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The recent decision by President Biden to slap tariffs on a range of Chinese imports, including electric vehicles, has gone through with relatively little political noise and pushback. There was a time a while ago when certain figures in the Republican Party and part of the mainstream media would have been alarmed by this, given how widely free trade was accepted as a default position, with caveats about protecting sectors deemed vital for security, or because of things such as blatant abuse of intellectual property. Nowadays, it appears that mercantilism, and special interest lobbying power that drives it, is as strong as ever.
The Wall Street Journal writes ($):
The way to defeat Beijing economically is by making America more competitive. This means playing to traditional strengths of innovation, low taxes and regulation, and trade alliances. Mr. Biden has done the opposite. His Administration has blocked critical mineral mining projects. It has attacked domestic fossil-fuel production and petrochemicals, which contributes to pharmaceutical production.
Of course, the question is who is being “defeated”, if at all, by hammering the economy of China? Will it be the Chinese Communist Party, which in many ways is more or less a sort of Mafia, or the regular Chinese people? Let’s not forget that tens of millions of Chinese citizens have been lifted to a standard of living that would have been a shock to those familiar with the terrible Mao-induced catastophes/crimes of the Great Leap Forward in the 50s and the Cultural Revolution of the mid-60s.
While I suppose that deliberately impoverishing China – which is what some people might want to see – is the goal, regardless of the human costs – I see it as right to pursue two broad courses – encourage prosperity around the world and resist the most egregious abuses. It is also a fact worth considering that it is not, in general, prosperous countries that attack other rich ones. It usually tends to be countries that are in decline for various reasons – often self-induced – that lash out against their real or presumed opponents. A China that wants to conquer Taiwan, for example, or mess with the West in various ways, is in my view motivated by a sort of nagging insecurity as much as anything else. China has done far more to harm itself by its clampdowns under Xi than anything that Biden, Trump or whoever is likely to do. And protectionism is, as I explain below, a very blunt instrument that causes widespread collateral damage and self-harm.
The newspaper notes that one bad policy begets another, as politicians try to offset the bad effects of their previous policy:
The Biden tariffs are a classic example of how bad industrial policy is compounded by another bad policy in the name of fixing the first mistake. Thus Mr. Biden wants to use tariffs to raise the price of EVs that he wants everyone to buy. It’s bananas.
It is. The long-term negative consequences of rising protectionism will be complacency, sloth, special pleading, shoddier products, and the rest. This may take years to manifest itself. It is not even as if the tariffs being imposed by the Biden administration are to be offset by large tax cuts domestically. In the late 19th Century, the various administrations after the US Civil War did impose tariffs, but domestic taxes were puny compared with what we have now.
In any event, arguments that protectionism “protects” seem to be as weak as they ever have been. And there are the downstream impacts to consider: by making imports of solar panels, cars, cooking oil or whatever more expensive, it increases costs not just to consumers, but also to intermediate manufacturers who use these things. Import tariffs on steel drive up the cost of everthing made with steel, to give one simple example.
There is also the corrupting effect that protectionism has, as explained by Phillip W Magness:
In economic terms, tariffs deliver a “rent” by transferring a portion of the consumer surplus from exchange to beneficiary producers who no longer face import competition. The collective action advantages of concentrated interest groups enable lobbying efforts to coalesce around tariff-benefitting industries, which then divert resources away from productive economic activities and into seeking favors through the political system. On net, the concentrated benefits received by politically savvy industries are dwarfed by the combination of deadweight losses on consumers and political losses due to rent-seeking to obtain more tariffs.
Magness also notes another myth about tariffs that modern-day protectionists like to lean on:
As Douglas Irwin has shown, the claimed correlations between late nineteenth-century American industrialization and protectionism are both exaggerated and spurious. Economic growth in sectors that did not face heavy import-competition—think of transportation, communication, and utilities—generally outpaced the tariff-beneficiaries of industrial manufacturing. The United States also had the unique advantage of a large, geographically diverse internal commercial base in this period. Nor were tariffs the unambiguous benefit to industry that Cass claims. They raised the prices on imported capital goods like heavy machinery, which likely impaired many of the same industries that benefited from tariffs on their own goods.
In any event, while they are different in many ways, it appears that both Mr Biden and Mr Trump are in agreement that tariffs are great. Whatever other qualities, or the lack thereof, may distinguish these men from each other and may persuade voters to jump one way or the other, or abstain, or just despair, it appears that on protectionism, we are back in an age as if Adam Smith and David Ricardo never existed.
Some good stuff in the Telegraph today. “The electric car carnage has only just begun”, writes Matthew Lynn.
As with so much of the legislation passed during the last five years, setting a quota for the percentage of EVs companies had to sell probably seemed like a good idea at the time. Manufacturers now have to ensure that 22pc of the cars they shift off the forecourt are battery powered, rising steadily to 80pc by the end of this decade, and 100pc by 2035. If they don’t hit their quota, the senior executives will get ten years hard labour in Siberia (well, actually it is a fine of up to £15,000 per vehicle, but it nonetheless feels extremely draconian). Like Soviet planners in the 1950s, the architects of this legislation presumably assumed that all you had to do was set a target and everything would fall into place.
