Editor’s Note: This article was first published in Areo Magazine in June 2023.

It’s been almost a century and a half since Karl Marx’s death, and decades since the collapse of socialism in the Soviet Union, Yugoslavia, and elsewhere. In the still nominally Communist China, almost 90 percent of the workforce is employed in the private sector (as compared to 0 percent when Deng Xiaoping seized power). The core structures of capitalist society are more firmly entrenched across the world than ever before. Even the spectre of climate change has not been enough to challenge capitalism’s total domination—no IPCC climate mitigation scenario presumes the radical restructuring of economic institutions. It seems there really is no viable alternative to capitalism. Yet the debate between Marx’s defenders and critics shows no signs of abating.

There are two interrelated sets of ideas that should be of interest to anyone examining the usefulness or otherwise of Marxism. The first is his theory of history, which he views as progressing through distinct stages in a single, specific direction, towards an endpoint. According to Marx, history unfolds through increasingly technologically advanced epochs, which are separated by revolutionary upheavals carried out by the dominated classes (such as the bourgeoisie under feudalism and the proletariat under capitalism). Technology is constantly advancing, while social relations remain the same, until at some point there is a revolution and new social relations spring into being because technological progress has rendered the old ones obsolete. This cycle will continue until the end of history which, for Marx, will occur when society has become so technologically advanced that class exploitation is no longer possible due to extreme universal material abundance (a kind of Star Trek future).

The second set of ideas constitute Marx’s theory of society and social phenomena, which addresses the question of why and how underlying economic structures, such as capitalism, shape society at large. For example, Marx offers explanations of why economic crises recur under capitalism; of why the capitalist state typically protects the rich; how workers are exploited; and why the working class is the only truly revolutionary class. His theorising is not restricted solely to capitalist society. He also, for instance, tries to explain why feudalism was so war-like and violent, while modern capitalist societies are much more democratic and peaceful.

Both sets of ideas are connected by the notion of economic determination and in particular the idea of surplus extraction, a concept that Marx defines in the 1859 Preface to A Contribution to the Critique of Political Economy:

In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production … The totality of these relations constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness.

He repeats a similar notion in Capital:

The specific economic form in which unpaid surplus-labour is pumped out of direct producers determines the relationship of rulers and ruled … Upon this … is founded … the economic community which grows out of the production relations themselves, thereby simultaneously its specific political form.

For Marx, the precise nature of the relationship between the economic ruling classes and those who are exploited by them determines the broader structure of any society. First, the very fact that in class societies some people extract unremunerated work from other people (i.e., capitalists exploit workers and feudal lords exploit peasants) gives the first group disproportionate power in all social matters, not just economic ones. Second, the way in which surplus extraction is carried out shapes the non-economic aspects of society.

Marx Deserves Better Critics

In his opening statement in the debate with Žižek, Peterson said that Marx’s solution to the ills of capitalism was “bloody violent revolution.” That’s not quite right.

QuilletteBen Burgis

To better grasp the second point, consider the following Marxist proposition: under capitalism, workers lack their own independent property and are therefore dependent on the ruling class. This means that the ruling class don’t need to take things from them by force (like a warlord riding in and seizing grain stores or abducting women). Instead, the workers themselves voluntarily approach the capitalists, seeking employment, and because they control the means of earning a living, capitalists can leverage this to extract surplus value from them (by exploiting the gap between wages and profits). This is the “mute compulsion of economic relations” of which Marx writes in Capital. It is very different from what happens in feudal societies, in which each peasant works his own plot of land and doesn’t need to go to the lord’s manor to seek paid work.

Marx suggests that this structural difference between economic systems leads to certain political differences between them. Key institutions and features—such as democracy, the rule of law, and civil and interstate peace—can only emerge under capitalism and are always absent from pre-capitalist societies. This is because, under capitalism, the ruling class has no need to resort to violence to amass money, while, in a feudal society, the rulers maintain their power and wealth through unequal laws, aristocratic privileges, and constant territorial incursions. Capitalist elites don’t need to do this: they can let the impersonal forces of the market do the work for them.

This analytical framework offers explanations for a wide variety of social and historical events. Say you’re trying to understand why the welfare state—which Marx himself did not predict—came into being in the twentieth century. Marx’s system suggests that this, like all large-scale social phenomena, was primarily motivated by economic considerations. Thus, perhaps the welfare state was an instrument of the ruling class to pacify an exploited workforce, or perhaps it was a bulwark against socialist radicalisation emanating from the Soviet Union.

Or perhaps you’re interested in why World War 1 started. The Marxist formula suggests that the war might have begun as an attempt to further the interests of German businessmen, who had close links with leading politicians, through a land grab by a rising imperial power. How about the Norman Conquest or the Crusades? Marxist theory suggests that these were the result of hunger for land during a pre-capitalist age, when the upper classes could not achieve economic growth by increasing the productivity of the labour force because the peasants possessed their own land, rather than working in factories under someone else’s supervision.

