Category Archives: International

Tit-for-Tat Tariffs Don’t Work: Boeing and Airbus Show Why

A 16 year-long aerospace subsidies dispute between the United States and the European Union began another round this week. The U.S. claims that the EU’s Airbus subsidies are unfair. The EU argues that America’s Boeing subsidies are unfair. Both sides are right. But neither wants to admit that the other side has a point, too. The result has been tit-for-tat tariff increases and no subsidy reforms.

Today, the World Trade Organization (WTO) ruled that the EU may impose tariffs on up to $3.99 billion of American goods, because Boeing’s favorable tax treatment violates WTO rules.

This follows a 2019 decision allowing the U.S. to impose tariffs on up to $7.5 billion of EU goods due to the EU’s Airbus subsidies.

Boeing called today’s decision “irrelevant.” Last year, Washington state repealed the tax provision at the center of this decision. However, the larger sticking point in the dispute remains. Yes, this one tax break is gone, but Boeing still receives massive subsidies. That means the EU will not stop pressing the matter. Nor has the EU reformed Airbus’ special treatment. That means the U.S. won’t stop, either.

In addition to being ineffective, the tariffs are causing collateral damage to other industries that have nothing to do with the dispute, from French wines to American motorcycles. This deadweight loss matters at a time when the world economy is already hurting due to COVID-19.

The lesson both sides need to learn is, don’t copy other people’s mistakes. Instead, set a better example. Subsidized companies grow soft and lose their competitive edge. There is a reason why so much aerospace innovation these days, from space travel to supersonic flight, is happening outside of Boeing and Airbus’ subsidized comfort.

The right thing to do is for governments to stop subsidizing private businesses—even if the other side doesn’t. Set the right example. Boeing would likely do just fine without subsidies. They would certainly have far more incentive to improve their products and address their safety concerns than they do now.

And if Boeing can’t survive without subsidies, there is no shortage of entrepreneurs capable of unleashing engineering and manufacturing talent.

Either way, consumers and taxpayers win. Europe and Airbus can then either follow America’s positive example or be content with subsidized mediocrity. Realistically, they will very likely choose the subsidies. But we cannot let Europe’s mistakes be our own. The U.S. has been doing that for at least 16 years now, and we know it doesn’t work.

A modest starting point on the U.S. side would be closing the Export-Import Bank, which often devotes half of its business to securing below-market financing rates for Boeing’s customers, many of whom are state-owned. Boeing set record profits while Ex-Im was mothballed from 2014-2019, so we already know the company will do just fine without that multi-billion-dollar program.

For more on that idea, see my most recent Ex-Im paper.

Retro Review: William H. McNeill – Plagues and Peoples (1976)

William McNeill was one of the 20th century’s leading big-picture world historians. Interconnectedness is a major running theme of his work. This reviewer, whose work focuses quite a bit on trade policy, has found McNeill’s approach to history quite useful.

McNeill was a student of Arnold Toynbee, who instead emphasized separation and conflict as key drivers of world history. In a way, McNeill spent his career disagreeing with his teacher, thus living out the dreams of countless frustrated students.

Plagues and Peoples applies McNeill’s interconnectedness emphasis to disease as an engine of world history. This is of obvious interest in the wake of COVID-19. What can we learn from how other societies have dealt with plagues? What were mistakes we can avoid? What things worked that we can adapt to our own time?

McNeill’s book begins in prehistory and goes all the way up to modern times. In a later edition’s preface, McNeill briefly analyzes the AIDS epidemic, although in this reviewer’s opinion, that part has not aged well.

The rest of the book mostly has. That said, its focus on disease means that McNeill, at least in Plagues and Peoples, gives short shrift to other historical factors This is a forgivable sin; books have only so much space, and McNeill gives them plenty of attention in other works such, as his mistitled The Rise of the West: A History of the Human Community (1963), which spends more time out of the West than in it. But it is up to the reader to remember that history is nearly always multicausal.

As population grew after the agricultural revolution, long-separated peoples gradually came into contact with each other. Each group had suffered from its own local diseases. These depended on climate, geography, livestock, and agricultural choices. Tropical diseases rarely adapt well to cold climates, and vice versa.

