Tariff Wars in Economics and Literature

…Rotten potatoes and sea weed and grass, or even grass, properly mixed, afforded a very wholesome and nutritious food…Irishmen can live on anything.


— John Kelly describes in The GRAVES ARE WALKING the powder keg that was Britain in late 1840s. Thirty years of tariffs on imported food had smashed headlong into the Irish Potato Famine, also know as the “Great Hunger.” According to Kelly, “Food tariffs had the power to transform perfectly decent butter merchants, greengrocers, and aristocratic ladies into lunatics who screamed ‘Murderer!’ at opponents and chained themselves to fences.”

Our well-fed country is nothing like Ireland during the mid 19th century.

During the Great Hunger, a million Irish starved and a million emigrated. During this time, government indifference was astounding. The picture is of a marker placed in County Mayo commemorating the “Doolough Famine Walk of 1849.” Starving residents walked an incredible distance in miserable weather to receive relief only to find that the British officials sent to investigate their plight had left for a hunting trip. At the same time that people were starving, there were tariffs, or taxes, on imported food. This policy was highly controversial.

Tariffs on Chinese goods, which rose in late 2019 to up to 30 percent on several hundred billion dollars of Chinese imports, are by no means uncontroversial. The tariffs of the Corn Laws in 19th century Britain were used to protect the landed aristocracy, the farm interest in its day, from cheap imports. Today, it is farmers in the United States who are feeling the pinch of crimped exports of soybeans, grains and other agricultural products to China as it retaliates. Despite the hardship, there is support among U.S. farmers for holding China to the standards of free trade.

It’s not only a tariff war with China.

China is just one front in the Trump administration’s tariff war. One of the first victory’s occurred when the World Trade Organization (WTO) sided with the United States in that it was justified in placing tariffs on European products such as hams, cheeses, olives and Irish whiskey. The ruling justified retaliation in lieu of subsidies given by countries in Europe to the European airplane manufacturer Airbus. In truth, the Obama administration began this complaint and it is expected that the United States will also be target of the WTO’s wrath. European countries supporting Airbus accuse the US of providing subsidies for aviation giant Boeing.

It is a multi-front war.

Other initiatives in what has been called the Trump administration’s “war on trade” include the cancelling of a free trade agreement between the United States and Asian nations (“Trans Pacific Partnership”). A re-negotiation of the North American Free Trade Agreement between Canada, Mexico and the United States has been concluded. This trade agreement had been in place since the mid 1990s.

Often, populist sentiment such as accusations of the unfair trade practices of countries has as its foundation a kernel of truth.

Recently, the President of Disney praised his relationship with and the cooperation of  the Chinese government in the operation of  Disney in Shanghai. At the same time, he acknowledged the difficulty of protecting Disney’s intellectual property in the Chinese market. It is not only the “pirates of the Asian” countries copying U.S. company intellectual property that matters, operating as a foreign company in China requires taking on a Chinese partner with the consequent risks of having to transfer a firm’s intellectual property.

The Trump administration is using the tool of tariffs on imported Chinese goods to effect change in the trade practices allegedly condoned by the Chinese government.

The Trump administration has increased the taxes on Chinese goods in incremental steps. Whether this economic pressure will be successful depends upon many factors including the perception that the tariffs will be lifted as soon as the next presidential election in the United States. This also hinges on whether the leadership in Beijing can be perceived to cave to very public pressure from the United States. It is these very practices which have the perception of having led to a phenomenal record of economic growth that has ranged between 7-12 percent per year and lifted 500 million Chinese out of poverty. It is during this astounding growth period that, according to a study cited in Bill Gates’ blog, China used in just three years more cement than that used by the United States during all of the 20th century!

During a month-long stay in Beijing, I noted considerable nervousness concerning the Chinese economy’s growth rate.

