When President trump announced his tariffs, describing it as ‘liberation day’, I told the Commons that, on the contrary, it was the very antithesis of liberation because tariffs always and everywhere reduce the choice available to customers. They are a conspiracy by producers and politicians against the interests of ordinary customers.
Nevertheless, tariffs have a long history even in our own great free-trading nation. Indeed, my own Tory Party split -and consequently was out of power for a generation- when Sir Robert Peel and the Duke of Wellington succeeded in repealing the Corn Laws in in 1846. Thereafter, the burnt and bandaged hand wandered back towards the flame in the guise of a policy of ‘imperial preference’ before a policy of full-blown tariffs were once more disastrously imposed in the 1930ies.
Our post-war prosperity is largely a consequence of enlightened abandonment of tariffs, superintended by the General Agreement on Trade and Tariffs signed initially by 23 nations in 1947, and which later became the World Trade Organisation.
The greatest US President of my political lifetime was Ronald Reagan. I recently came across his 1987 speech on tariffs. Here is an extract
“First, when someone says let’s impose tariffs on foreign imports it looks like they are doing the patriotic thing by protecting by American products and jobs, and sometimes, for a while, it works. But only for a short time. What eventually occurs is, first, home-grown industries start relying on government protection in the form of high tariffs: they stop competing and stop making technological and management changes necessary to succeed in world markets.
And then, while all this is going on, something even worse occurs: High tariffs inevitably lead to retaliation by foreign countries and the triggering of fierce trade wars. The result is more and more tariffs, higher and higher trade barriers and less and less competition. So, because of prices made artificially high by the tariffs that subsidise inefficiency poor management, people stop buying. Then the worst happens: markets shrink and collapse; industries shut down; and millions of people lose their jobs.
The memories of all this back in the 1930s made me determined that, when I came to Washington, I would spare the American people the protectionist legislation that destroys prosperity”
Regan was right and Trump is wrong. US businesses will quickly learn that their profits are increasingly dependent, not on innovation and efficiency, but on political favours in the form protectionist tariff barriers. Accordingly, their main effort will become lobbying the politicians for such favours rather than winning new markets. The USA will increasingly mirror Russia in its economic decline and dishonest crony-capitalism