The Politics of Tariffs

 

A level Economics: Conservatives are attacking Capitalism

The Economist writes about four new books that show how the reactionary right and Luddite left have converged

image: francesco ciccolella

2. Tyranny, Inc: How Private Power Crushed American Liberty—And What to Do About It By Sohrab Ahmari. Forum Books; 288 pages; $28

3. Regime Change: Towards a Postliberal Future. By Patrick Deneen. Sentinel; 288 pages; $30. Forum; £22

4. Decades of Decadence: How Our Spoiled Elites Blew America’s Inheritance of Liberty, Security and Prosperity. By Marco Rubio. Broadside Books; 256 pages; $32 and £20

Two decades ago Johan Norberg, a Swedish liberal, wrote a bracing polemic called “In Defence of Global Capitalism”. Leftists hated it and sniffed that he was “on the ‘crazy right’”. Now, when he makes exactly the same arguments, people on the right accuse him of being “woke left”. “I’m not the one who’s changed,” he writes.

The angriest critiques of global capitalism come increasingly from the populist right. This is true in several Western countries, but especially so in America. Republicans used to extol the benefits of free trade and free markets. Now, following Donald Trump’s lead, Republican candidates demand higher barriers, especially to goods from China, and berate corporations for their “wokeness” in supporting greenery and diversity. Four new books illuminate this shift, which fans of economic liberty find alarming.

Their critiques target two villains: corporations and liberalism. Sohrab Ahmari, a socially conservative Iranian-American journalist, is part of the anti-corporate crowd. In “Tyranny, Inc”, he claims that we live in “a system that allows the asset-owning few to subject the asset-less many to pervasive coercion—coercion that, unlike governmental actions, can’t be challenged in court or at the ballot box.”

Many of his complaints sound lefty. Amazon uses intrusive cameras to monitor its warehouse workers; other firms snoop on their minions’ private emails and web browsing. Employers set unpredictable working hours, which staff cannot easily refuse because they need to put food on the table. Life for the bottom 50% in America is precarious, stressful and unjust.

Other complaints reflect Mr Ahmari’s social conservatism. He disapproves of unpredictable working hours partly because of their effect on family life. He rages that woke corporations such as Disney and American Express “train” workers to accept controversial progressive ideas on race and gender.

He is a deft storyteller. A favourite trick is to describe some terrible injustice as if it occurred in a dictatorship like China or Iran and then to reveal—hey, presto!—that it happened in America. He highlights genuine injustices, such as the way some firms abuse gag clauses, non-compete agreements and the arbitration process.

His analysis, however, is flawed. Private firms in America have far less power over workers than he claims. When they behave abusively, they are often challenged in court. More importantly, with unemployment at 3.5%, disgruntled employees can credibly threaten to quit.

To tame corporate tyranny, Mr Ahmari would supercharge the state. It should encourage unionisation in every sector, play “a far more active role in co-ordinating economic activity” and require financial speculators who buy a company and want to change things to submit to the veto of “workers, local communities and other stakeholders”.

This is a recipe for slower growth and less innovation. Indeed, it is often hard to distinguish Mr Ahmari’s economic proposals from those of Elizabeth Warren or Bernie Sanders on the Democratic left. Yet he thinks his mix of social conservatism and economic populism is the future of the Republican Party, helping it win elections long after Donald Trump has retired or gone to jail. He may be right. This was the calculation made by jd Vance, who first rose to prominence as the author of “Hillbilly Elegy”, which explained the plight of America’s forgotten white working-class, before he ran in Ohio for a Senate seat—and won.

In “Regime Change: Towards a Postliberal Future”, Patrick Deneen, a professor of political science at the University of Notre Dame, gives voice to a gloomy, reactionary strain of thinking. On the first page he laments America’s blighted cities, family breakdown, inequality and “psychic despair”, noting “a growing chorus of voices [reflecting] on the likelihood and even desirability of civil war”.

