Diogenes the Libertarian Rides the Trade War Roller Coaster

Diogenes the Libertarian Rides the Trade War Roller Coaster

©2019  Ross Williams

Any yardstick that gives consistent results is a good tool for measurement.  It may only measure the side-effects of the thing being measured, but if it’s consistent, it’s valid.  My self-directed IRA, both of them, is such a yardstick.

I started saving for retirement when I was 25, in 1986.  Congress had just passed a law permitting employers to set up a 401(k) retirement plan for their employees, and many large businesses took advantage of this in order to get out from under the long-term debt load of their pension plans.  My employer created a 401(k) plan, and I took part.

A few job changes later, and running through the ordeal of rolling over 401(k)s into qualified IRAs, I now have two IRAs − a rollover and a Roth, both self-directed − with what I believe is a sizable chunk of change.  I am told by my CPA wife, however, that it is not.  Still, I’m impressed with myself.  I never thought I’d have this much money at all let alone before retirement.

At any rate, I tend to pay somewhat attention to financial news just on the off-chance that it will mean anything to me.  Mostly it doesn’t.  But I have been hearing quite a lot in the last several years about trade wars and tariffs, and the dire consequences of same on the economy.  And everything I’ve heard is bad.

Of course, as anyone knows who has studied economics, or has read a book on economics written prior to 1990, there are two sets of consequences to tariffs that are worth noting: the short-term consequences and the long-term consequences.  All anyone fretting about trade wars talks about are the short-term consequences: rising prices of imported goods that have been tariffed.  This impacts every related domestic producer or consumer item, and creates inflation.

Yet we have seen no meaningful inflation since we declared trade war.  There’s a measurement right there: zero, or so close to zero as to be effectively zero.  The first claimed casualty of a tariff-heavy trade war refuses to make itself known.

On the other hand, the long-term consequences of tariffs are − in the nation upon whom the tariffs are imposed − loss of market share for the tariffed good, loss of productivity in the tariffed industry, loss of profits in the tariffed industry, and loss of jobs in the tariffed industry.  In a nation in which “industry” and “government” are effectively indistinguishable, such as any socialist nation − f’rinstance China − the losses are ultimately accrued by the government itself.

In the nation which places those tariffs, though, the long-term consequences are increased market share for the comparable domestic product, and increased domestic productivity, profits and jobs in the tariffed industry.

Tariffs are, after all, taxes.  As every libertarian knows − and will recite at a moment’s notice when the subject is a tax on ANYTHING ELSE − taxes disincentivize the taxed good or activity.  Tax income, you discourage earning.  Tax wealth, you discourage investment.  Tax tobacco, you discourage smoking.  There is a reason the original libertarian mantra was “Tax more that which you want less of; tax less that which you want more of.”  But that was before libertarians discovered this phrase didn’t fit well on a bumper sticker, or in many of their heads, and so they replaced it with “Taxation is theft,” thus giving themselves a slogan of simpleminded proportions that they might appeal to the voters of both major political parties.

Tax a foreign good, you discourage that foreign good.  When foreigners tax your good, your good is similarly discouraged.  Every single libertarian who spouts “Yabbut… yabbut… muh FREE TRADE!!” must be especially keen to this.  Every nation on the planet has had tariffs on a wide variety of US goods, and some nations have tariffed every US export.  They’ve done this for well over two generations, dampening US manufacturing and the jobs that go with them.  The US, on the other hand, until very very recently has tariffed only sugar imports, small pickup trucks, and little else.  You cannot conduct free trade when you are the only one willing to play the game.  This is not the plot of the movie Dodgeball or The Karate Kid where the plucky underdog plays fair against cheaters and cutthroats and still comes out on top and gets the girl besides.  This is real life.

Additionally, tariffs are nearly unique in being a completely voluntary tax.  Libertarians are all about voluntary.  You don’t need to pay it if you don’t want to.  To avoid the tax on the imported good, buy the domestic equivalent.  Can’t get much more libertarian than that, not when it comes to taxes anyway.

In the United States, since we’ve been placing tariff taxes on certain foreign-made goods, we’ve seen an increase in millions of US jobs, something the prior administration said would never, ever, ever happen.  We’ve seen long-closed US manufacturing plants in tariffed industries reopening, something the prior administration said would never, ever, ever happen.  We’ve seen wages rising in the US, we’ve seen unemployment plummet and workforce participation rebound from its part-time job malaise to a more full-time career vitality.  …all of which the prior administration said would never, ever, ever happen again.  The brave new world the prior administration hoped to change us into is receding into the background, and tariffs are a part of the reason why.  And we can all be thankful for that.

Still, most of the critics of tariffs do not acknowledge these long-term consequences are valid, let alone real.  Therefore they do not acknowledge the utter failure of their predictions of economic rack and ruin.  …like global warmers do not acknowledge the existence of feedback mechanisms, the scientific process, confounding variables or their monochromatic worldview and cannot grasp the absolute failure of their own prophesies.

Nonetheless, China is losing millions of jobs, market share, productivity and profits … and money.  An unemployed worker in a socialist economy is a drain on government funds.  A growing number of western economists, and not simply current administration mouthpieces, are dropping their prior axiomatic position on the whole thing and actually coming to realize that China is, as frequently described, “hemorrhaging money”.  In a socialist economy, this can be fatal.  Ref: Soviet Union, circa “Star Wars”.

And yet, acolytes of the unidirectional free trade paradigm that accepts every other nation’s tariffs but our own will insist that their economic global warming theory of tariff tragedy is real and to be feared.  So, okay, put your money where your mouth is.

The claim is US tariffs on foreign goods will hurt Americans through inflation, and tariffs won’t have the long-term negative consequences for foreign producers, nor will tariffs have the long-term positive consequences for domestic producers.  That is the proposition gagged up by every tariff critic.  If you truly believe that, invest your retirement in foreign consumer goods manufacturers and foreign government bonds. 

Invest particularly in Chinese industrials and government bonds.  Go big or go home, boys.  If you’re going to avoid being a hypocrite, you must.  I insist on it.  I, on the other hand, will continue to invest heavily in primarily US small-, mid- and large-cap industrials.  We’ll see whose portfolio comes out ahead in the end.

By the way, the yardstick of my rollover and Roth IRAs mentioned at the top of this essay and invested largely in the fund types just listed gives consistent measurements on this very thing.  Every time another salvo of tariffs goes flying, my IRAs dip by 3-4%.  And in two to three weeks when the markets discover that the world has not ended, the sky has not fallen, that the tariffs don’t mean a single god damn, those immediate losses are recovered and I’ll gain another 5% or more beyond that.  I’m up over 20% for the year as we approach the year-end earnings season.

Because − wink wink − our tariffs are bad for us, and only us.  Yet by all measurements, they are the best we could have wished for.