An early obstacle to animal domestication was disease transmission between species. Over time, humans built up immune tolerances to their animal companions’ diseases. But different regions had different domesticated species, and hence different immunities. This caused outbreaks when people with different domesticated animals made first contact. Rice farmers, who spend much of their time wading through standing water, face a very different disease mix than farmers of grains or legumes, who deal with land-based diseases transmitted from insects, pests, and animal feces.

When different cultures first came into contact, there were often terrible outbreaks at their borders—this happened throughout Eurasia as agriculture and cities spread across the continent. If people near borders continued to interact, they built up mutual immunities to each other’s diseases, and could then benefit from trade, specialization, and cultural exchange.

But if there were long breaks in contact for whatever reason, the immunization process might have to start all over again. And sometimes people might decide it wasn’t worth the bother. These types of local disease-related decisions could impact generations of economic well-being, as well as decisions of war and peace.

This same process happened on a much larger scale after Columbus. It was also far more intense. The wild versions of the Americas’ domesticated animals, such as llamas and alpacas, did not live densely together enough to sustain highly infectious diseases. That means they didn’t pass them along to humans during domestication. So not only were Amerindian civilizations capable of greater density with fewer diseases than was possible in Europe, people in the Americas also had far fewer antibodies. This is one reason why contact with Europeans and their animals hit so hard.

Some diseases also require a minimum population density to survive. This includes diseases where the sufferer gains lifelong immunity after illness, such as chicken pox. Such diseases need constant access to fresh hosts who have not yet developed immunity. Often the only places with enough density and fresh hosts are cities. Cities, it turns out, were a major development for more than just humans.

At the macro level, high disease rates in cities played a major role in millennia of urban-rural interactions. There were fewer diseases out in the country, so population growth there was often rapid. In cities, deaths usually outpaced births until modern times—and modern sanitation. Cities depended on rural migration to maintain population—at precisely the same time as rural population growth was too high to bear. So rural-to-urban migration balanced out both environments.

This delicate equilibrium was often upset by wars, famines, and other non-disease factors. But this equilibrating tendency was the norm for most of history, and disease rates played a major role in the rate of urbanization until the last century or so.

This had special importance in post-classical Europe. Feudal ties bound rural peasants to nobles and kings. But the rise of cities, who often answered to no king, offered refuge to peasants, who continued to migrate away from kings into cities. A custom evolved whereby an escaped serf who was able to live in a city for a year and a day without being captured was legally emancipated. This is where the phrase “city air makes one free” came from, as well as city names such as Freiburg (“free town”). Disease rates, which kept cities constantly in need of fresh migrants, played an important role in this cultural and political dynamic.

Moreover, these power struggles, with disease always operating in the background, prevented kings from becoming too strong. These checks and balances eventually led to city- and democracy-based modernity as we know it today.

One of the most interesting concepts in Plagues and Peoples is McNeill’s comparison of microparasites and macroparasites. Viral and bacterial pathogens are microparasites. Some of their behavioral tendencies repeat themselves at a macro level in humans. An example of this is in McNeill’s theory of government.

McNeill’s theory of the origins of the state is similar Mancur Olson’s stationary bandit theory, but with a disease-centered twist. McNeill observes that diseases that are too lethal don’t survive for very long. They kill their host so quickly that they cannot spread. This is why Ebola breakouts, though terrifying, tend not to spread very far. At the macroparasite level, a bandit who completely destroys an agricultural settlement feeds himself for a day. But after that, like Ebola, he might have a hard time finding food.

More “successful” diseases such as colds, flus, or malaria make their hosts ill enough to exhibit contagion-spreading behaviors such as coughing, sneezing, or diarrhea. But they don’t kill them. Or at least, death does not come quickly enough to stop the pathogen’s spread. In the microparasite world, a milder human bandit also does much better for himself. He takes enough to feed himself, but not enough to starve his “hosts.”

The concept of immunity also plays a role. If the bandit “immunizes” his hosts against competing bandits, they gain security. The bandit not only gains a steady food source, but his immunized villagers may actually be happy to have him around; a chronic but mild illness is preferable to sudden death.

Analogous to biological natural selection, destructive roving bandits eventually gave way to milder stationary bandits, who gradually took on the trappings and functions of proper governments. And in social evolution, change need not mean death. A simple change in strategy is enough for a roving bandit to change into a stationary bandit. From this selection process, the earliest states emerged. One needn’t take the disease analogy too literally for it to shed useful light on an important process in human history. James C. Scott’s book Against the Grain: A Deep History of the Earliest States has much to offer readers interested in pursuing this direction further.