Its ability to churn out such plausible sounding explanations for historical and social phenomena is part of Marxism’s core appeal. But this grand theoretical framework simply does not hold up in the light of modern social science.

First—and perhaps most crucially—Marx’s theory of history has proved unfounded and unworkable. Marx never offered a convincing explanation of how exactly technology is constantly improving, bumping up against stale social relations, and triggering revolutionary upheavals that birth new, ostensibly more appropriate social relations. He relies instead on functionalist theory, which postulates that particular phenomena come into being because they are needed for a social system to function. This is a frustratingly circular explanation. Moreover, it is not the case that technology was constantly (if slowly) improving in the past, or that societies that replaced older ones never regressed technologically. Marx’s idea of how and why bourgeois revolutions occur is inaccurate too. Contemporary Marxists like George Comninel and Vivek Chibber themselves argue that the French Revolution of 1789 was not led by an ascendant urban capitalist class battling against a feudal aristocracy, nor did it result in the creation of a democratic capitalist society; the same is true of the English Civil War of 1642–48. Marx regarded the working class as the only potentially revolutionary class—but, in fact, history shows that revolutions can be started by any disgruntled group.

What about Marx’s social theories? Take, for example, the idea that economic crises occur due to “the tendency of the rate of profit to fall.” Marx reasoned that capitalists will always be looking for ways to cut costs by automating production and that, over time, this will lead to the replacement of labourers by machines. Since he viewed human labour as the only source of economic value, he concluded that, over the long-term, all businesses will gradually cease to be profitable, as more and more workers are laid off. But without robust profits, capitalists will be unable to fund new investment, and without investment the whole economic system will grind to a halt, resulting in a general crisis.

There are many issues with this hypothesis. For one thing, empirical evidence demonstrates that profits have not declined over the past 40 years, despite increasing automatisation. And, more importantly, Marx’s assumption that labour is the only source of economic value has been completely rejected by almost all mainstream economists.

Marx’s concept of “surplus value” implies that workers are always necessarily being exploited even if they freely sign a legal contract with an employer under competitive conditions (since the cost of their wages is always less than the profits they allow the company to make). This is simply wrong. It’s not that workers are never exploited under capitalism; they just aren’t always exploited.

Marx also underestimated the problem of free riding among the working class and instead wrongly attributed working-class division and passivity to false consciousness (a semi-conspiratorial, quasi-Freudian notion). In fact, as Mancur Olson has argued in The Logic of Collective Action, under normal circumstances, workers have no compelling reason to take part in a revolution. The chances of an individual worker tilting the scales are extremely small. The revolution will succeed or fail regardless of what he personally decides to do. So, he’s better off simply staying on the sidelines and not risking getting arrested or killed. If the revolution succeeds, he’ll still enjoy its benefits, if any—say, expanded democratic rights or the abolition of exploitation—even if he didn’t participate in it. Assuming most workers are rational, one would expect large-scale revolutionary collective action to be an uncommon phenomenon: no “false consciousness” is necessary to explain this.

And what about Marx’s idea that the form of a society is determined by the structure of its economy? As a single overarching explanatory principle, it has not fared well. Most social scientists reject it in favour of the more pragmatic stance associated with sociologist Max Weber, known as methodological pluralism, according to which economic power (and conflict), political power, and ideological power are three irreducible and equally important factors. Sometimes, economics is the most important driver of historical events and social change. At other times, it is not. Contemporary historians are clear that World War 1 cannot be reduced to its economic dimension. The same goes for the Crusades—we now know that they probably had little to do with the crusaders’ desire for wealth and land, given that knights usually lost money on that adventure and probably knew from the outset that it would be costly, not profitable. That’s not what motivated them.

The Challenge of Marxism

For a generation after the fall of the Berlin Wall in 1989, most Americans and Europeans regarded Marxism as an enemy that had been defeated once and for all. But they were wrong.

QuilletteYoram Hazony

Of course, Marx was a philosopher as well as a social scientist and some people find his philosophical ideas more persuasive than his historical analyses. The idea of commodity fetishism, or reification, is one example. Reification happens when people endow a physical thing with human-like properties or act as if they were in a human relationship with it. The classic example of this is a religious icon, which is worshipped as if it were capable of performing certain human acts, such as mending a broken friendship or improving crop yields. For Marx, the fundamental reified aspect of capitalist society is that people’s economic relationships to each other are represented by relationships between things (products) and mediated by impersonal market forces. What gets produced and how it gets produced is determined, he says, not by people’s personal relationships and ideas but by abstract shifts in supply and demand. Such, he says in Capital, is the “domination of things” over people in capitalism.

But supply and demand are themselves directly determined by people’s personal wants and preferences, as expressed through their purchasing decisions. Moreover, most contemporary Marxists and socialists do not defend centralised state planning, but instead support so-called market socialism. Any market society with a highly sophisticated division of labour and a system of economic exchange—whether “socialist” or not—would surely exhibit the same apparently problematic “domination of things” in this sense.

