Tariffs and Economic Growth

John Sydenham

The UK is divided between decent English people and Internationalists. The Internationalists are fanatical New Racists who are replacing the population, imprisoning their opponents, clamping down on free speech etc. They wish to remove all tariffs. About 30% of the population are Internationalists and they control the mainstream media.

Tariffs are taxes on imported goods and services. Internationalists believe that it is obvious that ‘free’ trade and no tariffs for international trading companies are beneficial to the UK economy. Nationalists believe that the UK can have an independent economy that only requires a relatively small amount of foreign trade and should impose tariffs as necessary.

The argument about whether tariffs are a good or a bad idea is an argument about the well-being of Multinational Corporations. Multinationals are companies with little allegiance to any country and make profits for themselves and their shareholders by producing goods in various locations across the world. This allows them to use cheap materials in one place and cheap labour in another. On a small scale this is a good idea. On a large scale it is a disaster for nation states because the multinationals can unfairly compete with national industry and control national politics.

The multinationals have been extremely effective in lobbying for trade deals and have reduced tariffs globally to low levels. This has given them enormous power and is destabilising the world.

Multinationals damage local industry by removing supply industries. As an example ‘UK’ car manufacturers obtain 66% of their parts from outside the UK. Car factories have become assembly plants and the engineering businesses in the UK that might have supplied the parts are ignored and go broke. This makes it impossible for the UK to regenerate a national car industry.

Multinationals can also out-compete local industries. They argue that this provides cheap produce and makes everyone richer. This argument is specious because the cheap products put UK workers out of work. Poor workers cannot afford even the cheap goods.

The multinationals own the Internationalist political parties in the UK (Rushi Sunak worked for Goldman Sachs and Starmer was a member of the Trilateral Commission. Starmer would rather be in Davos than Westminster).

(BTW, Starmer is a Trotskyist International Socialist, anyone’s worst nightmare)

Tariffs are very bad for Starmer’s multinational friends but are they bad for the UK? The detailed analysis below shows that even fairly high tariffs are not detrimental to the UK economy.

Detail

The most prevalent graphic used in this debate allegedly shows growth in gdp declining as tariffs increase (left hand graph below):

(See for instance Global Economic Growth and Development)

We can see that the line on the graph is just a political statement because it is obvious that there is almost no relationship between tariffs and economic growth once the city states of Singapore and Hong Kong are removed (right hand graph). This is actually surprising because we might have expected at least some relationship between tariffs and growth. However, the lack of correlation between growth and tariffs is supported by the lack of correlation between International Trade Volume and national prosperity for countries with over $10,000 per capita income:

Notice trading entrepots such as Hong Kong, Luxembourg and Singapore are outliers.

The explanation of this lack of correlation between international trade and the prosperity of the people is that when developed countries do not trade internationally they produce the missing goods at home. Of course, essentials that are not available at home must be acquired from abroad which is why countries must acquire these essentials before they are freed from the need for further international trade (ie: a small amount of international trade is required to acquire essentials like energy and raw materials).

A close analysis of the effect of tariffs on growth suggests that tariffs slightly increase GDP growth (a 60% tariff increases growth from 1.7% to 1.9%):

Source: Francisco Rodriguez & Dani Rodrik, NBER Macroeconomics Annual 2000, Volume 15, Trade Policy and Economic Growth

Yes, low to medium tariffs are slightly beneficial for the economy. Perhaps President Trump realized that tariffs up to 60% did not have a negative effect when he recently proposed high tariffs on Chinese goods. The small benefit of tariffs to growth is useful but the greatest benefit of tariffs is that they ensure the country has a balanced economy with both manufacturing and services. A balanced economy ensures there are strategic industries that enhance national security.

The last time that the world had a regime of low tariffs and deregulation was in the 1920s, a boom occurred followed by a slump. During the slump there were small tariff increases relative to the early 1920s but tariffs remained fairly low by historical standards. The much vaunted "high tariffs caused the slump" is simply untrue, indeed it could be argued that the slump was in fact due to low tariffs if we had not already seen above that tariffs probably had little to do with events (it was the international bankers who caused both the 30's slump and the recent recession, not tariffs).

"The tendency to greatly overstate the systematic evidence in favor of trade openness has had a substantial influence on policy around the world. Our concern is that the priority afforded to trade policy has generated expectations that are unlikely to be met, and it may have crowded out other institutional reforms with potentially greater payoffs." Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence

The huge problem facing economists and politicians when investigating the relationship between tariffs and growth is that much of the work is financed directly or indirectly by multinational companies whose agenda is No Tariffs. This means the economists and economics journalists fail to tell the truth.

