Our President is biting Adam Smith’s Invisible Hand—hard. Adam Smith of course doesn’t care; he died in 1790. Our President’s interference with free markets and international trade, otherwise guided by Adam Smith’s Invisible Hand, is leading though to the considerable pain U.S. bonds, stock and pension holders are feeling.
The year 1776 brought on two great revolutions: the political revolution of the American Declaration of Independence, and the economic revolution brought on by Smith’s economic declaration of free markets. In The Wealth of Nations, Smith stated free men acting in their own self interests “by trading with each other…all help each other to provide the goods they need for their dinners.” Indeed, Smith said it is the innumerable marketplace decisions of free men, each tending to his “own gain” that brings prosperity. For each he wrote is “led by an invisible hand to promote an end which was no part of his intention:” a common economic efficiency and “the greatest value” for all. Governments should set the rules of the game; but try not to interfere.
Both revolutions of 1776 are necessary to each other. As Mr. Jefferson was to write: “There can be no political freedom without economic freedom.”
Yet, our president has taken the painful hammer of cross the board, punitive tariffs to smash the invisible hand. It is interference with increasingly efficient markets that back in October 2024 had led the British editor of The Economist, Zanny Beddoes, to declare the economy of the United States was “the envy of the world.” American incomes and economic growth had far surpassed that of Europe in the preceding four decades. That was then.
Ronald Reagan imposed targeted tariffs on Japan in 1988 because, “our commitment to free trade is also a commitment to fair trade:” Japan had violated its agreements on semiconductors. But Reagan made it clear to markets from the start the tariffs were limited in scope, directed to a single nation (not the whole world,), were temporary, and would come off as soon as possible. Reagan’s statement on tariffs still ring true today:
“You see, at first, when someone says, ``Let's impose tariffs on foreign imports,'' it looks like they're doing the patriotic thing by protecting American products and jobs. And sometimes for a short while it works -- but only for a short time. What eventually occurs is: First, homegrown industries start relying on government protection in the form of high tariffs.
“They stop competing and stop making the innovative management and technological changes they need to succeed in world markets. And then, while all this is going on, something even worse occurs. High tariffs inevitably lead to retaliation by foreign countries and the triggering of fierce trade wars. The result is more and more tariffs, higher and higher trade barriers, and less and less competition. So, soon, because of the prices made artificially high by tariffs that subsidize inefficiency and poor management, people stop buying. Then the worst happens: Markets shrink and collapse; businesses and industries shut down; and millions of people lose their jobs.”
“The memory of all this occurring back in the thirties made me determined when I came to Washington to spare the American people the protectionist legislation that destroys prosperity.”
Reagan had lived through the cross-the-board Smoot Haley tariffs of 1930; his family had experienced the economic devastation those tariffs had helped cause while he was growing up in Illinois. Considering the inexcusably antagonistic words our President has bombarded our beloved neighbor Canada with, I am struck especially by these words of Reagan:
“Now, that message of free trade is one I conveyed to Canada's leaders a few weeks ago, and it was warmly received there. Indeed, throughout the world there's a growing realization that the way to prosperity for all nations is rejecting protectionist legislation and promoting fair and free competition. Now, there are sound historical reasons for this. For those of us who lived through the Great Depression, the memory of the suffering it caused is deep and searing. And today many economic analysts and historians argue that high tariff legislation passed back in that period called the Smoot-Hawley tariff greatly deepened the depression and prevented economic recovery.”
It is not an issue either of bringing back manufacturing. Economies have long adjusted. On average, business services jobs earn about 26% in wages more than manufacturing jobs. Most of the cost of a Nike shoe, for example, is for the value-added design, marketing and distribution the U.S. provides, not the uniquely cheap labor of the Vietnamese provides but we all benefit from. Let each nation contribute what it contributes best to our overall economic growth and peaceful prosperity.
Our President’s willful, antagonistic imposition of world-wide, across-the-board Smoot-Haley type tariffs on friend and foe alike is arbitrary and senseless, not conservative. One would think his objective is to stifle America’s trade with the whole world that before his term had made America the greatest trading power on earth and lead us instead to a worldwide recession. Is this what “owning the libs” is about? We will all end up owning a lot less as a result regardless of our politics, red or blue.
Robert P. Wise is a Northsider.
