A few years ago, before the EU Referendum, I met with someone who was trying to persuade me that the UK could be totally self sufficient, that it could manufacture everything we needed right here at home, and didn’t need to engage with anyone else. As he was putting this argument to me, I admired his Korean television, his Swedish furniture, his clothes made in the Far East, his German car, his Japanese motorcycle. In his kitchen were strawberries and tomatoes grown in Morocco. In short, he was talking utter nonsense, oblivious to the fact that his entire life was based on international trade.
So it is with Donald Trump and his trade wars, coming into effect this week. That great American product, the iPhone, is made in China and Vietnam. Trump has just doubled the cost, to American citizens, of an American product manufactured overseas. It’s ludicrous.
International trade is a fact of life. It has been expounded since Adam Smith wrote The Wealth of Nations in 1776, moving the thinking of trade from mercantilism, where a country measured its wealth in gold reserves, to free trade, where it measures its wealth in output. That way saw low value production exported, freeing up our domestic resources for higher value production. And it was not just our own economy that flourished as jobs became higher paid. Lower value economies did too, as richer economies employed their cheaper labour in higher value jobs than was otherwise available.
Every now and then politicians messed it up. The Corn Laws, that sought to protect domestic landowners from cheaper imports, created inflation and starvation. Similarly, after the 1929 stock market crash, the US brought in the Smoot-Hawley Act that put in place protectionist tariffs in America. It is this act of economic vandalism that is blamed for the Great Depression.
So, we know from history that protectionist tariffs first harm the country that introduced them, and then everyone else. History tells us the actions of Donald Trump are simply insane. He has just created a hugely inflationary tariff on his own people. Tariffs are levied on the goods that are imported and are paid through higher prices at the checkout. Of course, higher price equals lower demand, so exporters loose out too.
The tragedy is that those who fail to learn the lessons of history are destined to repeat the mistakes of the past. Someone needs to give Donald Trump a history book.