Walter Block: The US is a Protectionist Country

Editor’s Note: This is part two of a two-part series.

In part one of our interview with economist Walter Block, the author of Defending the Undefendable and Water Capitalism, discussed President Donald Trump’s trade tactics, the U.S. government applying tariffs, and whether the president really is a free-trader. In this installment, we discuss the allocation of labor, Chinese imports, and whether the GOP is hurting its electoral chances ahead of the mid-term elections.

Liberty Nation: You write in your op-ed, "In reality, however, creating jobs alone does not make for a strong economy," explaining that we need to allocate labor more efficiently, even if that means relying on trading with other nations if they produce goods more efficiently.

One of the reasons for President Trump getting elected and gaining support from Middle America was his promise to create and bring back jobs. For those who are unemployed in, let's say, Biloxi, Mississippi, and lost their jobs to cheap labor in China, why shouldn't they cheer on tariffs to bring back steel manufacturing jobs?

Walter Block: Well, the cause of unemployment is very different than Chinese producing goods that the Mississippians used to produce. If the Chinese can do it better than the Mississippians, well that means that the prices of these goods will be lower when they come here from China because they can produce cheaper, which means everyone's got a little bit more money because the money they now save for buying cheaper goods, let's say hats or shoes or whatever it is. Now, everyone's got more money and when they spend this more money, there'll be more jobs. But in the free enterprise system, there really can't be any involuntary unemployment. The reason we have it is always because of government. Not because the tariffs now, but because of things like minimum wages and creating the business cycle and the Fed creates the business cycle and unions have raised wages above productivity levels, and then you have the equal pay for equal work for women, which will create unemployment for women if it ever gets going, which it won't.

So, I don't think we have to worry about joblessness. The free enterprise system will make sure that there's no joblessness, because if there's any joblessness, that means that the somebody is willing to work, and if he's willing to work, somebody else is going to employ him at some wage or other, usually in equilibrium at least, at the ... What do they call it? The level of productivity. So, I don't think that the way to combat unemployment is by making our allocation of labor and capital less efficient; I think the way to combat unemployment is to get rid of government interference with the market that creates unemployment in the first place.

LN: You write in The New York Times about the $12 billion bailout proposal for American farmers. There's a lot of criticism from the farmers themselves. They said they prefer to work and access a foreign market than receive a bailout. Do you think these trade hiccups will ultimately hurt the Republican party come November? Because these are the very people that voted for Trump and the GOP and they're being hurt by the tariffs.

WB: Yes. I think this is a big mistake, a big pragmatic mistake on Trump's part, because first of all, he has tariffs on steel and automobiles and aluminum, and that raises the price of all these things. Farmers buy tractors, which has got steel and aluminum and ... Well, not cars, but stuff like ... Well, they buy trucks and stuff like that. So, what happened is that Trump first creates a problem with the tariffs on the country, and then what he does is he tries to solve that problem by taking $12 billion away from other people and giving it to the farmers, and the farmers don't like it. They want to be productive. Also, that creates other problems because now the rest of us have got $12 billion less than we otherwise would have had, which creates problems for us, and then what Trump is gonna have to do now is to give us some money because he's taken away from us.

So, this is sorta like ... You know, here comes Venezuela. I mean, this is the way the Soviet economies used to run, where the government creates problems and it hurts this group, then this group gets paid off because they have political pull, and that hurts other group, and then you have to help the other group. Where does it end? It ends with Venezuela. So, I think what he should do is stop creating problems and then trying to solve the problems that he created by creating other problems.

LN: President Trump made an interesting comment that U.S. markets are open to the world and that foreigners close their markets to the U.S. However, according to the Cato Institute and the American Enterprise Institute (AEI), the U.S. ranks 63rd in "freedom to trade internationally." What are your thoughts on this?

WB: I think they're right. The U.S. is a protectionist country. I mean, we had the Smoot-Hawley tariff in the 1930s, which extended the Depression for four or five years or something and exacerbated it, and the U.S. is not a free trading country. It would be nice. I mean, the new Trump ... You just told me what he said. I haven't heard that myself; I'm trusting your report on this. Well, if he's really saying that, what he should do is get rid of all these tariffs and sort of adopt the policy of Hong Kong. Hong Kong has a policy of no restrictions on trade, no tariffs, no quotas, no nothing with any country, even if the other country doesn't reciprocate and doesn't allow Hong Kong goods and services into there. So, I agree with the Cato and AEI here in saying that the U.S. is not a free trading country; it's protectionist country and it's long past time that we adopted economic freedom in this area.

LN: Over the years, previous administrations have imposed tariffs on foreign nations. President Barack Obama applied them on Chinese tires, President George W. Bush implemented tariffs on steel, and former President Bill Clinton slapped tariffs on Japanese steel. How come governments, Republican or Democrat, never learn from these past mistakes?

WB: Well, part of the reason is the concentration of benefits and the dissipation of cost. In other words, suppose we have a tariff on steel. This is gonna really help the steel manufacturers and they are gonna get a lot of wealth from it. How much is it going really cost the rest of us? Well, we have ... I don't know, what is it? 350 million people, roughly, citizens of the U.S., or residents of the U.S. How much are each of us gonna pay, a buck or two? Namely, the costs of this are spread out all over 350 million people and a buck or two ... You know, what the heck? I'm not gonna really protest. It's gonna cost more than a buck or two to write a letter to the president and tell him to cut it out and I'm not gonna have lobbyists down in Washington D.C., saying, "Hey, I'm gonna lose a buck or two, so cut it out." I can't afford to pay a lobbyist out of $2.

But, the steel and the aluminum companies and the automobile companies, they're gonna make tons of money, and with part of that money they're gonna go hire lobbyists and lobbyists are gonna go down to Washington D.C. and say, "Hey, you gotta help us out. We're the core of the economy or whatever, plus we're gonna take you out for a nice dinner and give you a little money under the table." So, that's one reason why we have these tariffs, even though ... You know, I teach a course. Economics 101, Introduction to Microeconomics, and we talk about tariffs and it's sorta like basic economics. So, you're really asking, why is it that since virtually all economists agree on this, and even left-wing economists would agree on free trade, pretty much ... Why is it then that the politicians don't adhere to it? Well, one, most people don't understand economics and, two, the benefits and the costs are spread out in very different ways, which encourage tariffs.

LN: Finally, are we going to see any more op-eds from you in The New York Times?

WB: Well, I hope so. I'm gonna submit more stuff to them and hopefully they'll publish some of it. That would be great.

Final Thoughts

Is President Trump a free-trader or a protectionist? It is hard to determine based on his words and actions. One moment, the president is tweeting that tariffs are the “greatest.” The next moment, he’s urging the rest of the world to remove all economic barriers.

The president’s most ardent supporters will routinely come to his defense, clarifying that Trump is only using the threat of tariffs as a negotiating tactic to get a better deal for Americans. So far, tariffs have only begotten tariffs, which is evident by Canada, Mexico, the EU, and China imposing retaliatory tit-for-tat tariffs that target vulnerable domestic industries.

While it is true that Trump has scored some minor victories as of late, Americans are worse off thanks to the tariffs. Consumer prices are beginning to rise, Americans are getting double taxed (tariffs and subsidies), and the nation’s agricultural sector is getting decimated on a daily basis. What’s worse, there doesn’t appear to be any end in sight to the global trade war, and that can only mean one thing: more victims.

What are your thoughts on the global trade war? Let us know in the comments section!