Dialectics—which in the Marxist sense is a mysterious, never fully defined method of inquiry—is another confused concept. On the one hand, dialectical thinking is sometimes taken to simply mean a kind of thinking that acknowledges the existence of vicious and virtuous cycles, reciprocal dynamics, unintended consequences, and the fact that phenomena can be “overdetermined” (i.e., caused by many different factors at once). For example, Marxist Antonio Gramsci emphasised that, even though the behaviour of capitalists determines the state’s political decisions, state policies also influence capitalist behaviour. This idea is often expressed in rather impenetrable jargon such as “the economic base influences the political superstructure, but then the superstructure feeds back into the base.” In this sense, however, dialectics is obviously not especially Marxist at all and is pretty much synonymous with sophisticated thinking or careful analysis of complex phenomena. The Marxist philosopher Étienne Balibar defines dialectics as “a logic or form of explanation specifically adapted to the determinant intervention of class struggle in the very fabric of history.” But if this is not meaningless, it’s pernicious. If you can’t defend Marxism using conventional forms of critical thinking and have to resort to a style of verbal gymnastics specially tailored for the purpose, that does not indicate anything good about Marxism. And the fact remains that Marxism is usually understood as a social scientific paradigm that explains how the world works. In this, it has mostly failed.

Some contemporary Marxists admit that Marx’s classical theories are mostly mistaken, but propose that we rework them, extracting what is useful and discarding the rest. For instance, we could abandon the notion of surplus value, while still holding onto the idea that workers are exploited under capitalism. Contemporary Marxists, such as Erik Olin Wright and Vivek Chibber, deduce this from the fact that there is an asymmetric relationship between relatively powerless individual workers and powerful individual capitalists.

The problem is that there’s nothing specifically Marxist about such an observation. Standard neoclassical economics makes the same point about asymmetric bargaining positions using the so-called monopsony model. Imagine a market with only one employer, without whose paid work people would starve: she would be free to set wages as high or as low as she pleased. Although, in our current world, the employment market is more competitive than that, it is still imperfectly competitive: competition can still be stifled in certain ways (e.g., through monopolies or government regulation), leading to artificially lower wages.

In contrast to the Marxists, however, neoclassical economists have gathered robust quantitative evidence of the amount of worker exploitation that results from imperfectly competitive markets of this kind. The typical statistical estimate indicates that US workers, on average, receive wages that are about 20 percent lower than their actual contribution to the firm would merit. The problem for Marxists is that these economic models also reveal that inequality of power is just one mechanism of exploitation. Other factors responsible for the discrepancy between economic contributions and wages include search costs and frictions—i.e., the fact that a worker cannot switch to a higher paying job without first gathering information about potential employers and spending time putting in job applications and will sometimes have to relocate to take up the new job. This all costs so much time and money that the worker might prefer to remain employed with the original company, even though they pay him a suboptimal wage. This has nothing inherently to do with capitalism: such disincentives to change employer would also exist in a hypothetical future socialist society.

Some Marxists have tried saving Marx’s theory of history by stripping it of its technological bias and functionalist framing and focusing on the dynamic of class struggle. The idea is that we can explain historical change in terms of struggles between groups—say, the middle class against the peasantry—for control of resources. The Marxist historian Robert Brenner, for instance, speaks of “vertical” and “horizontal class struggle.” This definitely expands Marx’s rigid schema, but what is gained by relabelling well understood sociological phenomena such as, say, religious infighting as “horizontal class struggle”? Why even call this class struggle? This smells of what philosopher of science Imre Lakatos has termed a “degenerating research programme,” the main characteristic of which is not discovering any actual new insights, but merely reframing older ones every time they are empirically falsified by new data—a kind of ideological p-hacking.

The heart of the Marxist system of thought is the principle of economic determinism. The uncompromising version of this principle is misguided and unusable. However, more recent Marxists have tried to salvage it by watering it down. Friedrich Engels began this process just a few years after Marx died, by talking about “determination in the last instance.” As Engels pointed out, economic class relations are not the sole cause of social phenomena. Instead, he argues, the economic aspect of society is simply “the basis” of everything else, though non-economic aspects also play a role in shaping social outcomes. But it is unclear exactly what—if anything—this means or what practical applications such a theory could have. Even hardworking Marxists like Louis Althusser have failed to make Engels’ idea of “economic determination in the last instance” comprehensible or practicable.

Marx’s failed theories, then, can be propped up by reframing them with the help of non-Marxist ideas, by downplaying their distinctively Marxist tone, by modifying them to better fit new data, or by stretching the meanings of words like class and economic determinism almost to breaking point. But if the original concepts for which Marx is justifiably best known are nowhere to be seen, there’s really no reason to invoke Marx’s name.

This does not mean that Marx himself is not worth reading. He was approximately correct about quite a few things, like the existence of exploitation under capitalism, the fact that capitalists and politicians enter into mutually beneficial deals that screw over the public, and that economic inequality is a pernicious social problem. But his main theory has nothing further to offer us. RIP.