McNeill then applies this framework throughout world history. Confucianism arose in China as a successful macroparasitic adaptation to “keep exactions imposed upon the peasantry within traditional and, under most circumstances, tolerable limits.” (p. 101) The Confucian examination system limited the number of government officials, and imposed cultural, ethical, and institutional restraints on their behavior. The Confucian system kept Leviathan properly shackled, as Daron Acemoglu and James A. Robinson might argue (see my review of their recent book The Narrow Corridor: States, Societies, and the Fate of Liberty).

This dynamic, McNeill theorizes, might explain why the earliest known governments in Egypt and Mesopotamia were highly despotic, even compared to later absolute monarchies.

The 14th century bubonic plague pandemic known as the Black Death happened as it did in large part due to interconnectedness. As always in history, there were many factors. The plague bacillus tended to be stable only in rodent communities in remote areas. The rise of the Mongols and their fast-moving horses not only displaced many of these rodent communities, but their swift-moving horses—and enticing grains and other foods—drove rodents across the Eurasian continent. Independently, “Improvements in ship design occurring in the 13th century made year-round sailing normal for the first time,” which “offered securer and more far-ranging vehicles for rats.” (pp. 176-177). These multiple engines of interconnectedness made plague vectors spread faster and farther than they otherwise would have.

The plague response also has a potential lesson for today’s policy makers. On p. 195, McNeill observes:

In contrast to the rigidities of the church, city governments, especially in Italy, responded rather quickly to the challenges presented by devastating disease. Magistrates learned how to cope at the practical level, organizing burials, safeguarding food deliveries, hiring doctors, and establishing other regulations for public and private behavior in time of plague.

The Church was a very different creature than today’s federal or national governments, but the larger principle stands: smaller, closer governments tend to be more responsive than larger, distant ones. People today expect more of Washington than it could possibly deliver during the time of COVID-19. Effective responses will instead tend to come at the individual, local, and state levels.

Retro Reviews: Azar Gat with Alexander Yakobson – Nations: The Long History and Deep Roots of Political Ethnicity and Nationalism (2013)

Though military historian Azar Gat wrote Nations: The Long History and Deep Roots of Political Ethnicity and Nationalism, he gives extensive credit to fellow historian Alexander Yakobson for his comments and advice contributed throughout the book. Yakobson also authored the final chapter. I read this book at the recommendation of my former colleague Alex Nowrasteh.

Yoram Hazony’s The Virtue of Nationalism has become the standard defense of nationalism. The trouble is that Hazony’s defense is not very coherent. In a sense, Hazony wrote a book-length version of “it’s not about race.” Hazony also struggles to say what nationalism might be about instead. Hazony also argues that nationalism is a recent phenomenon. After all, nations as we know them today have only been around for a few centuries.

Gat’s two main arguments cause problems for Yazony-style thinkers. One, nationalism is ancient. In fact, the impulses behind it predate our species. They are an inescapable part of the human condition. Two, nationalism is mostly about race. More precisely, it is mostly about ethnicity. Not exclusively, but mostly. Gat uses a broader, boutique definition of ethnicity for the purposes of his discussion, about which more below. But race is an important part of his use of the term. Unlike Hazony, he does not dodge the question.

Gat also does not defend nationalism. Nor is he interested in attacking it, though he is clearly put off by the cultural chauvinism and belligerence that often accompany nationalism, even in relatively peaceful places such as France. Gat instead seeks understanding. What makes nationalists tick? Why do they hold their beliefs? This 2013 book came out before nationalism regained its current voguishness in populist movements around the world. Nations may be a better book for that reason. It provides light without the heat that current events can inspire.

Nationalism predates the concept of nation, which is one reason why Gat focuses on ethnicity. To Gat, nationalism is just one possible way of expressing a deeper impulse. Gat doesn’t cite Adam Smith’s circle of concern theory from The Theory of Moral Sentiments, but his thinking is similar. Basically, people care more about people close to them than they do about people who are socially distant. People care most about themselves. They care very much about close relatives such as children and siblings, though a bit less than about themselves. They care a bit less than that about cousins, aunts, and uncles, still less about second cousins, and so on.

