Trump and Tariffs

The secret upside of tariffs is you can use them to extract more campaign donations.

There are a lot of smart economists in this world, so I don’t have much to say about purely economic questions. But I want to comment on a political issue involving tariffs.

Eight years ago, Trump failed to exploit the potential covert political benefits of tariffs. He got some upside from the overt aspect of creating a few more manufacturing jobs in some places and thus getting more votes, but did little in the traditional 19th Century Republican way of rewarding friendly American capitalists and punishing unfriendly ones and thus getting more campaign donations.

One interesting question is: Why today do so many zillionaires like, say, Sergey Brin of Google want to be on Trump’s good side compared to eight years ago? Perhaps Trump has made clear to them that his tariffs will be used more tactically this time?

So, far, though, all we’ve seen are strategic threats of tariffs, such as today’s announcement of 25% tariffs on NAFTA partners Canada and Mexico and 10% on global rival China.

Still … Trump’s new favorite President (other than himself, of course) is William McKinley, who won an absolute barn-burner of an election in 1896 over 36-year-old orator William Jennings Bryan, with 79.3% of the voting age population turning out (a mark that hasn’t been topped since).

Bryan gets made fun of a lot for his role in the Scopes Monkey Trial decades later, but he had a fine issue to run on in 1896: because the economy was expanding faster than the supply of gold, the gold standard was causing deflation, which raised the real interest rates that borrowers, such as farmers, had to pay to bankers. Inflation is bad, but deflation tends to be even worse because it’s harder to adjust for. So, Bryan promised bimetallism (adding a silver standard), which would have caused inflation, helping the masses of borrowers out at the expense of lenders.

As it turned out, the 1898 gold rush in the Yukon increased the supply of gold and the crisis faded away, such that bimetallism has become a byword for esoteric political issues of the past, of interest only to the few folks who want to know what The Wizard of Oz was really about.

But that was all in the future in 1896. That year, McKinley’s campaign manager, Senator Mark Hanna, shook down robber barons for unprecedentedly large campaign contributions, which helped the GOP to mount a huge campaign, one that excited even some previously apathetic immigrant groups to vote Republican.

Here’s the paywall:

Back in late 2016, I wrote in Taki’s Magazine:

Bordering on Success

Steve Sailer

December 14, 2016

Donald Trump’s era of influence may turn out to be a flash in the pan like that of previous celebrity politicians Jesse Ventura and Arnold Schwarzenegger. But he may also be building a political system as enduring as Ronald Reagan’s.

A clever aspect of Trump’s platform that hasn’t been much analyzed is that by merging the issues of immigration and trade into the super-issue of borders, he may have a way to reliably win both votes and political donations.

By defeating Hillary despite spending only half as much, Trump demonstrated that much of traditional campaign expenditure is waste. And yet a party still needs some special interests to write big checks. Trump pulled off a sensational tour de force by defeating the overwhelming majority of America’s establishment, but no party can rely on individual heroism as a long-term strategy.

A Trump reelection campaign will need to appeal to at least some special interests. The history of the GOP from 1860 onward suggests that trade policy can be a major stimulus for campaign funding.

The weakness of immigration restriction as an issue has not been a lack of popularity with voters, but a lack of pocketbook appeal to major donors. Countless special interests can benefit from lax immigration laws and laxer enforcement, so politicians pushing open borders receive huge payoffs from the wealthy.

Prudent immigration policy, in contrast, is good for ourselves and our posterity, but there’s no way to get rich off it. By itself, immigration restriction is just too clean of an issue. That appeals to eccentric idealists like me, but we generally don’t have much money.

Having been in the immigration policy business for the entire 21st century, let me assure you that it’s not an easy way to make a living. I’ve never stumbled upon any special interest that would benefit financially from more prudent immigration policies. The only strategy I’ve thought of is appealing to the civic-mindedness of rich guys.

