November 27, 2024

Ever wonder what the discussion about tariffs is actually about?

There are a lot of explanations on the internet and in the news about what a tariff is.

Most call it an import tax. As if that explains anything. Neoclassical economists say that it "drives up prices" and will "cause inflation", as if those were the same thing.

Tariffs are a tax on goods crossing the border. They can be applied on goods travelling in either direction, imports or exports.

They are a program of state control over the exchange of goods using quasi-market mediated mechanisms. That is, they impose a financial penalty on the movement of those goods across the border. But crucially, they do not block the flow of goods and services.

A tax on exported goods is used to increase the price of a good or service above the market price to try to dissuade export of goods needed locally, or to drive down domestic prices of goods.

A tax on imported goods is supposed to protect local production of those goods, or reduce imports of a good deemed negative for the country.

When Trump's camp talk about "tariffs", they mean "protective tariffs". It seems there is an expectation that everyone hears the "protective" part of that phrase without saying it out loud.

To explain why Trump's team likes tariffs so much, we have to understand the economic thinking behind their philosophy of trade.

What is surprising here is that while they reject the neoclassical roots of the free trade program, they have a strange reading of Ricardo's concept of comparative advantage, which has been shown to have never existed. They do not reject free markets or the standard American imperialist mindset when it comes to the global economy.

In many ways, the Trump program is the original American economic program, but saying the quiet part out loud.

The USA has been engaged in an economic war with the rest of the world since before the Second World War. The program was to establish the USA as the dominant economic player in the world, establish capitalism as the dominant economic program, and destroy all other forms of economic and cultural freedom or independence.

To do this, capitalist countries paid a sort of international tax to support the development of the USA's economic development in the form of lower domestic wages and slower endemic growth.

In exchange, the capitalist countries would be allowed to divvy up the Third World, for profits to be extracted and wealth to be transferred from those "developing" countries aligned with the West. "Allowed" here means supported by American military power.

The "free trade" programs were promoted by the academy of neoclassical economists and policy shops.

But for much of the American economy, this really didn't change much, even as they promoted "free trade" in the neoliberal era. Free trade for everyone else, protectionism for US-based capital.

The American system of imperialism is the key to understanding the current dynamics inside that country. And the Department of Defense is the bast place to go searching for it written in plain text.

A simple example can be found in the aluminum market. Aluminum is extremely important for American war machines.

However, only 3% of domestic production is swallowed up by the DoD. The rest is for civilian production. But American Aluminum is dirty. It takes a lot of electricity to mine and refine aluminum so it can be purified and used in manufacturing weapons (and beer cans).

American Aluminum is also very expensive. Some of the most expensive in the world. Because it is made by American workers and mined in Ohio, some of the highest paid mine and metal workers in the world.

It is so expensive that American Aluminum is some of the least competitive on the world market.

China makes super-cheap and super-dirty Aluminum. Canada and Brazil makes super-cheap and super-clean aluminum (because of hydro power and low cost workers/dollar).

So how does the DoD and the American state ensure domestic supply?

Well, sometimes the DoD will simply buy stuff it needs from American business, get the government to give money to those American businesses, and sustain a market through direct profit subsidies. However, this doesn't work when you are only 3% of the market, and American companies can still buy from the cheapest international market providers (like Canada, which is not too far away). No matter how much aluminum the DoD buys, that's not going to makeup the difference.

The answer is an economic trade war to deal with low-priced, clean aluminum. And the way of fighting it is with tariffs and artificial non-tariff barriers.

• International deals were done with the Europeans to make carbon emissions part of the price of aluminum that could make it into the USA and EU markets. Emissions were set just below what China emits making aluminum, but just above what the USA emits to produce aluminum.

That dealt with the major exporter of aluminum. But what about Canada?

• Tariffs were launched by both the Trump and the Biden administrations against China's and Canada's aluminum producers.

The rational for the tariffs? The argument is classically circular:

• USA is the most advanced and best country in the world.
• USA is the tenth largest aluminum producer in the world.
• USA has the A-Bomb/H-Bomb and are lead by sociopathic folks who will use it.
• USA aluminum is always more expensive than other aluminum.

Therefore, China and Canada must be unfairly subsidizing and overproducing their aluminum. That's "dumping" and that's anti-free trade.

Why this long explanation of aluminum? Because what was considered a rather niche attack of the "Trump" presidency against Canada's steel and aluminum industry is actually just standard US policy, unchanged, but now used for every good the USA makes.

The argument is simply that the USA is the best and most important country, and therefore, when it produces something, the rest of the world's markets should be determined by USA's costs and production.

This is not, as you can see, a theory of trade. It is a philosophy of power.

And this is why we cannot "win" a trade war with the USA. Just as no one could "win" under the free trade era. When it looked like China was winning against American-based capital under the free trade program established to enrich American capital, the rules are changed.

Indeed, we should not even really fight a trade war with the USA because economic wars are not different from real wars; they are the real war before the bombing.

Instead, we should understand that this is not a trade program, and look to expand internal production and/or elsewhere to do trade where we can.

Now, this doesn't mean we will not trade with the USA. Even with tariffs, because they are not absolute barriers, trade with the USA will continue. But firms in Canada and the rest of the world will simply look to export to other parts of the world.

This will have a negative impact on the world's economy, and that's the whole point. The USA has all the money and power, and will use that power to impose its version of "trade" policy, just as it imposed the "free" trade model of the neoliberal era. Either way, it is to the advantage of US capital.

The difference now is that it involves crony capitalists aligned with Trump. Unlike the crony capitalists aligned with the other political tendency of capital, which prefers Democrats and socially liberal bankers.

All of this explains why it is silly for Canada to adopt an ideological or legalist framework when it comes to "trade". Canada must adopt a program of advancing as much economic independence as possible without being bombed by the empire while expanding as much social development as it can squeeze out of that limited space. And it must seek international collaboration on trade in those goods that we can export and import.

This is all developing in the context of the geopolitical nightmare forced on the world by the USA, a country steeped in polycrisis and out of its mind. You all know the words we use for this, but this is the only realistic program we can establish.