People are stunned, confused, concerned. at what the Toddler-in-Chief is doing to world trade. They're asking: 

What's the president's end-game here? 

What's he after? 

Is it just a child seeking attention? 

Or is there a point to all this? 

One clue would be what was gained from the similar game-playing in his first term ...

You don't need to wait to see what will happen. Trump's tariffs have already had a chance, and they've failed, explains Timothy Taylor.

President Trump set off a wave of protectionist trade policies about seven years ago, back in 2018, and those policies were mostly extended and followed during President Biden’s term of office as well.

So we can already measure the results from Trump 1.0. And, who would have thought ...

[U]nsurprisingly to most economists, trade restrictions have done a poor job of producing the desired results. ..

Those "desired results" being those desired (or claimed to be desired) by Trump 1.0 and his protectionist advisors and cronies.

Apart from making tariff threats for geopolitical ends ("Give us Greenland or feel our trade wrath") America First's protectionists claimed there to be three specific economic benefits from their economic protectionism:

1. more US jobs in manufacturing;
2. reducing US economic ties with China; and
3. reducing the trade deficit.

Studying the results since Trump 1.0, it's clear that all three are dead on arrival.

Taking them one at a time.

1. American manufacturing employment has been declining ever since WWII. If anything however, it accelerated under Trump's tariffs. Why?

As [one economist] points out, there are several effects of trade barriers on US manufacturing jobs: a certain domestic industry is protected against competition, but higher prices in that industry can lead to problems for other domestic industries, and foreign countries may retaliate by shutting out US-produced exports. Put these together, and [this] suggests that the Trump tariffs of 2018 may even have led to a reduction in US manufacturing jobs.

2. Even while Americans were taxed to trade with China (which is what a tariff does) US trade with China has remained steady for more than a decade. "[S]even years of protectionism has not led to any meaningful drop in China’s value-added share." But it has led to Americans paying more for their goods.

3. The 'current account deficit' is the broadest measure of the trade deficit, explains Taylor. And was thus reduced by Trump's tariffs? Answer:

This measure also doesn’t change much in the years after the Great Recession, and then gets much worse [sic] during the pandemic. In short, seven years of protectionism hasn’t “fixed” the trade deficit, either.

Oops!

[T]he main point is simply that judged in terms of its own main justifications, the surge of protectionism since 2018 has not been achieving its goals.
    One can of course offer reasons for this failure. A common pattern in politics–and not just in trade issues–is that the failure of past policies to achieve their stated goals then becomes a new justification for more of the same. In this case, the failures of past protectionism become a reason for additional protectionism.
    As one example. after Trump renegotiated the North American Free Trade Agreement (NAFTA) back in 2018, transforming it into US-Mexico-Canada Agreement (USMCA), he said in his press conference: “Once approved by Congress, this new deal will be the most modern, up-to-date, and balanced trade agreement in the history of our country, with the most advanced protections for workers ever developed.” Seven years later, Trump now apparently views the agreement that he renegotiated and lauded as a failure, and promises to dial up tariffs against Mexico and Canada–along with the rest of the world–to new heights.

Who would have thought it. Trump's not playing 4-d chess. He's playing 2-d Go-Fish. And losing.

"Trump’s current tariff policy is also erratic, ill-defined, and incoherent. Its justification swings between the mutually exclusive goals of protecting industries through import-exclusion from abroad on one hand, and raising tax revenue from the very same imports as part of a scheme to replace income tax on the other....
    "When Trump bluffs then retracts a tariff threat to attain diplomatic concessions, tariffs are merely a negotiating device.
    "When he pulls the tariff trigger on the same nation a few days later, we’re told that it’s to address a national-security 'emergency' on the border or part of a plan to somehow offset Chinese steel production by taxing Canadian steel.
    "When the markets crash, it’s all part of an elaborate four-dimensional chess game to restructure the global economy.
    "Administration talking points about the dangers of a tariff-induced recession change by the hour, ranging from denying any threat of economic turmoil to insinuating that some purposeful economic “reset” of the global trading system is afoot. ...
    "The implementation this time around has been pure chaos. ...
    "This confusion is the result of an ideological battle being fought inside the White House...."

~ Phil Magness from his article 'The Nonsense of the “Tariff Men”'

President Donald Trump’s tariff agenda exhibits no signs of a popular mandate. Recent polling found that 61 percent of the public believe raising tariffs will hurt average Americans, compared to just fourteen percent who see them as helpful. Seventy-six percent expect tariffs will produce increased prices at the store. Clear majorities also oppose Trump’s specific tariff measures against Canada and Mexico. Mainstream economists have panned the administration’s claims that their tariff program will “substantially reduce the US trade deficit.” Unlike past tariffs, which usually drew their support from special interest groups in the beneficiary industry, there does not even appear to be a concerted lobbying effort behind Trump’s current agenda.