The supporters of the Internationalists nearly all believe that the UK has tariffs with the EU. It does not, a Free Trade Agreement in 2021 has resulted in a gigantic trade deficit with the EU of over £100 billion in 2023:

Balance of Trade in Goods and Services with EU (ONS Series l86i):

The current deficit continues the downward trend that occurred during EU membership. Notice how the trade deficit recovered around Brexit until the Free Trade Agreement occurred.

This £100 billion of deficit with the EU represents goods and services that should be produced in Britain but are provided by EU companies. The UK has been stripped of all of its strategic industries. When the UK joined the EEC in 1973 tariffs were immediately removed, there was no time to adjust and manufacturing died. (In this period the UK was called the ‘sick man of Europe’). Sudden changes in tariffs can be lethal to industry, the rule should always be to slowly increase or decrease tariffs over a decade or so.

The UK should impose tariffs slowly, especially on manufacturing imports, so that UK manufacturing can recover. (A large, sudden increase in tariffs would cause inflation). This will rebalance the UK economy, returning high productivity industry to the country.

The huge problem facing the UK is that the Internationalists are ascendant. They have control of the mainstream media and have brainwashed their Internationalist followers into assuming that tariffs are always bad. ‘Free’ Trade is unnecessary for developed nations and is only essential for multinational corporations. The indoctrinated Internationalist faction in the UK are suicidal, from migration through trade to education and health care.

Whilst Internationalist politicians are dominant the UK will be controlled by multinational companies that have nothing but their own interests at heart. The UK will only be prosperous and stable if the Internationalist faction is beaten. Sadly we all have neighbours who are Internationalists. See The Destruction of Britain which describes the damage done by the 30% of the electorate who are fanatical Internationalists and New Racists.

The Multinational Riposte

A reader was kind enough to give the following riposte to the arguments raised above: ‘Tariffs are essentially an admission that we have, rather pathetically, no Ricardian comparative advantage left. They just put up the cost of imports which are, by definition, things we either can't produce ourselves or can't produce at a cost acceptable to the consumer.’

In an economically 'ideal' this would be right. However, there are four main problems, the first is transition as the global economy develops, the second is strategic industries , the third is cultural and the fourth is cheating. There is also the empirical fact that tariffs only make the multinationals poorer, not us.

We are currently in a period of transition where there are numerous countries able to supply cheap labour and willing to have their resources plundered. It is wrong to expect our own population to have a big dip in prosperity as developing countries obtain the same gdp per capita as us over the coming decades.

Strategic industries are an obvious point. The world is a dangerous place and to allow the termination of microelectronics and steel production because other countries produce cheaper is waving a white flag.

The cultural point is about factors such as food quality, employment protection, childcare, pensions etc. If other countries have different levels of such provision they can beat us on prices if there are no socially motivated tariffs.

The cheating point is evident with the valuation of the Yuan. PPP considerations show it is c.40-80% undervalued. This is equivalent to a 40-80% tariff on imports. There are many other ways to cheat - Japan used to insist all cars were imported through one small port.

In other words if you want a secure, independent, prosperous country then modulating tariffs is essential. Furthermore the tariffs only punish the multinational corporations which need to be reduced in size and power.

An economically 'ideal' world is the opposite of an ideal world. An ideal world has a diversity of nation states with different cultures and races.

See UK-EU Trade: Links to Key Data

Myth: Tariffs caused the 1930s Recession

Global tariffs increased dramatically in 1930.

(Source: Sylvia Nenci)

This was a response to the Stock Market and banking collapse of the preceding months. The Smoot-Hawley trade tariffs were introduced to protect US businesses from foreign competition.

Internationalists are currently desperately trying to pin the 1930s US recession on Smoot-Hawley. However, these tariffs were a reaction to the collapse of the stock market and banks. The real cause of the 1930s US recession was similar to the 2008 banking crisis. The banks issued loans for shares and property on an unprecedented scale, this created a stock market bubble that collapsed taking banks with it. It was only once the banks became deregulated in the 1990s that it could happen again in 2008.

The clearest proof that tariffs are not the cause poverty in developed countries is that there is little correlation between tariffs and growth. It is the banking collapses of 1930s and 2008 and World Wars and pandemics that really dent growth:

(Notice that the ‘Great Recession’ was mainly a US phenomenon, again showing that the gloabl rises in tariffs had little effect).