For all this, he blames liberalism: both the classical sort, which seeks material progress through creative destruction, and the progressive sort that aims to upend family and tradition. To turn back the clock, he would have the state support bigger traditional families (as it does in Hungary) and manufacturing (as it does under Joe Biden). He would restrict immigration, which he says elite liberals support in order to undercut the wages of the native-born and supply themselves with cheap servants.

None of this will work. Plenty of evidence suggests that immigration has little effect on native wages (so curbing it will not raise them); that industrial policy is generally wasteful; that pro-family policies have little effect on fertility; and that Hungary is a kleptocracy.

“Conservative” parties in the West have championed free markets at least since the days of Ronald Reagan and Margaret Thatcher. But free markets are profoundly unconservative. They bring rapid change, usually making people better off, but also disrupting old ways of doing things. Serious conservatives aim to minimise this disruption without impeding growth too much. Demagogues, however, pretend there is no trade-off: that you can have all the benefits of progress without changing the way you live.

For an idea of how ideas like Mr Ahmari’s and Mr Deneen’s might sound when stripped of nuance for the campaign trail, try “Decades of Decadence”. When Marco Rubio first ran for the United States Senate in 2010, he talked about how wonderful it was that he, the son of penniless Cuban immigrants, could aspire to high office in America. Now, still aspiring to even higher office from within a much-changed Republican Party (despite losing to Donald Trump in the Republican primary in 2016), he has embraced his erstwhile rival’s nativist clichés.

He decries America’s “open southern border” and yearns for the good old days when “we took it for granted that most of the things we bought…were made right here at home by our fellow Americans.” He blames China’s entry to the World Trade Organisation for the fact that “Too many Americans who want to live normal decent lives are unable to do so.” To those who say that imports from China might improve American lives, he retorts that such people think of Americans not as “workers, fathers and citizens” but as “consumers…nothing more”.

“The Capitalist Manifesto” by Mr Norberg of the Cato Institute, a think-tank, offers a joyful counterblast to Mr Rubio’s Trumpy stridence. The three decades after 1990, when globalisation took off, have seen greater improvements in human living conditions than the previous three millennia, he shows. Poverty is down, lifespans are longer and technology that only the Pentagon could afford in 1990 is now on every smartphone. “I am not saying that the era has been unequivocally good, only that it has been better than any other era humanity has experienced,” comments Mr Norberg.

When imitation isn’t flattery

Both the new right and the old (and new) left share a zero-sum view of economics, imagining that one person’s gain must be another’s loss. The old left hated free trade and free markets because they supposedly let rich countries exploit poor ones. Now that many of those poor countries have debunked this argument by prospering, the new right complains that free trade and free markets let China exploit the West.

Mr Norberg shows that all of their proposed solutions have been tried before, with dismal results. One study of 50 countries with populist leaders found that 15 years after they take control, their economies are a tenth smaller than those of comparable countries.

In a book packed with vivid examples, one of the most compelling concerns covid-19. Pandemic lockdowns, though widely opposed by the new right, actually achieved many of their stated aims. Borders were closed, migration halted, supply chains disrupted. Global poverty soared—and life became miserable in rich countries, too. Mr Norberg concludes: “It is difficult to imagine a stronger and more tragic proof that progress depends on open societies and economies.” If only his was the last word.

India, China, Protectionism and Computers

 

A Level Economics: Practice Questions on International Trade

 MCQs

1. What is the primary concept behind the theory of comparative advantage? a) Countries should focus on producing goods they can produce more efficiently than others. b) Countries should produce all goods they need domestically to ensure self-sufficiency. c) Countries should prioritize absolute advantage over comparative advantage in trade. d) Countries should engage in protectionist policies to shield domestic industries.

Answer: a) Countries should focus on producing goods they can produce more efficiently than others.