The economy has also delivered a harsh verdict on the White House trade agenda. In the past month, a see-saw of stock-market nosedives and recoveries with each new tariff announcement has been replaced by economic free-fall. As of this writing, the Dow Jones has lost more than ten percent of its value since Trump’s inauguration in January and the S&P 500 has lost closer to fifteen percent. Tariff uncertainty has obliterated US consumer sentiment and international supply chains are preparing for a tariff-induced shock. The market dislikes tariffs in general, but it also abhors the uncertainty created by this haphazard roll-out.

At the most basic level, the president’s stubborn attachment to tariffs stems from an ideological belief. Trump is a self-described “tariff man” after all, and espousal of protectionism may be the most stable component of his political belief system over the past forty years. Yet Trump’s current tariff policy is also erratic, ill-defined, and incoherent. Its justification swings between the mutually exclusive goals of protecting industries through import-exclusion from abroad on one hand, and raising tax revenue from the very same imports as part of a scheme to replace income tax on the other.

....I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN

— Donald J. Trump (@realDonaldTrump) December 4, 2018

When Trump bluffs then retracts a tariff threat to attain diplomatic concessions, tariffs are merely a negotiating device. When he pulls the tariff trigger on the same nation a few days later, we’re told that it’s to address a national-security “emergency” on the border or part of a plan to somehow offset Chinese steel production by taxing Canadian steel. When the markets crash, it’s all part of an elaborate four-dimensional chess game to restructure the global economy. Administration talking points about the dangers of a tariff-induced recession change by the hour, ranging from denying any threat of economic turmoil to insinuating that some purposeful economic “reset” of the global trading system is afoot.

The resulting volatility of conflicting policies and messages bears little resemblance to the steel tariffs of Trump’s first term. Those burdened consumers with higher prices and cost the country about 142,000 jobs net, but they were also constrained to a few well-defined foreign-policy objectives. The implementation this time around has been pure chaos.

---

This confusion is the result of an ideological battle being fought inside the White House. Although Trump assembled an economic team of like-minded “tariff men” to enact his policies, his advisers seem to be at odds over what the tariffs they favour are supposed to achieve. The chaotic implementation of the past two months reflects their competing goals, which include classical protectionism, revenue generation, and a sweeping scheme to devalue the dollar and “reset” the international economy. Instead of forming a cohesive tariff agenda, they vie for the president’s ear and lead him down conflicting paths.

At present, there appear to be about five different tariff camps within the Trump administration. Since the economics profession overwhelmingly rejects tariffs, almost all of Trump’s “tariff men” hail from the fringes of the discipline. But these peripheral perspectives do not agree with each other as a brief survey of the tariff landscape will reveal.

Classical Protectionists

This view best approximates Trump’s own beliefs, as well as those of his senior trade adviser Peter Navarro. Classical protectionism holds that international trade is a zero-sum game determined by maintaining a surplus of exports to imports. Adherents of this view in the White House see trade deficits as evidence that trading arrangements are rigged to disadvantage America. Tariffs, then, are the policy mechanism employed to reverse this alleged imbalance by protecting domestic manufacturers and penalising their foreign competitors with a tax.

Protectionism of this type is premised on a misunderstanding of a basic accounting identity. Trade-deficit hawks take a measure of expenditures on foreign goods and services without noticing the corresponding inflows of foreign investment. They also incorrectly assume that tariffs mainly harm foreign producers by slapping a punitive tax on their goods. This was the premise behind Trump’s widely derided “reciprocity formula,” which imposed astronomical tariffs on any country with which the United States has a bilateral trade deficit (in addition to a ten percent minimum rate for those with which it has a surplus).

The Trump administration’s “reciprocity formula” is an exercise in economic alchemy informed by stunning economic incompetence and no intelligible underlying principle.

This formula mistakes the existence of a trade deficit for external trade barriers, and then calculates a meaningless “rate” by dividing the net difference between exports and imports by the value of imports and halving the result. It is an exercise in economic alchemy informed by stunning economic incompetence and no intelligible underlying principle. Navarro allegedly devised it himself and has since become its leading exponent in the media, revealing in the process that he does not understand grade-school arithmetic, let alone trade economics.

The burdens of Navarro’s statistical contrivance will nonetheless impose profound and adverse effects on most Americans. Contrary to the classical protectionists’ claims, the costs of a tariff are inevitably passed on to consumers—either through price increases used to absorb the tax itself or by importers shifting procurement to “protected” domestic firms, which then raise their prices to a level that corresponds with the tax.

And far from reversing trade deficits, tariffs of this type ultimately impose self-defeating penalties on US exporters. First, because exporters are price-takers on a global market and must therefore absorb any increased costs to their raw material inputs caused by tariffs. And second, because tariffs tend to trigger retaliatory trade wars abroad, in which other countries target US exporters with punitive levies, thereby cutting them off from the international market.