The circle of concern is not an ironclad rule that applies in every single case, as Richard Dawkins convincingly argues in The Selfish Gene—along with any parents who have made sacrifices for their children. But as a guide to understanding human behavior, the circle of concern is a universal tendency.

As Adam Smith put it, a person in England will lose more sleep over losing his little finger than over a hundred thousand people dying in a natural disaster in China. This might sound cold or callous, and it is. Smith himself disapproved of this tendency. But Smith was writing about “is,” not ”should.” Those are separate questions, similar to the difference between fact and opinion. The reason Smith made that point, even though he did not like it, is that it is true.

In fact, growing the circle of concern was one of Smith’s greatest hopes for humanity. In a way, the whole project of modernity and the post-1800 Great Enrichment has consisted of people growing their circles of concern en masse. This moral vision, far more than material gain, was the foundation of Adam Smith’s case for free trade. It is the moral foundation for liberalism as a whole—liberalism in the original, and correct sense of the word.

Where does nationalism enter this picture? Humans have more sophisticated social arrangements than other animals, so our Smithian circle of concern naturally tends to be wider than in other species. For 95 percent of our 200,000-year history as a species, we lived in mostly-related clans of 50 to 150 people or so. But these bands would often slightly overlap with other nearby clans. While these encounters were often far from friendly, they provided a chance for groups to trade and to exchange members through intermarriage. This prevented inbreeding and created opportunities for trade, or for depleted groups to replenish their numbers.

There was an evolutionary advantage to having some social ties between clans between these clans, even if not at the same level as within-clan ties—again, remember the selfish gene. Often these adjacent clans would meet for seasonal feasts, holidays, or religious ceremonies—a form of social evolution that helped to strengthen survival-enhancing bonds.

Evidence from surviving classical sources such as Herodotus, Caesar, and Tacitus, as well as modern anthropologists studying today’s tribal peoples, have all found surprisingly similar pre-national social structures around the world, despite all the local cultural differences.

These networks of 500 to 1,000 people or so are about the outer limit of the number of personal relationships a human is able to maintain. Beyond that, everyone is a stranger. And strangers with no binding ties were as likely to steal food or kidnap mates as they were to trade peacefully. That is why people have an instinct to affirm their in-group and vilify their out-groups—back in the day, it was a survival mechanism.

Natural selection processes chose people whose circle of concern was wide enough to include adjacent groups, not just their everyday in-group. We are their descendants. At the same time, there was no such pressure for the circle of concern to extend wider than this, to perfect strangers—until very recently. Too recently for evolution to catch up to our new social circumstances.

As human societies scaled up into city-states, regional empires, and eventually nation-states, all the different facets of Gat’s concept of ethnicity come into play to progressively greater degrees. Having something in common, such as a language, religion, or a shared hometown or king gave people something in common. It made for an easy mental shortcut to determine if a stranger could be trusted.

Gat argues that language is usually the most important ethnic identifier. If someone does not speak your language, or does so with a noticeable accent, they are clearly other. Religion is another ethnic identifier. Someone who prays to foreign gods probably isn’t from around here. Dress and appearance matter for the same reason. The European divide of beer and butter in the North, versus wine and olive oil in the South, is another point of division. Jews and Muslims took their dietary customs with them throughout their travels, keeping them ethnically apart—in Gat’s sense of the term—from pork-eating peoples regardless of where they settled down. As the comedian George Carlin observed, people will always find excuses not to get along. Just ask sports fans at a Packers-Bears game.

While the genetic view of race is a fairly recent phenomenon, people have also always marked themselves apart by racial appearances. And ironically, the reason we do this is genetic. That means Gat’s argument about ethnicity and nationalism both is and is not genetically based. Race is literally only skin deep. But the reason why people so often fight so fiercely about race and ethnicity has genetic roots that are universal to our species. And race is just one of approximately a million and one ways to express that larger inborn tendency. That is where nationalism comes from—human nature’s in-group-out-group instinct.

Gat combines many of these factors in a very wide concept of ethnicity that varies from place to place and changes over time. Sometime around the invention of agriculture, out of this evolving mush eventually came the concept of fixed political boundaries. These too came about organically, usually in line with ethnic boundaries.