2. How does the opportunity cost relate to the theory of comparative advantage? a) It represents the value of the next best alternative when choosing one option over another. b) It determines the absolute advantage a country has in producing a particular good. c) It measures the total cost of production for a specific industry. d) It defines the efficiency level of a country's production capabilities.

Answer: a) It represents the value of the next best alternative when choosing one option over another.

3. Country A requires 8 hours to produce one unit of Product X and 12 hours to produce one unit of Product Y. Country B requires 6 hours to produce Product X and 9 hours to produce Product Y. Which country has a comparative advantage in producing Product Y? a) Country A b) Country B c) Both countries have the same comparative advantage. d) Neither country has a comparative advantage.

Answer: a) Country A

4. Which advantage does the theory of absolute advantage focus on? a) Opportunity cost b) Efficiency in production c) Comparative advantage d) Resource availability

Answer: b) Efficiency in production

5. What is the primary goal of protectionist policies? a) To promote global economic cooperation b) To increase economic growth and job creation c) To shield domestic industries from foreign competition d) To encourage free trade and globalization

Answer: c) To shield domestic industries from foreign competition

6. What is the purpose of imposing tariffs on imported goods in protectionist policies? a) To generate revenue for the government b) To discourage consumers from buying foreign products c) To reduce trade deficits and balance payments d) To increase efficiency in domestic industries

Answer: a) To generate revenue for the government

7. Which historical event contributed to the shift in the United States' trade policy towards free trade? a) The establishment of the World Trade Organization (WTO) b) The adoption of protectionist measures during its early industrialization phase c) The repeal of the Corn Laws in 1846 d) The signing of the General Agreement on Tariffs and Trade (GATT)

Answer: a) The establishment of the World Trade Organization (WTO)

8. During the 19th century, the United Kingdom became a proponent of free trade through: a) The establishment of tariffs on grain imports. b) The adoption of protectionist policies to support domestic industries. c) The implementation of quotas on certain manufactured goods. d) The repeal of the Corn Laws to promote free trade.

Answer: d) The repeal of the Corn Laws to promote free trade.

9. What factor may influence a country's trade policies and lead to shifts over time? a) The prevalence of infant industries in the economy. b) The country's political ideologies and government preferences. c) The level of international cooperation in trade agreements. d) The absolute advantage a country has in specific industries.

Answer: b) The country's political ideologies and government preferences.

10. What does the UK's historical adoption of protectionist policies during its early industrialization phase demonstrate? a) The importance of nurturing infant industries for long-term development. b) The significance of maintaining a free trade stance throughout history. c) The priority of trade deficits and balancing foreign trade. d) The role of international trade agreements in shaping policies.

Answer: a) The importance of nurturing infant industries for long-term development.

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Long Answer Questions

1. How does the theory of comparative advantage differ from the theory of absolute advantage, and how do these concepts influence a country's trade policies?

2. 
   

3. Analyze the advantages and disadvantages of unrestricted free trade policies and protectionist policies for developing countries, considering their specific economic and political contexts.

4. 
   

5. Evaluate the historical shifts in trade policies of the United States and the United Kingdom, and discuss the factors that contributed to their transition from protectionism to a more open trade regime.

6. 
   

7. What are the potential risks associated with unrestricted free trade, such as the vulnerability to external market fluctuations and unequal bargaining power, and how can countries mitigate these risks?

8. 
   

9. Assess the impact of protectionist policies on domestic industries, economic stability, and global trade relationships, and discuss the implications of using such policies as bargaining tools in international trade negotiations.

