Commentary

Actually, It’s Industrial Policy, Not Just Tariffs, That Work

The following is an op-ed which I am submitting to USA Today, but would be usefully submitted to other newspapers as well, in light of the raging debate over President Trump’s tariff policy. 

By Nancy Spannaus

Aug. 20, 2018—In an op-ed  in USA Today published Aug. 17, Jeff Ferry, research director at the Coalition for a Prosperous America, takes on the opponents of President Trump’s imposition of tariffs, with the argument that “tariffs work—look no further than China’s booming economy for proof.” Unfortunately, Ferry’s argument falls short, because he, like President Trump, fails to situate the tariff policy within the broader commitment to an industrial policy, specifically a policy of government support for technological innovation and industry that is crucial to achieving economic progress.

Alexander Hamilton saw tariffs as one element in a strategy for industrial development.

Ferry does mention the other aspects of Chinese policy which have led to its remarkable economic growth, and reduction of poverty, over the past 30 years, specifically “billions of dollars of subsidies to key industrial sectors,” a value-added tax, and insistence on technology transfer by companies investing in China. He contrasts the impact of these policies in job and income growth with the huge loss of jobs and wage decline in the “free trade” United States. He also puts heavy emphasis on China’s currency valuation. One crucial omission is the Chinese government’s massive investment in advanced infrastructure, as shown in its massive high-speed rail network.

What worked for the Chinese economy was a national commitment to promoting industrial growth, most crucially by providing credit for modernizing industry, clamping down on financial speculation, and investing in the technologies of the future. Tariffs were a subsumed aspect of that commitment.

Ferry didn’t have to go to China to find an example of a workable industrial policy that would bring economic growth back to the United States. He could have turned to the American System of Economics, founded by Alexander Hamilton, and carried forward by John Quincy Adams, Abraham Lincoln, and FDR. These presidents understood that protection for industry (tariffs) is simply one prong of the necessary policy, which must include government-backed credit (national banking) and government-supported infrastructure (known in the past as internal improvements).

The failure of Trump’s tariff policy is that it is being largely used punitively, rather than to build up the modernized industrial and infrastructure capability we so desperately need. We need a National Bank for Infrastructure to fund trillions of dollars of investments, create tens of millions of jobs, and finally resume productivity growth. The United States used to be renowned for precisely such advances. We can do it again.

You will find further amplification of the American System approach to tariffs, trade, and furthering economic growth on my blog.

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One Comment

  1. Senator Christopher Coons of Delaware (D) introduced a bill to establish an infrastructure bank some years ago. It failed. It was an attempt to establish a free-standing infrastructure bank but not in the context of a Hamiltonian banking system.

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