Neo-Mercantilists

Although neo-mercantilists are closely related to the classical protectionists in their trade-deficit focus, they take a historical approach to tariff advocacy. Trump himself has adopted some of these arguments through his peculiar rehabilitation of William McKinley, the namesake of a highly protectionist tariff in 1890, and then US president from 1897 to 1901. Other neo-mercantilist voices in the administration include vice president J.D. Vance and Trump’s domestic-policy adviser Wells King, a former Vance Senate staffer who served as research director for the tariff-advocacy think tank American Compass. Trump’s secretary of state Marco Rubio has also flirted with this viewpoint during his Senate career.

Neo-mercantilists credit the United States’ economic development to an obscure 19th-century tariff ideology known as the “American System.” First proposed by Kentucky senator Henry Clay in 1824, the American System aimed to achieve an economic “harmonisation” of the national economy through a suite of tariffs, regulations, and government subsidies. The gist of the theory holds that government planning can align the domestic producers of raw materials with domestic manufacturers, obviating the need for foreign imports and—allegedly—creating a self-reliant and quasi-autarkic internal economy.

Clay’s program had many adherents in the 19th century, although Thomas Jefferson and James Madison each lived long enough to denounce it as a betrayal of America’s founding principles. It attained the upper hand for several decades after the Civil War, and heavily influenced US tariff policy until World War II. The American System was the undergirding ideology behind the disastrous Smoot-Hawley Tariff of 1930. Faced with the 1929 stock-market crash, American System adherents prescribed tariffs as a “stimulus” package that would insulate the country from the ravages of the global downturn. Instead, it caused a retaliatory collapse in global trade and helped to supercharge the recessionary headwinds, contributing to a decade-long Great Depression. The post-World War II shift toward free trade, bemoaned by tariff advocates today, came about in direct response to the failures of Smoot-Hawley.

Today’s neo-mercantilists downplay this dubious legacy and claim—against all empirical evidence—that tariffs actually jump-started American industrialisation in the late 19th century. A persistent air of resentful conspiracism surrounds contemporary adherents of the American System, evident in Trump’s rhetoric about other countries “ripping America off” with free trade and convoluted tales about a largely imaginary drug-smuggling ring at the northern border with Canada. Allegations like these are a longstanding feature of these debates, traceable to 19th-century Anglophobia and revived in the 20th century by Pat Buchanan’s economic populism in the 1990s and the histrionic paranoia of the Lyndon LaRouche political cult. (The LaRouchies maintained that protective tariffs were necessary to insulate the American economy from a British-led international plot to flood the US with opiates.)

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QuilletteR. Shep Melnick

Today’s neo-mercantilists believe that 20th-century trade liberalisation was the product of an international conspiracy designed to subordinate the American economy, and that the economics profession was in on the plot. Mainstream economics, they contend, is controlled by free-trade dogmatists who oppose tariffs as a matter of religious devotion. These and similar arguments have become a mainstay for American Compass’s Oren Cass, who proselytises his tariff message in seminars for Capitol Hill staffers and has taken a leading role in defending the Trump administration’s “liberation day” tariff scheme in the media.

In terms of day-to-day influence, this peculiar faction is not designing the administration’s rates and policies. Navarro’s contrived reciprocity formula—dressed up in Greek letters and misrepresented citations from economics journals—is a beacon of numeracy when compared to the arguments of the neo-mercantilists. The neo-mercantilists have, however, supplied Trump with an alternative epistemic framework with which to justify dismissal of the overwhelming majority of professional economists opposed to the president’s tariff policies.

Income Tax Replacers

Elsewhere in the administration, another faction of Trump’s “tariff men” has enlisted a different historical argument to their cause. They note that prior to the adoption of the federal income tax in 1913, tariffs provided the lion’s share of federal tax revenue. To tax replacers, tariffs represent an untapped revenue source that will eventually allow for the abolition of the Internal Revenue Service and the restoration of this 19th-century tax system. Commerce secretary Howard Lutnick has emerged as a leading proponent of the tax-swap argument (although he adopts arguments from the other camps as well), and Trump has made use of the same rhetoric. The president’s inaugural address proposed replacing the IRS with an “External Revenue Service,” which signals that he shares this view, as does Lutnick’s more recent proposal to eliminate income taxes for those making under US$150,000.

There are several problems with the income-tax swap argument. Although tariffs did at one time fund the federal government, this system also reflected 19th-century levels of federal expenditure. When translated to the present day, the mathematics of a tariff swap simply do not add up. Federal income taxes currently raise about US$2.5 trillion dollars a year, whereas the total value of imported goods is about US$3 trillion. That implies we would need a national tariff of 83 percent on all imports to make up the difference, and only under the unrealistic assumption that trade volume would not diminish because of the tax penalty.

Here we find the second problem with the tax-swap strategy. To raise any revenue from tariffs, imported goods must physically cross the border so that a tax is collected. This puts the tax replacers at direct odds with the classical protectionist and neo-mercantilist camps, which aim to obstruct importation and redirect consumption towards domestic firms at higher prices. In simpler terms, tariffs can be used for maximising revenue or for heavy protection but not both. Nineteenth-century politicians understood this tradeoff, and accordingly held specific tariff rates below their protectionist optimum to ensure a sufficient revenue yield from imports. Today’s income-tax replacers do not appear to have absorbed this historical lesson, leaving Lutnick in a state of perpetual vacillation between the antithetical goals of delivering protection to industries and a revenue replacement for the income tax at the same time.