A Level Economics: Practice Questions on Globalisation

MCQs 

1. Globalisation refers to the increasing interconnectedness and interdependence of economies, cultures, and societies around the world, driven by advancements in technology, transportation, and communication. What key factors have facilitated the movement of goods, services, capital, information, and people across borders?

a) Government intervention and protectionist measures b) Technological advancements, transportation, and communication c) Trade barriers and tariffs d) Currency exchange controls

Solution: b) Technological advancements, transportation, and communication

2. How does globalisation differ from free trade?

a) Globalisation promotes government intervention in trade, while free trade advocates for the removal of trade barriers. b) Globalisation involves only the exchange of goods and services, while free trade encompasses movements of capital, labor, technology, and ideas as well. c) Globalisation aims to create cultural exchange between countries, while free trade focuses solely on economic integration. d) Globalisation is a specific policy approach, while free trade is a broader concept of international integration.

Solution: b) Globalisation involves not only the exchange of goods and services but also movements of capital, labor, technology, and ideas across borders.

3. What are some of the benefits of globalisation?

a) Increased income inequality and job displacement b) Environmental degradation and financial instability c) Access to larger markets, technology and innovation, and cultural exchange d) Dependency on global markets and cultural homogenisation

Solution: c) Access to larger markets, technology and innovation, and cultural exchange

4. Which of the following is NOT a challenge associated with globalisation?

a) Environmental impact and unsustainable resource consumption b) Growing income inequality within countries c) Limited fiscal coordination among member states d) Financial instability due to interconnected global financial markets

Solution: c) Limited fiscal coordination among member states (This is a challenge related to the Eurozone, not specifically to globalisation)

5. The World Trade Organization (WTO) plays a crucial role in policing trade agreements between nations. What is the primary function of the WTO's dispute settlement system?

a) To remove barriers and restrictions on the flow of goods and services b) To monitor and supervise global trade policies and developments c) To facilitate negotiations with countries seeking to join the WTO d) To adjudicate and resolve disputes when member countries violate WTO trade rules

Solution: d) To adjudicate and resolve disputes when member countries violate WTO trade rules

6. What is the role of the WTO's Trade Policy Reviews (TPRs)?

a) To conduct regular reviews of the WTO's performance and effectiveness b) To examine the trade policies and practices of each member country and provide feedback and recommendations c) To promote cultural exchange and appreciation of diversity among nations d) To streamline customs procedures and reduce trade costs for businesses

Solution: b) To examine the trade policies and practices of each member country and provide feedback and recommendations

7. Which of the following is a benefit of an increasingly integrated world economy for the UK?

a) Competition and job displacement b) Access to larger markets and foreign investment c) Currency volatility and environmental concerns d) Political instability and lack of basic services

Solution: b) Access to larger markets and foreign investment

8. What economic challenges are commonly faced by Less Economically Developed Countries (LEDCs)?

a) Income inequality and aging population b) Unemployment and currency volatility c) Poverty and lack of basic services d) Environmental concerns and technological advancements

Solution: c) Poverty and lack of basic services

9. Which example represents a Major Export Sector in the UK?

a) Agriculture and textiles b) Technology and software c) Financial services and insurance d) Heavy machinery and construction equipment

Solution: c) Financial services and insurance

10. What are the economic problems associated with aging population in More Economically Developed Countries (MEDCs)?

a) Unemployment and underemployment b) Income inequality and environmental impact c) Insufficient infrastructure and political instability d) Increased demand for healthcare and pension systems

Solution: d) Increased demand for healthcare and pension systems

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Long Answer Questions

1. What are the key drivers of globalisation, and how have they facilitated the movement of goods, services, capital, information, and people across borders?

2. 
   

3. Compare and contrast globalisation with free trade, highlighting their respective roles in promoting international integration and economic exchange.

4. 
   

5. Analyse the benefits and challenges of globalisation, considering its impact on trade, economic growth, cultural exchange, and income inequality among countries.

6. 
   

7. Evaluate the role of the World Trade Organization (WTO) in policing trade agreements, resolving disputes, and facilitating trade negotiations among member countries.

8. 
   

9. Assess the economic problems faced by More Economically Developed Countries (MEDCs), Less Economically Developed Countries (LEDCs), and Emerging Economies, and propose potential policy measures to address these challenges for each category of countries.