An economy that had been growing in recent history at near ten percent has declined to only 6 percent growth per year. Reports that the 8.3 million university graduates (having increased from 5.3 million ten years ago) in China are having a difficult time finding gainful employment are cause for additional concern. I noticed examples of make-work policies at many job sites such as security guards milling about without any evident effort to secure anything or produce aisles in grocery stores staffed with attendants who had nothing to do and had difficulty staying out of the way of the few shoppers evident.

Evidence as well of rumors of massive over investment in private as well as commercial real estate all point to a desperate need to keep the export wave rolling.

China has been accused of using strategic trade methods such as requiring Chinese partners to have a majority stake (and thus control) of foreign company direct investment in China as well as currency manipulation (weakening the value of the yuan compared to the dollar).

Are dragons real?

Peter Navarro, an economist described in at least one article in The Economist magazine as the White House’s “sinophobic trade adviser,” has written a book called, Death by China. He opines that China’s “Great Wall of Protectionism” uses its own

  • tariffs,
  • quotas,
  • domestic content laws,
  • currency manipulation, and
  • requirement for foreign firms to find Chinese partners

as evidence of a discriminatory strategic trade regime.

What does the academic literature say about tariffs and other forms of protectionism?

Traditional trade literature has maintained that a free trade regime will be the most successful way to promote development and growth. Indeed, studies on the dynamic development of South Korea have indicated that, indeed, when South Korea promoted open trade policies, growth rates were higher. However, as pointed out in A Splendid Exchange: How Trade Shaped the World, the United States had sky-high tariffs during its impressive growth period of the 1800s. Many doubt whether the United States would have enjoyed much growth without its early anti-free trade stance. This plays well into the “Bairoch hypothesis” which finds evidence that countries (such as the United States and Germany) which had high tariffs in the 1800s did have significantly higher growth than those countries which did not.

There’s also evidence contradicting the Bairoch hypothesis.

These arguments are summarized in pseudoerasmus, a blog primarily dedicated to economic history. The conclusion from this issue in pseudoerasmus is that whether trade protectionism or free trade has historically been beneficial in a country’s development depends upon “the global context as well as domestic economic conditions.” England acted as a free-trading recipient (“sink”) for American exports of steel (“It’s nice if there are countries willing to indulge your export-led development strategy without reciprocal openness”) while using India as its own dumping ground for its exports. China has the same strategy in its trade relations with the United States, using the United States free trade philosophy to its own advantage while protecting its own markets.

One thing economic theory is clear on is that with protectionist measures such as tariffs, both the consumer and the producer will share the burden.

Who pays more is dependent, upon other things, the availability of substitutes for the imported goods. According to Navarro, the cost of Chinese strategic trade has been millions of lost jobs in Europe, North America, and Japan. According to him, it is one of the greatest “obscenities” in trade history. As we’ll see, this is certainly an exaggeration especially in light of the trade policies surrounding the “Great Famine.” Closer to home, the Smoot-Hawley tariffs that the United States placed on imports during the first years of the Great Depression can also be categorized, if not as obscene, than at least as catastrophic. They even were part of the discussion during the 1992 presidential debates concerning passage of the North American Free Trade Agreement (NAFTA).

Whose Pencils are these?

Tariffs on which goods becomes a problem as even determining the national origin of an import is difficult as pointed out in NPR’s report on “A Mysterious Pencil Factory Sharpens Focus on Tariff Scams.” Pencils being imported from a Philippine factory were actually discovered to have been manufactured in China. The Philippine factory merely reboxed the pencils and hid any labels indicating that the pencils were produced in China. A U.S. Customs inspector’s surprise inspection discovered that the pencils were indeed coming from a pencil factory in the Philippines, but all the machinery had “not been used for some time.”

While there are numerous studies on the benefits and costs of trade protectionism, can we look to literature for any lessons on the human costs?

The answer is of course, yes. One of most infamous examples of trade protectionism can be found in British history. The infamous “Corn Laws (corn being used as the British name for cereal grains such as wheat and barley)” passed at the beginning of the 19th century were a contributing factor to the devastating famine experienced in Ireland. The so-called Irish Potato Famine was caused by Phytophora infestans, a bacteria which bloomed throughout the country, blighting the potato crop. The blight, trade policies, and government indifference, led to a humanitarian catastrophe, although one down-played at the time by the British government.