To get a sense of this, notice that in screeds by the opulently funded Southern Poverty Law Center about the menace posed by immigration patriots, their most virulent hatred is reserved for Dr. John Tanton for his role in key fund-raising.

Who is this nefarious Dr. Tanton who so outrages the SPLC (with its current endowment of $303 million)?

That was back in 2016. As of the SPLC’s latest annual report, its endowment was $732 million.

Is he some Bruce Wayne-like billionaire glowering over a great city from his personal skyscraper?

No, Dr. Tanton is an ophthalmologist in Petoskey, Michigan, up near Mackinac.

How many billionaires are on the side of immigration prudence? In 2014, I went through the Forbes 400 and noticed two members of the bottom 100 (not that that’s a bad place to be) who donated to restrictionist causes. (I won’t mention their names because of all the hate and violence directed toward patriots in 2016.) And I theorized back then that Ross Perot and Donald Trump weren’t enthusiasts for more immigration.

In contrast, billionaires tend to know on which side their bread is buttered. Plutocrats in the top three dozen richest people in the country in 2014 who were publicly donating money to boost immigration numbers included Bill Gates, the Koch brothers, Michael Bloomberg, Sheldon Adelson, George Soros, Mark Zuckerberg, Rupert Murdoch, and the widow Jobs.

That’s a rather daunting list of opponents. Staring at their names just now, I realize I must have been nuts to devote my career to opposing the whims of people like them. What was I thinking?

While immigration restraint on its own will never appeal to any but the most idealistic billionaires, lumping immigration and trade together as borders has potential to get the attention of more self-interested plutocrats.

For example, one of the main monetary supporters of National Review for decades was textile-factory baron Roger Milliken. The main thing he wanted in return was support for a protective tariff on textiles because he didn’t want to shut his South Carolina mills. Milliken’s contributions did much for several decades to restrain NR‘s drift toward trade libertarianism.

With average tariffs as of 2010 down to 1.3 percent, the returns from further cutting of tariffs are marginal. Indeed, most trade negotiations in recent decades have been about the sly non-tariff barriers that other countries use to keep out imports.

For example, all through the 1970s the Japanese government promised that real soon now the Japanese would be buying lots of American cars. In reality, while Japanese government safety inspections and other shenanigans played a role in stifling American exports, the main reason was because Japanese people wanted to build and buy Japanese cars.

Eventually, Ronald Reagan grew frustrated enough that he imposed a quota on Japanese auto imports. In turn, the Japanese car companies built factories in America. This struck me as reasonably successful, but it has largely been forgotten during the triumphalist phase of globalist ideology.

I was an economics major, and the surest sign that you’ve been to college in America is the ability to explain why Ricardo’s law of comparative advantage proves that free trade must be optimal.

Thus, I once got denounced by a couple of National Review writers for joking that the surest proof of the infallibility of free-trade theory was that hardheaded statesmen such as Alexander Hamilton, Abraham Lincoln, and Otto von Bismarck all favored it.

(As everybody who has seen the expensive Hamilton musical seems to now know, Alexander Hamilton was a black immigrant free trader.)

In reality, of course, they were all protectionists.

Thus it’s particularly ironic that liberals attempting to recruit faithless members of the Electoral College to stage a coup against Trump on Dec. 19 are calling for “Hamilton Electors” when Trump’s economic policy is Hamiltonian.

In 2016, even economists are finally admitting that outsourcing our manufacturing to China was bad for the American working class. In a new paper entitled “The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade,” economists David H. Autor, David Dorn, and Gordon H. Hanson document that America’s experience with China has not gone according to free-trade theory. The reality

…has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks…. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in the US industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize.

At the end of the 1990s, as the Clinton administration gave the green light to American firms to shut down their plants and subcontract with China, I became intrigued by sci-fi author Jerry Pournelle’s compromise suggestion that Congress simply impose a 10 percent across-the-board tariff on all imports. This might be enough to make corporations at least think twice about laying Americans off. And a flat tariff would reduce the kind of political corruption that traditionally accompanied setting tariffs.

