Nations Are Not Businesses

I recently wrote that nations are not charities, that they are not dispensers of free money. Some of the binary among us might be inclined to equate charity with non-profit, and thus conclude that if a nation is not non-profit, then it can only be for-profit. This isn't true either, despite the many indicators that the current American President's thinking is based on that presumption.

Businesses compete with each other for customers. Businesses are typically zero-sum, in that every customer they gain is one another business lost. Businesses seek profit, and take risks in pursuit of that profit. Businesses make investments, some of which produce positive results while others generate losses.

Nations are where businesses operate, in competition and in cooperation. Nations with freedom-based economies should seek to foster commerce, to establish the foundations upon which free enterprise prospers. This means protection of property rights, enforcement of contracts, stable currency (including low inflation), and minimal restrictions to international trade.

That last bit comes with a real-world caveat. Free trade is a two-way street, and domestic firms should have as much access to foreign markets as foreign firms have to domestic markets.

This is why I haven't blogged much about Trump's tariff wars yet. I'm fundamentally skeptical of tariffs as a revenue generator, because the harm caused to the economy is greater than the revenue garnered for the governor. I'm also fundamentally skeptical of "America First" trade and economic policy, because both history and basic economic logic tells us that free international trade raises all ships, while protectionism benefits a few favored at greater expense to the whole.

But, tariffs as a temporary lever to pry open foreign markets?

The crux of the matter is that the current state of things sits very far from an open and level playing field. Our trading partners are not paragons of free trade, and their own protectionist policies and tariffs are substantial. While the quick and easy criticism is that Trump's love of tariffs is just simpleminded wrongness, the reality is that many nations we do business with have their own complex systems of quotas, restrictions, tariffs, and the like. So, I choose continue my "wait and see" policy on this matter.

But I digress. Trump has telegraphed, in many ways, that he considers tipping the scales in a way that will encourage or coerce companies to repatriate jobs. This is an "America as a business" mindset, and while it makes for great headlines and gets people all rah-rah about "good jobs," the simplest of economic analyses tells that if he has to tip the scales, then he's producing a less economically efficient outcome. Productivity will decrease and our economy/living standards will not grow as much as they might have otherwise.

This, in a nutshell, is why economic populism is a bad idea, no matter that both parties embrace it in their own ways.

My preferred approach to international trade is bilateral reciprocal agreements, where, if there are to be tariffs and quotas, they are in parity. By doing these in a bilateral fashion, we would foster competition for access to American markets, and that access would be mirrored by equivalent access to those foreign markets. Obviously, we would not be trading the same products in both directions, so I write equivalent rather than equal. We export what they want but cannot make at the same price or quality or at all, and we import what we cannot make at the same price or quality or at all. In a free and un-coerced setting, both sides prosper, and that is the nature of free trade.

America is not a business. She is not a profit-seeking enterprise with owners looking to maximize efficiency. To think in that fashion is likely to produce policies that will not serve the citizens as well as recognizing that government is a referee, not a player. The referee should try to level the playing field as best he can, but you do that by leveling, not by applying favoritism to supposedly offset someone else's favoritism. That may seem a subtle difference, but it is a vital one.