Negotiating Bluffers

A fourth faction within the administration appears to view tariffs as a negotiating tool for achieving strategic objectives in the international arena. By using tariffs to threaten allies and adversaries alike, Trump aims to coax both into an array of policy reforms in exchange for rescinding those threats: immigration and drug enforcement at the northern and southern borders, increased expenditures on NATO and other military obligations, and removal of tariff and tax barriers employed against the United States in exchange for “reciprocity.” Tariffs are even being used to lean on countries that trade with hostile regimes like Venezuela. By implication, if other countries accede to tariff threats by changing their policies, they can escape the punitive threat of a 25 percent levy on their imports into the United States. And if they agree to reciprocal reductions in existing tariffs, the United States may even reward them with preferential trading-partner status.

National Economic Council director Kevin Hassett has emerged as one of the main spokespersons for tariff reciprocity, and a number of Trump’s own statements and policy reversals have implied this carrot-and-stick approach. To his credit, Hassett appears to be the only senior official who regularly exhibits some scepticism about ideological protectionism. In recent weeks, he has argued that the White House is seeking a freer trading system in the long run, with tariffs serving as an inducement for foreign countries to remove unfair barriers against the United States.

There are two problems with this approach. First, the United States’ tariff rates and non-tariff barriers are already on the higher end when compared to other developed economies. The United Kingdom, Australia, Canada, and the European Union all ranked higher than the United States on most indexes of trade liberalisation before Trump took office. True reciprocal negotiation would therefore require the United States to lower its own tariffs and trade barriers to match those of its major trading partners.

Second, while successful reciprocal reduction achieved through negotiating bluffs would be the least harmful economic outcome of the current tariff war, for the negotiating strategy to work, the tariff threat must be a credible bluff. Trump’s strategy is essentially to create an international game of chicken in the hope that other countries blink and accede to his demands. If they don’t, the world is trapped in a race to the bottom and spiralling retaliatory measures, just as the US is currently experiencing with Canada. And once the bluff has been successfully used, it is no longer effective as a tactic. The see-saw effect of tariff-policy reversals also undermines the White House’s negotiating position by creating a moving target of reciprocal objectives and degrading trust in the United States’ willingness to honour its word on a previous settlement.

Unfortunately, it appears that Trump has already expended his negotiating advantage on tariffs during his first two months in office, with little to show in return but a significant loss of trust as he reneged on existing tariff pauses and decided to proceed with additional tariff threats. He played all of his cards in the first two months of his administration, proceeded with his “liberation day” tariffs anyway, and is now met with justifiable distrust by the rest of the world.

The negotiating-bluff approach also places its proponents in tension with the protectionist and revenue factions in the administration. A threatened tariff cannot achieve either goal if it is rescinded before it takes effect, and a true reciprocal reduction would require the United States to give up some of its own existing tariff and non-tariff barriers on goods from other countries.

Trade Rebalancers

Trade rebalancers are arguably the most dangerous tariff faction in the White House, on account of the sweeping designs they propose to achieve with Trump’s tariff agenda. This newly emergent faction wants to use tariffs as a means of restructuring the international economy and international exchange system. The leading proponent of this approach is Stephen Miran, the chair of Trump’s Council of Economic Advisers. Miran authored a “User’s Guide to Restructuring the Global Trading System” shortly before his appointment to that role, and some have argued that it is the blueprint for the administration’s sweeping tariff agenda. Trump’s own rhetoric has hinted at similar designs, such as the “liberation day” moniker he affixed to his 2 April announcement.

Like classical protectionists, rebalancers dislike trade deficits but they disagree about their source. Rebalancers believe deficits are caused by a “persistent dollar overvaluation” in the international economy due to the US dollar’s de facto status as the world’s reserve currency. Miran has accordingly espoused a “Mar-a-Lago Accord” with the intentional aim of “rebalancing” trade through a managed devaluation of the dollar under a multilateral currency-pegging agreement.

Miran’s proposal creates a conundrum for the classical protectionists. Under a floating exchange system, a tariff will generally strengthen the dollar’s position against other tariffed countries and thereby obviate its purported trade-balancing effects. To get around this obstacle, rebalancers believe they can use additional tariff threats and reciprocity offers to coax smaller countries into implementing a preferential currency peg to the US dollar. They believe this would allow the simultaneous pursuit of aggressive tariffs for protective and revenue purposes—perhaps as high as a twenty percent “benchmark” tariff, according to Miran’s proposal—while also managing a devaluation of the dollar’s position, and overlaying it with an induced swap of current short-term US Treasury holdings by other countries for century-long bonds.