“There is such a tendency to exaggeration and inaccuracy in Irish reports that delay in acting on them is always desirable.”

It was a British prime minister, Sir Robert Peel, who cautioned against haste but did eventually lead the effort to repeal the Corn Laws which had restricted food imports into Britain. Not necessarily convinced as to the severity of the problem, Peel used the famine to push forward his free trade agenda. As described in Penny Loaves and Butter Cheap: Britain in 1846, it is a decision that split the Tory party and kept them out of government for the next 30 years. It may have also saved Britain from the revolutions that racked Europe in the late 1840s.

Novels can bring the tragedy to life.

The blight’s human toll is brought to life in novels such as The Whitist Flower which describes the experiences of Ellen O’Malley who loses her family during the blight, emigrating to Australia. Mary Pat Kelly’s Galway Bay describes how newlyweds Honora Keeley and Michael Kelly must also survive potato crop failures in three out of four years. The characters must bare the indifference of government inertia as it battles factions intent on keeping or repealing the hated Corn Laws. Their anguish is palpable as they lament the fact that food during this time was even exported from Ireland! The resulting saga spans six generations and sees the family battle to survive on the harsh streets of Chicago with their offspring eventually fighting in the American Civil War. Frank McCourt, Pulitzer-Prize-winning author of ANGELA’S ASHES describes Galway Bay with “Against landscapes beautiful and bleak she brings her characters to unforgettable life. As they say in Ireland, ‘take your ease with this book.’ You’ll need time for laughter and tears and pure magic.”

Government laissez-faire (“leave it alone”) was the order of the day in Ireland.

To the people of Ireland in the late 1840s, it might have even seemed like dark magic that Adam Smith’s (the Scottish “Father of Economics”) “Invisible Hand,” failed during the famine. The Invisible Hand was described in his book, The Wealth of Nations. It was published in 1776, seventy years before the blight in Ireland. As one character in Galway Bay explained to Honora Keeley, the Invisible Hand “doesn’t work for Ireland.” It won’t “work if the government interfered. Couldn’t build a railroad that benefited one landlord, because that would place another at a disadvantage…Public projects must not aid private enterprise. So nothing really useful [by the government to help us] can be done.”

Illustrating the depths of the tragedy, the normal laws of commerce seemed suspended.

The “law of demand (as price rises, quantity falls and vice versa)” during the Irish famine didn’t seem to work. First noticed by Sir Robert Giffen in the late 1800s, it postulated that a good that is bought by the indigent because it is cheap may see more quantity purchased if that good rises in price as it negatively impacts the limited purchasing power of the poor. In this rare set of circumstances, a “Giffen good” is observed. As the price of potatoes rose, the poor Irish bought more potatoes as they tried to use their meager means to substitute cheaper potatoes for more expensive food (meat) that they could no longer afford. This led to the cruel fate that those who didn’t starve or leave Ireland were now forced to buy more potatoes than they had before the blight. But it was still not enough to prevent malnutrition to make up for the other food types that they could no longer afford!

Where then does this leave us?

Both fiction and non-fiction can add to the understanding of an issue like tariffs and trade wars. Good historical fiction can bring to life a story relevant to both the past and present. While today’s trade war is, by volume, the largest in history, it certainly doesn’t rise to the occasion of being one of the greatest “obscenities” in trade history. The collision of the potato blight in Ireland with poor British political and economic policy combined to form a catastrophic famine of historic proportions which certainly does earn it the distinction of being an obscenity. It was at that point in history when an exception to the pervasive “law of demand” was first noticed. The economics of this exception, as well as trade wars, can be best be understood through a skillful examination of literature, both non-fiction, as in John Kelly’s The Graves are Walking, and the fictional account of the human toll as portrayed in Galway Bay.

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