But because different facets of ethnicity have different boundaries, a single geographic line can never accurately reflect ethnic lines. It is literally impossible. Maybe two people with common genetics, language, and territory have a different religion, as in Serbia and Croatia. It is impossible to set a national boundary that fits every facet of ethnic identity, so war ensued. In many places, two or more different ethnicities live enmeshed together in the same cities and neighborhoods. If each wants its own state, how does one create a fair boundary?

These types of questions are difficult, and maybe impossible to answer. And that is one reason why war will likely always be with us. So will other, usually less lethal forms of social division.

This aspect of Gat’s thesis reminds this reader of the virtues of a cultural-national version of Ostrom-style polycentrism. Typical government services such as schools, parks, roads, and police are very different from each other. They each serve different constituencies with different needs and different boundaries. And the city workers providing those services all have their own varying needs. So why are nearly all of these wildly different services administered at just a few fixed levels—city, state, and federal?

This kind of shoehorning often has adverse effects on the quality of those services. Just as more flexible scaling of government services can make them more effective, maybe the same is true of nations. One size clearly does not fit all, as any history book will tell you. Maybe allowing for multiple concurrent sizes of “nation” that adapt over time would allow different people to live together more peacefully.

That, in a nutshell, is Gat’s thesis, plus a few outside applications of it. To illustrate his arguments, Gat spends the last two thirds or so of the book on a survey of world history. He briefly visits nearly every time period on every continent in at least enough detail to show how ethnicity and national sentiments have intertwined, peacefully and not. The same ethnic dynamics were nearly always in play before, during, and after modern nation-states emerged as we know them today. Yakobson’s concluding chapter applies his and Gat’s framework to present-day (in 2013) politics around the world.

Nations is the rare book that makes the reader see the world differently, permanently. It provides a magnifying lens that, when properly held, can bring into focus important details on world history; modern history; why countries exist in the first place; why larger structures such as the European Union (EU) are controversial despite being peaceful; why the EU’s faults are not necessarily random; and on today’s in-progress worldwide political realignment, which is increasingly based around a nationalism-versus-liberalism axis, rather than a socialism-versus-liberalism axis.

Supreme Court Declines to Hear Steel Tariff Case: Time for Congress to Act

President Trump’s steel tariffs were intended to boost U.S. manufacturing. They backfired to the point where a group of steel-using industries sued to stop the tariffs. The case wound its way up to the Supreme Court, which this week announced it would not hear it. The tariffs will remain in place.

Although the Court will not act, Congress has the power to rescind the tariffs at any time. However, as the Cato Institute’s Dan Ikenson told Politico’s Morning Trade newsletter, “Congress is quite content with its abdication of trade authority, frankly.” President Trump is getting all of the blame for the trade war’s failures. This is fine with much of Congress—even many Republicans, who mostly did not favor Trump-style trade protectionism until changing their minds around January of 2017.

Sen. Chuck Grassley (R-IA) has proposed reclaiming some of Congress’ abdicated tariff authority, but his proposal’s political prospects are dim.

The Supreme Court case on the steel tariffs would have hinged in part on the separation of powers. Only Congress has the power to tax. Tariffs are taxes. That means only Congress, not the president, can enact tariffs. But there is a wrinkle. Back in the 1960s and 1970s, Congress delegated away some of its tariff-making power to the president. The steel tariffs were enacted under Section 232 of the Trade Expansion Act of 1962, which empowers the president to impose tariffs without congressional consent, provided they are imposed on national security grounds.

It is hard to tell which way the Court would have decided that question, since separation of powers arguments cut both ways. While the president does not have taxing power, Congress did delegate Section 232 powers to him. But how far does that delegation authority extend? How far do the powers reach? These questions will remain unanswered for now.

While frustrating, this may be for the better. The Supreme Court, whose members are presidentially appointed and Senate-approved, in part for that reason, tends to be permissive of executive power, and deferential to Congress.

The merits of the case are less ambiguous, though that is often of less importance in legal matters. The Section 232 steel tariffs, which originally targeted allies such as Canada and Mexico, do not pass any reasonable national security test. In a phone call with Canadian Prime Minister Justin Trudeau, for example, President Trump claimed that the tariffs were justified because Canada burned down the White House during the War of 1812.

This claim, while weak, is also inaccurate. The White House was burned by British soldiers. Those soldiers were stationed in Canada, but since Canada’s government did not gain independence until 1867, it can hardly be blamed. This also leaves aside Canada being one of America’s strongest allies through multiple wars and other national security threats, as well its largest trading partner.

