The Thing about Tariffs

I have long known Alan Tonelson as a friendly, courteous and very helpful person who knew everything about trade figures and economic dependencies between countries. And he always had this thing about tariffs, even in the early 1990s when they were the antidote to Bill Clinton’s controversial North American Free Trade Agreement (NAFTA) - and when no one could imagine in his wildest dreams that a shady property developer in New York and host of a TV Reality Show would become President of the United States.  

Now in his early seventies and writing the blog RealityChek Alan Tonelson has seen the thing about tariffs come around, from the left of the Democratic Party to the Right of Republicans and straight to the White House. And sticking to his protectionist beliefs Alan Tonelson has gone along with Donald Trump, if not all the way. In short, unlike many others in US-politics and economics Alan has been consistent in his arguments about trade. 

A historian by trade Alan honed his economic nationalism by working for Ronald Reagan’s former trade negotiator Clyde Prestowiz whose influential book “Trading Places” (1990) expressed American fears of being outtraded by Japan. At that time Alan also prescribed to the “Paul Kennedy Theory of Overstretch being worried that “not taking care of our domestic economic situation would affect our foreign policy”.  

In his book “Race to the Bottom” (2002) Alan would later formulate his own theory about how uncontrolled free trade was costing American jobs and sinking workers’ living standards. Even then, he says now, “nobody saw the China threat coming”. So today, he is a “China Hawk”, as are many in both political parties. 

But what differentiates him and Donald Trump from the Biden-Administration which had also imposed sanctions and export controls on the Chinese? Then why, he retorts, does NVIDIA still sends its second-best chips to China, why has a company like INTEL still venture capital invested in China? For him the Biden-Administration just didn’t do enough. And that is because two categories of academic China experts got it wrong. One group because they never questioned the free trade economics they learned at school. “The other because they are paid for what they write”, says Alan, and complains about the lack of transparency in the funding of the US-think tank industry. He applauds Trump for being “much more antagonistic here”. 

Because for Alan, the Chinese regime “is the closest thing to Nazi-Germany: a dangerous adversary”. Just imagine he says, what would happen to warfare if China controlled AI-technology. For him the problem in negotiating with China is that “with our legalistic culture we first have to prove Chinese subsidies, but they are not writing anything down”. 

And what is his problem with Europe? Well, for 40 years the Europeans have taken the US for a ride. Why the nuclear umbrella, why keep being dependent on the US for defense? Alan has written about this untenable and unfair relationship already in the 90s. He holds it with John Foster Dulles, President Eisenhower’s Secretary of Defense, who had stated in the 50s: “If the French don’t let Germans rearm, we are out of here”. Yet, it never happened. For Alan, we are back to the so called “hegemon’s dilemma” (Robert Triffin): “if you provide too many public expenses to other nations, America’s power will finally erode”. 

And why, Alan asks, should Germany be so dependent on exports? “It is their choice. They are sovereign, but we are worrying about the restrictions put on our tech companies.” So, what happens if two economic nationalisms clash? “It will be decided by who has more leverage”. And in his reading the winner is going to be America because “it will be easier for the US to recapture the home market it lost than for the EU do find new export markets”.  

So much for the reasons which make Alan Tonelson support the tariff policies of the Trump-Administration. He would, however, argue for a 20 % general tariff in combination with a sensible industrial policy and a sizeable reduction of the corporate income tax for companies that make their products in America. And, of course, much higher tariffs for the Chinese. He would also want to have mechanisms which control whatever is being negotiated with foreign countries. Rather give them a few months before imposing the tariffs, to get these safeguards into place. Which is exactly what Donald Trump did during our conversation over lunch! 

But how does it feel to be arguing for a drastic tariff regime against a phalanx of 16 Nobel laureates and the complete liberal commentariat from the “New Yorker” to the “Financial Times”. “You mean the people who did not see the rise of China coming, nor the financial crisis, who stuck with the “Washington Consensus” that deregulated markets promote prosperity for all? For Alan “not exactly an impressive record”. He liked to fight it out with the long-time columnist of the “New York Times”, Paul Krugman, who called him an “economic ignoramus”. What Krugman and many mainstream economists don’t get, Alan retaliates, is “that you can’t impose sanctions or tariffs on China alone. It’s more complex than that.” 

But is Alan Tonelson not worried about the other features of Trump’s policies? 

Take DOGE, Elon Musk’s Department of Government Efficiency tasked to streamline the government bureaucracy. “Good idea”, says Alan, “but Musk is just not very good at it”.

Or what about the autocratic tendencies with Trump’s executive orders? Well, “the imperial presidency problem has been with us for a long time”. After all, President Biden too cancelled the repayment of student loans without asking Congress for permission. And for Alan both parties have been engaging in politicizing the law and criminalizing their political opponents. As he sees it, blaming Donald Trump for all long-standing and bipartisan problems is just “the Trump derangement syndrome of the left”. 

Tonelson’s concerns are risks of different nature: that Trump caves in or that his tariff policies won’t be lasting long enough, to make America’s endangered economy viable again; or political failure to bring manufacturing back; if not necessarily all the old manufacturing jobs because many tasks brought home again, like producing face masks and respirators, will be performed by automation. Still, he is optimistic because the so called “manufacturing jobs multiplier” estimates that one manufacturing job will create three others in services, logistics and R & D. 

Alan is not naïve. He understands that “Americans are not ready to take sacrifices”, that the political cycle is too short for the impact of reform measures to be felt in time, as Joe Biden can attest to with his defeat in November. But Alan hopes that the MAGA base will hold, that moderate Republicans will be afraid to speak out against their president. Of course, the Democrats will always complain. “But what can they run on at the next election?” 

He doesn’t deny the possibility of a recession which for Trump and him would be a dose of medicine for an illness that has been festering for too long. In the end, Alan believes that with the country over 35 trillion Dollars in debt, with probably millions of jobs lost to globalization, with America as the military saviour and golden goose of its allies, and with its economy as the market of last resort, politics as usual are no longer possible. 

For Alan Tonelson that is exactly what President Trump is saying: “Things just couldn’t go on”.