step in America’s Cold War march to isolate itself from trade
and investment relations with the rest of the world, including
potentially with some of its European satellites. The United States runs
the risk of being thrown back onto what has long been supposed its
strongest economic advantage: its ability to be self-sufficient in food,
raw materials, and labor. But it already has deindustrialized itself,
and has little to offer other countries except for the promise not to
hurt them, disrupt their trade and impose sanctions on them if they
agree to let the United States be the major beneficiary of their
economic growth.
The hubris of national leaders trying to extend their empire is age-old –
as is their nemesis, which usually turns out to be themselves. At his
second inauguration, Trump promised a new Golden Age. Herodotus
(History, Book 1.53) tells the story of Croesus, king of Lydia c.
585-546 BC in what is now Western Turkey and the Ionian shore of the
Mediterranean. Croesus conquered Ephesus, Miletus and neighboring
Greek-speaking realms, obtaining tribute and booty that made him one of
the richest rulers of his time, famous for his gold coinage in
particular. But these victories and wealth led to arrogance and hubris.
Croesus turned his eyes eastward, ambitious to conquer Persia, ruled by
Cyrus the Great.
Having endowed the region’s cosmopolitan Temple of Delphi with
substantial gold and silver, Croesus asked its Oracle whether he would
be successful in the conquest that he had planned. The Pythia priestess
answered: “If you go to war against Persia, you will destroy a great
empire.”
Croesus optimistically set out to attack Persia c. 547 BC. Marching
eastward, he attacked Persia’s vassal-state Phrygia. Cyrus mounted a
Special Military Operation to drive Croesus back, defeating Croesus’s
army, capturing him and taking the opportunity to seize Lydia’s gold to
introduce his own Persian gold coinage. So Croesus did indeed destroy a
great empire – but it was his own.
Fast-forward to today. Like Croesus hoping to gain the riches of other
countries for his gold coinage, Trump hoped that his global trade
aggression would enable America to extort the wealth of other nations
and strengthen the dollar’s role as a reserve currency against foreign
defensive moves to de-dollarize and create alternative plans for
conducting international trade and holding foreign reserves. But Trump’s
aggressive stance has further undermined trust in the dollar abroad,
and is causing serious interruptions in the supply chain of U.S.
industry, halting production and causing layoffs at home.
Investors hoped for a return to normalcy as the Dow Jones Industrial
Average soared upon Trump’s suspension of his tariffs, only to then fall
back when it became clear that he was still taxing all countries 10
percent (and China a prohibitive 145 percent). It is now becoming
apparent that his radical disruption of trade cannot be reversed.
The tariffs that Trump announced on April 3, followed by his
statement that this was simply his maximum demand, to be negotiated on a
bilateral country-by-country basis to extract economic and political
concessions (subject to more changes at Trump’s discretion) have
replaced the traditional idea of a set of rules consistent and binding
for all countries. His demand that the United States must be “the
winner” in any transaction has changed how the rest of the world views
its economic relations with the United States. An entirely different
geopolitical logic is now emerging to create a new international
economic order.
China has responded with its own tariffs and export controls as its
trade with the United States is frozen, potentially paralyzed. It seems
unlikely that China will remove its export controls on many products
essential for U.S. supply chains. Other countries are searching for
alternatives to their trade dependency on the United States, and a
reordering of the global economy is now under negotiation, including
defensive de-dollarization policies. Trump has taken a giant step toward
the destruction of what was a great empire.
Thanks to the Democracy Collaborative.
Image by Lux Enigma from Pixabay
Footnotes
- The three usual factors of production are labor, capital and land. But these factors are best thought of in terms of classes of income recipients. Capitalists and workers play a productive role, but landlords receive rent without producing a productive service, as their land rent is unearned income that they make “in their sleep.”
- In contrast to the British system of short-term trade credit and a stock market aimed at making quick gains at the expense of the rest of the economy, Germany went further than the United States in creating a symbiosis of government, heavy industry and banking. Its economists called the logic on which this was based the State Theory of Money. I give the details in Killing the Host (2015, chapter 7).
- America’s deindustrialization has also been facilitated by U.S. policy (starting under Jimmy Carter and accelerated under Bill Clinton) promoting the offshoring of industrial production to Mexico, China, Vietnam and other countries with lower wage levels. Trump’s anti-immigrant policies playing on native Americanism are a reflection of the success of this deliberate U.S policy in deindustrializing America. It is worth noting that his migration policies are the opposite of those of America’s industrial takeoff, which encouraged immigration as a source of labor – not only skilled labor fleeing Europe’s oppressive society, but also low-wage labor to work in the construction industry (for men) and the textile industry (for women). But today, by having moved directly to the countries from which immigrants performing U.S. industrial labor previously came, American industry has no need to bring them to the United States.
- The White House has pointed out that Trump’s new 125% tariff on China is on top of the 20% IEEPA (International Emergency Economic Powers Act) tariffs already in place, making the tariff on Chinese imports an unpayably high 145%.