#NeverNeeded steel tariffs are harming not just the steel industry, but steel-using industries such as construction and automobiles. In all, just the tariffs that President Trump alone has enacted are costing the economy roughly a half percentage point of economic growth, according to the Congressional Budget Office. While the country might have been able to afford such ideological luxury goods during a boom, it simply cannot during the COVID-19 recovery.

In CEI’s most recent Agenda for Congress, we argued that Congress should repeal not just Section 232 tariff authority, but also Sections 201 and 301 of the Trade Act of 1974, which allow presidential tariff-making to address foreign competition and treaty violations. Iain Murray and I also outlined a larger positive agenda for trade policy in our paper “Traders of the Lost Ark.”

The Trump tariffs have to go. Since the Court will not step up, Congress must act.

In the News: China Trade

I can’t read the article due to a paywall, but I am quoted in the Las Vegas Review-Journal about the just-signed Phase One of a trade agreement with China.

Senate Passes USMCA, Sets Bad Precedent for Future Agreements with China, UK, EU

The U.S.-Mexico-Canada (USMCA) trade agreement passed the Senate today, 89-10. As with the Phase One agreement with China that was also signed this week, USMCA is valuable damage control. Three years of unpredictable tariff increases, threats of increases, and diplomatic tensions will hopefully have more stability going forward. Unfortunately, while NAFTA needs some updates, few of them are contained in USMCA’s more than 2,000 pages.

As far as short-term policies, USMCA is not very different from NAFTA. USMCA’s real cost is long-term, which is why Iain Murray and I came out against USMCA last month. Its bad precedents will likely inform upcoming agreements with China, the United Kingdom, and the European Union. Unlike USMCA, these upcoming agreements are potentially transformative. It is important to get them right.

Trade agreements should stick to trade issues. That is the real lesson of the USMCA battle. USMCA is filled with trade-unrelated provisions covering labor, regulatory, environmental, and other policies. It contains naked giveaways to business, labor, and environmental interests. To the extent these provisions touch trade at all, they make it more cumbersome—opposite USMCA’s purpose. These same special interests will almost certainly ask for more, and receive, larger handouts in future agreements.

China is struggling to choose between freedom and continued despotism. The United Kingdom is leaving the European Union. And the EU itself is undergoing changes both internally and on its place on the world stage. The U.S. must engage each of them in ways that ensure mutual peace and prosperity. Part of that larger agenda is free trade. Our upcoming trade agreements with them must be open, transparent, and contain as few trade-unrelated complications and special interest giveaways as possible. These side agreements risk scuttling needed reforms and inflaming diplomatic tensions, while increasing corruption.

USMCA sets a bad precedent for these more important upcoming agreements. Its ratification makes it much harder to overcome political inertia and move global trade policy in a simpler, more open direction. USMCA may be a fait accompli, but it is not too late to learn from it and do future agreements the right way. This means sticking to trade and, to the extent possible, leaving politics out.

Phase One Trade Agreement with China: Tariff Stability, at the Cost of Managed Trade

The newly signed Phase One of a trade deal with China has enormous value as damage control against further tariffs, but it comes at a cost. The Trump administration has more than doubled total U.S. tariffs in its first three years, and other countries, including China, have responded in kind. Phase One’s signing hopefully marks an end to a tariff-first trade policy and its unpredictable implementation.

But a ceasefire is not a victory. Massive tariffs put in place less than two years ago will remain in place, and risk becoming normalized. American consumers and businesses will still pay tariffs on 40 percent of Chinese imports that were mostly tariff-free just a few years ago. The Trump tariffs against Chinese goods should have been entirely repealed as part of the agreement, but were not.

Congress has the power to repeal the remaining tariffs and protect against further increases, and should do so immediately. There is already proposed legislation to move President Trump’s Section 232 tariff-making power back to Congress, where all taxing power properly belongs. More substantive engagement with China would involve rejoining the Trans-Pacific Partnership, which is continuing along without U.S. involvement, and using the World Trade Organization’s dispute resolution system, where the U.S. has an 85 percent success rate and a long track record of successfully encouraging reform.

