The old mercantilist error, wearing new clothes

Reason reports that while China does present real national security challenges, the Trump administration's tariff policies have made those challenges harder to address, and have damaged American prosperity in the process. I am not surprised. The argument for punishing foreign trade by taxing imports has been advanced in every era by the same coalition: domestic producers who stand to gain, ministers who mistake commercial rivalry for military victory, and a public told, too late, that it is paying the bill.

Let me be precise about what a tariff does. It is not a charge levied on the foreign seller. The foreign merchant adjusts his price or withdraws his goods; it is the domestic buyer — the manufacturer who needs the component, the family that needs the finished product — who pays the difference at the point of purchase. When a government imposes a broad tariff on a rival nation's exports, it is, in effect, imposing a tax on its own consumers and its own downstream industries, and directing the proceeds to whichever domestic producers are protected by the wall. This is not strength. It is a subsidy extracted from the many and delivered to the few, dressed in the language of national resolve.

The deeper error is strategic, not merely economic. If China presents genuine security concerns — in semiconductors, in military logistics, in critical supply chains — then the remedy is targeted, surgical, and institutional: public investment in the specific capabilities the nation lacks, allied coordination to share the burden, and a rule-of-law framework that disciplines unfair practices through international agreement. A broad tariff does none of these things. It raises the price of everything China sells, including the components American manufacturers need to compete. It invites retaliation against American exporters — the farmer, the software firm, the aircraft builder — who had nothing to do with the security problem. And it weakens the alliances whose collective weight is the only credible check on a large rival power. Reason's lead suggests this is precisely what has occurred: the policies have made the security challenge harder to address, not easier. That is inference I draw from the lead, but it is an inference entirely consistent with the logic I have always maintained.

I wrote, in the Wealth of Nations, that the monopolizing spirit of merchants and manufacturers is neither a fit instrument for managing the affairs of a great empire, nor a safe guide in matters of defense. The merchant knows his own interest with great acuity; he knows the national interest only when the two happen to coincide. A government that allows the protected producer to write the trade policy — and calls the result a grand strategy — has not found a champion of the public; it has found a very effective lobbyist. The consumer, diffuse and unorganized, bears the cost. She always does.

On the question of China specifically, I will speak with the humility appropriate to one who did not live through the emergence of the modern state-directed economy. I cannot adjudicate every technical question about semiconductor supply chains or the engineering of modern industrial policy. What I can say is this: the institutional question is the right one to ask. What framework disciplines the exchange? What set of rules, enforced by law and honored by treaty, ensures that trade between rivals is conducted on terms that do not endanger the public? Broad tariffs answer none of these questions. They are a gesture of displeasure, not a policy of security.

The sovereign's first duty in matters of trade is to distinguish between the producer's complaint and the public's interest. They are not the same thing. They are, very often, opposed. Until that distinction is clearly made — and made in law, not in rhetoric — the people will find themselves paying higher prices, watching their export markets close, and being told it is all in their name.