Price barriers should make the economy clever, not stupider

As is usual with Trump, his grandstanding show and his far-from-subtle thug-like persona are driving his tariffs policy, not any real cogent or coherent policy programme or even a consistent or recognisable ideology or political philosophy. He literally just wants to look tough and the global economy be damned.

As is also usual with Trump, people are scrambling around trying to make sense of what he's doing; is this an attempt to re-shore US manufacturing? This seems unlikely – a US economist worked out the cost of producing a simply floor brush in the US and it is about three times as much as it costs to import it from China. The US would need 300 per cent tariffs to be competitive.

Is it about trying to move the tax base away from (progressive) income tax to (regressive) tariff barriers? This is something of a dream for US billionaire libertarians. If so, Trump will struggle in the polls as this will hit the quality of life of most Americans. Or frankly, does Trump just want to look tough?

Let's be clear, trade wars are dumb, not clever. There is a place for global rebalancing but tit-for-tat tariff fights is not the way to do it. That will produce change in an uncontrolled, chaotic way that will do enormous damage in the process and lead to an indeterminate outcome.

And yet as is often the case with Trump, if you dig down deep you will find that his delusions are built on a single truth that should have been addressed – the era of free trade really was bad for the employment prospects of a very high number of people in the western economies and that means a very large number of people have seen their quality of life stagnate (at best), reliant on cheap borrowing and cheap consumer goods.

Of course, Trump doesn't fret too much about the other harms of global free trade – the offshoring of human rights abuse (virtual slave labour in Export Processing Zones), the social welfare damage (from the treatment of animals in the food system to the pollution of neighbouring communities) and especially the environmental damage.

This is because tariff wars may be dumb but so is a regime of unregulated free trade. Because all of the harms above (to the domestic economy, global human rights, general welfare issues and environmental performance) are 'external' to free trade, there is nothing that disincentivises these outcomes and so in effect they are incentivised.

Which is clearly stupid; rewarding people for doing the worst things is clearly going to make things worse. It has. Because none of these externalities are priced into the trade system, they become the responsibility not of the winners from free trade (corporations) but its losers (democracies and the nation states). Unless we can change this incentivisation mechanism, we will keep doing this.

That is why Common Weal stands shoulder-to-shoulder with Donald Trump when he says 'we need pricing interventions to correct the failures of the global trading system' followed quickly by 'oh dear god, not that you idiot'. We support a domestic system with Externality Taxes.
These would simply seek to assess the true cost of a product, including the real cost of cleaning up the impacts of the production and distribution systems involved in making the product. How far was it shipped and how much carbon was emitted? How much plastic pollution will need to be remediated? What price is paid in human or animal suffering and what cost would be required to relieve it?

Putting goods into say five or six categories from say low to high damage and taxing them accordingly to drag their externalities into their cost means we can make real purchasing decisions. This will increase prices in the shops, but we propose that every penny raised is simply given straight back to citizens in an increase to a Universal Basic Income.

Price barriers can change the world for the worse, but they can change it for the better too.