This fanciful rebalancing scheme is almost certainly unworkable in practice as it presumes a level of international buy-in that does not exist. Even as theory, the scheme treats the international economy as a closed loop where obvious tariff-induced pressures on prices can be offset by a carefully executed currency-manipulation scheme and a fair amount of wishful thinking.

In a rambling speech after Trump’s “liberation day” announcement, Miran declared that the economic consensus against tariffs is “wrong.” He offered no evidence for this assertion beyond reiterating his own heterodox opinions as if they were settled fact. Instead, the CEA chairman announced that other countries could only obtain relief from Trump’s tariff regime by acquiescing to a list of extortionary demands: they can “accept the tariffs” and pay them; they “can stop unfair and harmful trading practices,” as alleged but seldom elaborated upon by the Trump administration; they can purchase weapons and other military equipment from the United States, as a form of reparations for partaking in international trade under an American security umbrella; their governments can relocate factories to the United States, essentially adopting economic central planning; and foreign governments “could simply write checks to Treasury that help us finance global public goods.” It remains unclear how any of these threat-induced concessions would achieve the Trump administration’s goals, or if Trump would even honour an attempt to meet them.

Trade rebalancing is essentially Modern Monetary Theory (MMT) for the tariff-fundamentalist Right, and Miran is quickly becoming their Stephanie Kelton. And as with the MMT movement that led the Biden administration into the worst inflationary crisis in forty years, many of the rebalancer arguments rest upon a misunderstanding of basic economic concepts. For example, the authors of the paper that Miran uses for his twenty percent “benchmark” tariff have publicly accused him of misusing their work.

More recently, Miran gave a heterodox defence of tariffs on Bloomberg that suggested he misunderstands basic concepts such as the effects of price elasticity on tax incidence. He incorrectly believes that foreign nations incur the bulk of a tariff’s burden, in contrast with well-known passthrough effects that saddle US consumers and especially US exporters with higher prices. But just like MMT’s money-printing fantasies on the Left, immense economic damage could occur if the Trump administration attempted to intentionally devalue the dollar in earnest through tariff-bullying and coerced currency pegs.

While the USTR tariff calculator cites the findings from Cavallo, Gopinath, Neiman & Tang (2021) it is not entirely clear how they use our findings. Based on our research, the elasticity of import prices with respect to tariffs is closer to 1. If that figure were used instead of… https://t.co/8xs9ojm9Ex

— Alberto Cavallo (@albertocavallo) April 4, 2025

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At present, it is unclear which of these five tariff factions has the upper hand in the White House. And therein lies the problem. Each of the five competing tariff ideologies is economically perilous on its own, albeit in slightly different ways. Classical protectionism could trigger a retaliatory trade war. A tax-swap strategy could backfire as its revenue yield underperforms, meaning Americans would be double-taxed with new tariffs and the existing federal income-tax system. If taken to its extreme, a tariff-based currency devaluation scheme, executed through the hapless political tools and erratic style of the Trump White House to date, could trigger a global recession. And the negotiating bluffs of the last few months appear to have already run their course, leaving US credibility in tatters abroad.

Another complication is starting to emerge from dissent within Trump’s own ranks. Amid the ongoing stock-market crash precipitated by Trump’s “liberation day” tariffs, a public feud has erupted between Peter Navarro and Trump’s DOGE adviser Elon Musk. In a post on X, Musk accused Navarro of incompetence and suggested that his own goals include the elimination of trade barriers with several of our major trading powers. So long as Navarro continues to have the president’s ear, it will strain relations with the administration’s chief waste-cutter.

Navarro is truly a moron. What he says here is demonstrably false.

— Elon Musk (@elonmusk) April 8, 2025

The antics of the “tariff men” are beginning to imperil other policy priorities, such as deficit reduction. Future objectives such as renewing the income-tax cuts of Trump’s first term will likely face similar headwinds as long as the trade wars continue to dominate the president’s economic agenda. But there’s another lesson to be learned from the assortment of competing goals and competing tariff men in Trump’s orbit. When pursued together, their conflicting objectives become an incoherent mess of contradictory policies and chaotic vacillation. The result is tariff uncertainty and tariff chaos with a commensurate toll on the health of the US economy.

https://youtu.be/093vQKWPwvs




Podcast audio:







Objectivity is the key to avoiding misunderstandings and making one-to-one conversations productive. There are two contexts of knowledge, two value hierarchies, and two “crows” to consider to communicate effectively. In this talk from OCON 2024, Jean Moroney covers the topics: what constitutes subjective vs. objective goals for a conversation, the need to manage emotions as they arise rather than shut them down, and how doing this effectively by “holding all of the values with care” can get a conversation back on track and help you deal objectively with another person’s real or apparent irrationality.



Recorded live on June 14 in Anaheim, CA as part of OCON 2024.






Download video: https://www.youtube.com/embed/093vQKWPwvs



Download audio: https://media.blubrry.com/new_ideal_ari/content.blubrry.com/new_ideal_ari/Jean-Moroney_Objectivity-in-One-to-One-Conversations_OCON24.mp3