Economics

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Looking at the unintended consequences of tariffs and found this little tidbit.

Tariffs have long been a contentious tool of economic policy in the United States. Proponents argue they shield domestic industries from foreign competition, enabling growth and job creation. Yet, the historical record, as illuminated by scholars like Douglas Irwin in his study “Tariffs and Growth in Late Nineteenth Century America,” demonstrates that tariffs often hinder economic progress more than they help.

During the late nineteenth century, the United States maintained some of the highest tariff rates in its history. While this period coincided with rapid industrial growth, Irwin argues that tariffs were not the primary driver of economic expansion. Instead, technological innovation, abundant natural resources, and a growing domestic market played far more significant roles. High tariffs distorted resource allocation, favoring inefficient industries over more competitive sectors. This misallocation led to higher consumer prices and suppressed overall economic welfare.

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The plan can be summarized in three points:

1. Disorient the world economic order with tariffs.

2. Drop tariffs for friendly countries willing to peg their currency to the dollar and abide by certain economic and military rules.

3. Charge said countries a regular "user fee" for membership inside this new order.

Europe having their own currency and being adverse to cooperation with the US in terms of this new world order is why Trump is friendlier to Russia and why he is less friendly to Ukraine. Ukraine belongs outside this new order unless they make a "deal" with the US. I would be interested to see if Russia would be willing to peg their currency and pay a membership fee. Probably not.

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Trump's 34% tariff gambit against China is the latest convulsion of a capitalist system in decay. For four decades, neoliberal orthodoxy gutted the US industrial base, outsourcing production to low-wage markets to maximize shareholder profits. The result is a financialized economy where Wall Street thrives while the real economy lies in ruins. Tariffs, sold as economic populism, are a naive attempt to reindustrialize the economy. However, this policy cannot work without massive public investment in factories, worker training, or supply chain sovereignty. All the tariffs can accomplish is to inflate consumer prices while enriching the same oligarchs who lobbied for outsourcing. The US now finds itself in a middle of a massive contradiction: protectionism requires a productive base, yet capitalists long ago abandoned production for speculation.

The US corporate aristocracy, living off cheap overseas labor and deregulated profit extraction, rejects the long-term industrial policy needed to revive manufacturing. Why? Because reinvesting in domestic production would require taxing capital, regulating markets, and empowering labor. All such policies would be anathema to the billionaire class. Meanwhile, the working majority, promised a renaissance of industrial dignity, will only see higher prices and stagnant wages. What we're really seeing here is class struggle masked as trade policy.

China's calculated response of export controls on key rare earth along with the reciprocal 34% tariffs reveals a strategic depth absent in the US. China is able to seamlessly coordinate industrial policy, resource control, and geopolitical aims. China made massive investments into making itself an essential global producer of rare earths which are vital for semiconductors, weapons, and green tech. Now, China is able to weaponize the very supply chains that western capitalism outsourced. Where the US sees trade as a ledger of deficits, China sees it as a battlefield of material dependencies.

The most likely outcome of the tariff war will be further erosion of dollar hegemony. The US pushes nations to look for alternatives by weaponizing the dollar and extracting seigniorage. At the same time, China's BRICS+ alliances and Belt and Road infrastructure offer a pragmatic path forward for countries that wish to retain their sovereignty.

The trade war is a symptom of capitalism's systemic crisis. As the multipolar world emerges, western workers will bear the brunt of new economic realities unless they are able to seize the means of production. The tariffs are mere tremors, the earthquake will come when labor finally rejects the logic of capital altogether.