German chancellor Otto von Bismarck may (or may not) have said, “There are two things you don’t want to see being made — sausage and legislation.” But he certainly had opportunity to reflect upon that, having turned Germany away from free trade to tariffs in 1879.

But all these years later, the complexity of tariffs seems less like a bug than a feature.

Protectionism was a notorious moneymaker for the Republican Party because the politicians had so much control over the size of each tariff. If a Republican fund-raiser in 1888 told the buggy-whip manufacturers of America that they’re going to get only a 2 percent tariff while the domestic velocipede makers will benefit from a 40 percent tariff, they were apt to bargain.

The centrality of tariffs to the financial health of the businessman’s party was a key insight of Clay, Lincoln, and McKinley. Whether protectionism is good for the country or not, it tends to be good for the protectionist party because it gives their politicians something to sell.

Therefore, a GOP reorganized around the centrality of borders — immigration restrictionism and protectionism — is a party that could conceivably attract both the votes of the people and the contributions of the CEOs.

Is this happening in 2025? I can’t say for sure.

To resume the narrative: Tariffs fell increasingly out of fashion, though, after a series of unfortunate events from 1929-1945, most notably involving Japan. The U.S. in the 1940s put a lot of effort into understanding why Japan had gone berserk (in contrast to America’s poor comprehension of its new protectorate in South Korea in 1945-1950) and what could be done to keep other countries from getting so stressed out in the future that they go on a similar kamikaze charge for empire.

The U.S. conclusion was that Japan, due to its population density, had been dependent upon selling its manufactured goods, such as textiles, abroad to pay for its food imports. But the stock market crash of 1929 and the subsequent decline in world trade, in part due to increasing protectionism, meant that the average number of calories Japanese consumed declined during the 1930s. Hence, hunger brought the crazies in the Japanese Army to the forefront and they set off on a war of conquest of Asia, including McKinley’s 1898 acquisition, the Philippines, which led them to their preemptive attack on Pearl Harbor in the hopes of defeating mighty America through sheer courage.

Not surprisingly, Japan lost. But Americans didn’t want to go through that again, so a couple of conclusions were reached in Washington post-WWII: let’s try to moderate tariffs around the world to reduce the urge to conquer, and let’s discourage conquest by, among other steps, not officially recognizing conquests.

A vague, unwritten principle of the second half of the century seemed to be that while countries could get smaller, countries getting bigger was frowned upon. One reason for this was to reduce the chances of another Depression Era pattern of countries striving for autarchy out of fear that if they don’t do it, their rivals will achieve it and freeze them out of trade.

Hence, Israel’s conquests in 1967 were considered “Occupied Territories.” And even though the U.S. gave Indonesia the de facto nod to occupy East Timor (long a Portuguese colony) in 1974, the U.S. didn’t officially recognize East Timor as Indonesian. That may sound insignificant, but when Indonesia’s military dictatorship fell in 1998, East Timor gained its independence. The system of international recognition of borders may sound silly to people who consider themselves hard-headed realists, but it often triumphs in the very long run.

A similar example of a pro-US third world country occupying a neighboring ex-European colony in the tumultuous mid-1970s was Morocco’s takeover of Spanish Sahara as Franco’s government faded. Few countries recognized Morocco’s right to this hunk of desert until Trump in 2020 rewarded Morocco for officially recognizing Israel by the U.S. recognizing Morocco’s ownership of the Western Sahara.

Did Trump’s obscure Moroccan deal encourage Putin to think in 2022 that Russia re-annexing parts of Ukraine that the world, including Russia, had recognized since the 1990s as Ukraine would, in the long run, be accepted?

This time around, Trump is talking about expanding American territory, by force if need be: e.g., Greenland, the Panama Canal, maybe even Canada.

My guess is that tariffs and expansionism are not a good combination.