Another cost of Phase One’s stability is transparency. Many terms of the now-signed agreement are still not public. Other provisions are vague. The Chinese government has a lot of work to do before it can be considered a good-faith actor in world trade. Needed reforms range from recognizing its people’s human, political, and economic rights to ending state-approved theft of technology and intellectual property. Beijing also needs to stop its self-harming policies of subsidizing private businesses and insisting on state ownership or control of nominally private enterprises. It will be difficult to hold Chinese leadership accountable to today’s agreement if nobody knows what it is in it, or if its broadly worded provisions prove unenforceable.

Given Beijing’s aversion to liberalizing reforms, this is important. For example, one section addresses forced technology transfers. “However,” The Wall Street Journal notes, “the section doesn’t require China to change any law or regulation to fulfill its obligations.” As a result, none will likely be enacted. That vagueness may have been Beijing’s condition for signing an agreement the Trump administration badly wants for short-term political reasons. In short, Trump may have gotten played like a fiddle. Whatever policy action China takes on technology transfers will now have a patina of legitimacy from the signed agreement. This is a poor political strategy from the U.S. side.

From a philosophical standpoint, the agreement confirms the Trump administration’s belief in managed trade, rather than free trade. It attempts to dictate the buying and selling of agricultural products, and on what terms private businesses may do business with each other. China’s biggest obstacle to sustained future growth is its government’s insistence on micromanaging the economy. President Trump apparently wishes similar obstacles on the U.S. economy.

Finally, the agreement also sits upon bad economics. Specifically, it was largely driven by Trump and his adviser Peter Navarro’s trade deficit ideology. Economists argue that trade deficits have no bearing on economic health, and should not be a policy consideration. For example, just about everyone maintains an ongoing trade deficit with their local grocery stores. The relationship is mutually beneficial, and indefinitely sustainable. Similarly, almost all employers run ongoing trade deficits with their employees. For example, CEI buys my services as a policy analyst, yet I never buy anything from CEI. Even so, CEI’s trade deficit with me is both mutually beneficial and sustainable. At a national scale, trade deficits are an accounting measure, and that’s it. Its number, whether positive or negative, or large or small, is the sum of individual decisions people make on purpose, and to their benefit. The Trump administration’s China policy, including Phase One, is instead driven by long-discredited mercantilist ideas about trade deficits that were last in vogue in the 17th century.

Moreover, dollars sent abroad from buying imports eventually return to the U.S. in the form of direct foreign investment. Those dollars also fund the trillions of dollars of government debt both parties have excelled in creating. When Peter Navarro simultaneously complains of a large trade deficit while bragging about growing direct foreign investment, he is being intellectually inconsistent. Much of the Trump trade agenda, including the Phase One agreement with China, rests on this inconsistency.

Phase One’s tariff ceasefire is a major benefit, but trade barriers against China remain higher on net than before the Trump administration took office. Any agreement built on such a mistaken intellectual foundation will likely not work as its drafters intended—especially when a reelection campaign’s short-term need for a marketable win take precedence over sound long-term policy and the time-tested results of free trade.

Immanuel Wallerstein – The Modern World-System I: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century

Immanuel Wallerstein – The Modern World-System I: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century

Wallerstein was the primary creator of the core-periphery framework that many historians use to view world economic history. This 1974 book started it all. Several publishers rejected his initial manuscript, but when he did finally get it published, it caught on quickly. Wallerstein eventually completed four volumes in the series before he passed away in 2019.

In the context of the 16th century, the first major core country was Spain, though the Netherlands and England eventually overtook it as silver-induced inflation and the costs of empire caused Spanish decline. The two periods of Spanish dominance and Dutch-English dominance make up what Wallerstein calls the long 16th century. The periphery economies were the somewhat nearby countries that traded with these core economies throughout the long 16th century, and on through later periods.

Typically, periphery economies provide raw materials and food, which the core countries either consume or turn into more finished products. At this stage of the world economy, there were still countries outside of the European core-periphery network. For Wallerstein, these are simply separate economic systems. The boundaries are fluid, and Wallerstein was quick to point out that his categories are not categorical. Countries such as Poland and the Ukraine were nearly always periphery countries in this period. Russia went in and out of the periphery over the years. Farther-off countries such as India and China had their own independent core-periphery networks.

By the 20th century, with industrialization, mass media, and air travel, the entire world was unified into a single core-periphery system. In this book’s focus, the two-part “long 16th century,” this had not yet happened. But this was also the period when that process began in earnest, which is why Wallerstein’s larger project began there.

