Michael Hudson: Return of the robber barons – Trump’s distorted view of US tariff history

michael hudson - Trump Tariffs

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                    Summary

"Donald Trump’s tariff policy has thrown markets into turmoil among his allies and enemies alike. This anarchy reflects the fact that his major aim was not really tariff policy, but simply to cut income taxes on the wealthy, by replacing them with tariffs as the main source of government revenue. Extracting economic concessions from other countries is part of his justification for this tax shift as offering a nationalistic benefit for the United States.

His cover story, and perhaps even his belief, is that tariffs by themselves can revive American industry. But he has no plans to deal with the problems that caused America’s deindustrialization in the first place. There is no recognition of what made the original U.S. industrial program and that of most other nations so successful.

That program was based on public infrastructure, rising private industrial investment and wages protected by tariffs, and strong government regulation. Trump’s slash and burn policy is the reverse – to downsize government, weaken public regulation and sell off public infrastructure to help pay for his income tax cuts on his Donor Class.

This is just the neoliberal program under another guise. Trump misrepresents it as supportive of industry, not its antithesis. His move is not an industrial plan at all, but a power play to extract economic concessions from other countries while slashing income taxes on the wealthy. The immediate result will be wide-spread layoffs, business closures and consumer price inflation."

                    Introduction

"America’s remarkable industrial takeoff from the end of the Civil War through the outbreak of World War I has always embarrassed free-market economists. The United States’ success followed precisely the opposite policies from those that today’s economic orthodoxy advocates. The contrast is not only that between protectionist tariffs and free trade. The United States created a mixed public/private economy in which public infrastructure investment was developed as a “fourth factor of production,” not to be run as a profit-making business but to provide basic services at minimal prices so as to subsidize the private sector’s cost of living and doing business.

The logic underlying these policies was formulated already in the 1820s in Henry Clay’s American System of protective tariffs, internal improvements (public investment in transportation and other basic infrastructure), and national banking aimed at financing industrial development. An American School of Political Economy emerged to guide the nation’s industrialization based on the Economy of High Wages doctrine to promote labor productivity by raising living standards and public subsidy and support programs.

These are not the policies that today’s Republicans and Democrats advise. If Reaganomics, Thatcherism and Chicago’s free-market boys had guided American economic policy in the late nineteenth century, the United States would not have achieved its industrial dominance. So it hardly is surprising that the protectionist and public investment logic that guided American industrialization has been airbrushed out of U.S. history. It plays no role in Donald Trump’s false narrative to promote his abolition of progressive income taxes, downsizing of government and privatization sell-off of its assets.

“What Trump singles out to admire in America’s nineteenth-century industrial policy is the absence of a progressive income tax and the funding of government primarily by tariff revenue.”

What Trump singles out to admire in America’s nineteenth-century industrial policy is the absence of a progressive income tax and the funding of government primarily by tariff revenue. This has given him the idea of replacing progressive income taxation falling on his own Donor Class – the One Percent that paid no income tax prior to its enactment in 1913 – with tariffs designed to fall only on consumers (that is, labor). A new Gilded Age indeed!

In admiring the absence of progressive income taxation in the era of his hero, William McKinley (elected president in 1896 and 1900), Trump is admiring the economic excess and inequality of the Gilded Age. That inequality was widely criticized as a distortion of economic efficiency and social progress. To counteract the corrosive and conspicuous wealth-seeking that caused the distortion, Congress passed the Sherman Anti-Trust Law in 1890, Teddy Roosevelt followed with his trust busting, and a remarkably progressive income tax was passed that fell almost entirely on rentier financial and real estate income and monopoly rents.

Trump thus is promoting a simplistic and outright false narrative of what made America’s nineteenth century policy of industrialization so successful. For him, what is great is the “gilded” part of the Gilded Age, not its state-led industrial and social-democratic takeoff. His panacea is for tariffs to replace income taxes, along with privatizing what remains of the government’s functions. That would give a new set of robber barons free reign to further enrich themselves by shrinking the government’s taxation and regulation of them, while reducing the budget deficit by selling off the remaining public domain, from national park lands to the post office and research labs. . . ."