Please take a moment and consider the clothes you’re wearing right now, or that you will be wearing later today or tomorrow. Could you, if they were too expensive, make them yourself?
Even for the readers who answered “yes” to the above question, such a scenario is generally unfathomable. Why waste countless hours making what is already plentiful, and frequently low-priced?
The clothes we wear are a reminder of what’s a statement of the obvious: we’re all free traders. While some seek government favor to restrict the ability of others to exchange freely, as individuals we all do. We’d be miserable if we couldn’t. Evidence supporting this truth is that if real opponents of free trade actually existed, it would be easy to spot them: they would be living in caves.
More broadly, if you’re working, out of a job but would like to work, or plan on working when you’re of age, you’re an ardent free trader. Your work is an expression of your desire to exchange the fruits of your own toil with others. The “others” could be across the street, across the country, or on the other side of the world.
Thinking about the genius of exchanging with producers everywhere in the world, the beauty of openness to goods without regard to their country origin is that the worker quite literally has the most talented people on earth fighting to serve his needs. Global competition for the dollars of every American worker means that every single one enjoys a paycheck that grows in value with each passing day thanks to more and more producers to competing for the dollars that come with the paycheck.
Further evidence supporting the genius of free trade is that mankind, right from the beginning, has gone to great lengths in order to shrink the world. Indeed, what are cars, airplanes, telephones, internet-capable computers, and ships but an expression of man’s desire to trade? All the innovations mentioned make it more likely that producers in the U.S. will sell to the world, and much more crucially, be sold to by the world.
After all that, open lanes of trade are most beneficial precisely because they increase the odds of us being able to do the work that most amplifies our talents. To understand why, readers need only think back to the clothing question that begins this piece: most of you likely responded “no” to it. Precisely because you did, you intimately understand the genius of free trade. It means you can skip the work that doesn’t reinforce your skills, and instead do that which elevates your talents so that you can buy clothes from individuals for whom clothes-making is the embodiment of what makes them individually great.
Put very, very simply, free trade is the equivalent of going to school without having to take Algebra, Geometry, or some other class that makes you feel endlessly inadequate.
Sadly, President Trump doesn’t agree. While one can hope that the inexcusable tariffs levied on solar panels and washing machines were a small bone thrown to the GOP’s Bannon wing, let’s call them what they are: a tax hike. Plain and simple. Trump called for tax cuts to boost the take home pay for the American worker, but the American worker seeks dollars solely for what they’re exchangeable for. In slapping tariffs on foreign goods, Trump is raising taxes on American workers in much the same way that they would go up if he got together with Congress and raised the tax rates on income earned.
The sole reason we work is to get what we don’t have, the dollars we have left after taxes represent our desire to import, but with a stroke of a pen Trump shrank the purchasing power of every American. Thinking about buying a Samsung washing machine? Estimates are that what used to cost $649 will now retail for $780 thanks to the Trump tax hike. Some of his most ardent defenders will say that $131 isn’t that big of a deal, but they can’t have it both ways: when Rep. Nancy Pelosi referred to the Trump tax cuts as “crumbs” for the American worker, she was pilloried for being out of touch. Ok, but if Pelosi is, then so is Trump. To steal rhetoric from Republican partisans who supported the Trump tax cuts: to most people $100 is a lot of money. So is $131.
Other Trump partisans will excuse Trump’s tax increase by pointing to American jobs allegedly saved. But even if Trump apologists want to believe what is ridiculous, how many American jobs do solar panels and washing machines represent? 10,000, 30,000, 50,000? Whatever the number there are hundreds of millions of Americans who will suffer this tax on their work, not to mention lost opportunities thanks to other countries’ renewed willingness to put tariffs on U.S. goods. Free trade only has winners, while government managed trade has none.
Sadly, Trump didn’t stop there. As this column has said all along, the dollar’s exchange value is not part of the Fed’s portfolio. President’s get the dollar they want, and they transmit their dollar desires through the U.S. Treasury. On Wednesday Treasury Secretary Steven Mnuchin proclaimed at Davos that “A weaker dollar is good for trade.” From Trump’s mercantilist head to Mnuchin’s mouth, the result is a dollar in decline.
A devalued dollar taxes every American first and foremost because Americans earn dollars. Somehow Trump convinced himself that a country of dollar earners is made better off when those dollars are exchangeable for less.
But wait, Trump’s apologists will say, a weaker dollar will allow us to expert more. What a laugh. Even if the previous view were true (it isn’t), we’re producing so that we can import. Imports are the reward for our production, and a weak dollar will render them more expensive.
As for exports, Trump and his team are the latest in a long line of suckers. Having mistaken money for wealth, they’ve glossed over that money is a measure. That measure has been shrunk, which means the myriad global inputs that go into the production of anything marked for export will cost more now. One quite simply can’t boost trade through devaluation. Investment is the path to lower, more competitive prices simply because investment is all about producing goods and services more efficiently. Investors are buying future dollar income streams when they invest. They’ll be marginally less likely to now given the basic truth that devaluation exists as a tax on investment.
One can hope that last week was planned by Trump: throw a quick bone to the economic illiterates by imposing tariffs while weakening the dollar. Having done what was mindless, and that is anti-job creation, maybe Trump can secretly tell the faux nationalists that he’s done their bidding, and that it's time for them to move on. Whatever the answer, let’s not shy away from what’s true: last week Donald Trump raised taxes on every single American.