Wallerstein was a Marxist, and it shows in his hyper-materialist view of history, and his neglect of individuals in favor of focusing on aggregates such as nations, regions, and classes. It also causes him to ignore non-material factors such as culture, art, social norms about openness and progress, and more. Though he favorably cites Douglass North a few times, proving at least some engagement with the economic history literature, he also is not the most astute economic analyst, especially in matters of monetary policy. He seems not to grasp the concepts of equilibrium, the neutrality of money, or the law of one price. These shortcomings are not fatal to his core-periphery thesis, but they don’t help his case.

As the world becomes ever more prosperous in the 21st century, Wallerstein’s core-periphery framework is quickly becoming obsolete. It’s not the worst way to view the history of empires of colonialism, which are based on exploitation and hierarchy. But the world of the post-1800 Great Enrichment is based increasingly on equal exchange and cross-cultural tolerance and respect. There is a long way to go, obviously, and there will be stutters and reversal. But if the process continues, Wallerstein’s thesis will age as poorly as his Marxism already has.

William Dalrymple – The Anarchy: The East India Company, Corporate Violence, and the Pillage of an Empire

William Dalrymple – The Anarchy: The East India Company, Corporate Violence, and the Pillage of an Empire

The East India Company (EIC) was one of history’s largest monopolies. Its story is relevant to today’s antitrust debate, and the larger question of where the private sector ends and the public sector begins. Dalrymple seems eager to paint a portrait of capitalist and corporate greed, but the facts won’t quite allow it. He grudgingly allows that the EIC was not a free-market institution, but he often insists on treating it that way just the same.

The EIC was a public-private partnership from the start, and received government bailouts. It had de facto taxing authority in India, a power no fully private company enjoys. The EIC had its own 200,000-strong army, twice the size of the British army. The East India Company was a government in everything but name, and it acted like it, to the point of toppling India’s existing government in 1765 and replacing it with itself.

Contemporary economists and philosophers such as Adam Smith and even the conservative Edmund Burke opposed empire and its accoutrements not just on moral grounds, but on fiscal grounds. Ventures such as the EIC cost the government more than they made from it.

Dalrymple doesn’t go into this as much as he should, but the EIC’s story shows that there is no bright line where the private sector ends and government begins. This kind of philosophical discussion would have been very useful for clarifying his message.

The lessons from the East India Company’s story apply to today’s climate of too-big-to-fail, bailouts for politically connected industries, and subsidy programs for businesses big and small. All of these nearly always come with political strings attached, and mix together the public and private in ways few outside of the economics profession expected. Beneficiary companies become executors of government policy, rather than engines of value creation.

In the EIC’s case, this meant corruption, coups, atrocities, war crimes, and racially motivated mass murders. Today’s rent-seekers’ interests are mostly limited to greed, fortunately. But they are still worth fighting about, and EIC’s cautionary tale is useful for that fight.

Paul Kriwaczek – Babylon: Mesopotamia and the Birth of Civilization

Paul Kriwaczek – Babylon: Mesopotamia and the Birth of Civilization

A survey history of Mesopotamia from about 8,000 years ago until the sixth century B.C., with a special emphasis on Babylon, from its rise around 1800 B.C. to its collapse.

The chapters on cuneiform writing, commerce, the birth of trade, and the Sumerian education are especially fascinating. One of the most common archaeological finds are clay writing tablets that students used for practice. From these, we can glean much about how writing was taught, as well as what was taught. Another useful insight is that Mesopotamian language was a lot like ours. It depended heavily on context and inside cultural knowledge. In our time, a sign with a picture of a car can mean many things—a warning for pedestrians, or to mark a parking spot or a garage, and so on. Many cuneiform words were the same way. Their base-60 numbering system treated decimal places similarly—the only way to tell, say, 26 from 206 or 2,006 was context. One imagines this was grist for many a court case.

The famously severe legal codes of Hammurabi and other Mesopotamian figures had a similar lack of literalism. The more severe punishments, including a horrific precursor to Roman crucifixion, were either written down only to instill fear, or were carried out extremely rarely for the same reason. A Gary Becker-inspired economic analysis of how the severity and frequency of Mesopotamian punishments affected crime rates would make for an interesting historical study, though the data collection problems are rather obvious.