The trouble is, quotas don’t work any better in Britain than they did in communist Russia. EVs have some serious problems: the range is not good enough, we have not built enough charging points to power them, the repair bills are expensive, the insurance ruinous, and second hand prices are plummeting. Once all raw materials and transport costs are factored in, they may not be much better for the environment.
Yet the masterminds foisting this legislation on businesses don’t appear to have given much thought to what will happen if the quota isn’t met. Now Ford, one of the biggest auto giants in the world, and still a major manufacturer in Europe, has provided an answer. “We can’t push EVs into the market against demand,” said Martin Sander, the General Manager of Ford Model eEurope, at a conference this week. “We’re not going to pay penalties… The only alternative is to take our shipments of [engine] vehicles to the UK down and sell these vehicles somewhere else.”
In effect, Ford will limit its sales of cars in the UK. If you had your eye on a new model, forget it. You will have to put your name on a waiting list, just as East Germans had to wait years for a Trabant. Heck, we may even see a black market in off-the-books Transit vans. Ford is the first to spell it out in public, but we can be confident all the other manufacturers are thinking the same thing. They can’t absorb huge fines. The only alternative is to limit the sales of petrol cars.
Capitalists sincerely want you to be rich. Because that means there’s more money they can bastard out of you, obviously. Which is a bit of a problem for that Marxist claim that the capitalists want others to be poor, isn’t it?
– Tom Worstall
“The EU, by contrast, is in danger of becoming the left-behind continent, with its economy stuck in the mud, its corporate sector sluggish and its polity adrift. In the two decades since 2004, US productivity growth as measured by output per hour worked has been more than double that of the Eurozone. Whereas Eurozone productivity has, at best, flatlined since the outbreak of the Covid pandemic, US productivity has risen by more than 6%. The EU bureaucracy is preoccupied with being a regulatory superpower, treating access to its consumers as one of its main competitive advantages. But this obsession with regulation is killing the animal spirits that drive capitalist growth. Europe is terrified that a Trump victory in the November presidential election will produce instability. It should also worry that it will produce a mixture of deregulation and tax-cutting in the US, similar to Trump’s first two years, which will suck even more capital and talent from the EU to the US.”
– Adrian Wooldridge, Bloomberg ($). Wooldridge’s book on the history of American capitalism, co-authored with Alan Greenspan (who is probably about 1,000 years’ old by now), is well worth a read. The chapters on agricultural innovation struck me as particularly good, and often neglected by journalists who find farming boring. The book generally debunks myths about Big Business and anti-trust, as well.
“Regulation is arguably the least scrutinised part of government. But it may well be the most important. At the moment, Government too often sees imposing costs on business as a pain-free solution. Unless that changes, we can kiss goodbye to any hope of growth.”
– Robert Colville. CapX. He writes about a new policy paper about the UK problem. Needless to say, the lessons extend far beyond the shores of the UK.
“This ‘Great Forgetting,’ as Cutsinger and Salter call it, has consequences. One is that many young economists ‘focus on applied research using sophisticated statistical tools without an underlying theoretical framework to guide them.’ The effects, however, go beyond formal economics. The marginalization of price theory in the academy is increasingly mirrored in the conduct of public policy—and the results are dire.”
– Samuel Gregg. He is writing in relation to a new CATO Institute publication that addresses why price theory is, so it appears, a neglected field in mainstream economics, and why this matters. The way I see it, prices are information about relative scarcity and plenitude. I learned a few things about what’s known as “Austrian” economics, and one of them is that a reason why central planning and socialism do not work, is that from an epistemological point of view, they are barren in terms of information. And that leads to barren economies. (At the extreme, you get the terrible famines of Communist nations, in part because economics is, in a sense, banned.) George Gilder, who writes a lot about business and technology, even has a book on the topic of the “information theory of capitalism”.
From a Bloomberg article entitled UBS Banker’s Frustration Exposes Cracks in World of Climate Finance
The article makes it clear that banks are struggling to deliver on credible “decarbonisation” financial policy and remain profitable concerns. Considering how Western taxpayers spent billions bailing out banks more than a decade ago, it would be extraordinary if banks were to deliberately restrict their earnings streams through going full “dark green”.
More:
“Banks are living and lending on planet earth, not planet NGFS,” Berkey told the group in an impassioned speech, alluding to the Network for Greening the Financial System, a collection of central bankers that creates model scenarios for how the energy transition may evolve. Details of what transpired at the meeting hosted by the Financial Stability Board — a coordinator of global regulations — came from people who were in the room but asked not to be named discussing private talks. Berkey confirmed his participation, declining to say more.
The UBS banker’s outburst, which got little pushback from those present, exposes the cracks emerging in a multitrillion-dollar transition finance project, and taps into what’s rapidly becoming one of the most contentious issues in the global banking industry. In private, senior bankers in sustainable finance divisions in London, New York, Toronto and Paris grumble about unrealistic expectations from regulators, civil society and climate activists around the industry’s role in getting the planet to net zero.
“Outburst” – translation – telling it like it is.
The standoff that’s brewing is setting the stage for a showdown at the heart of the ESG movement, where environmental, social and governance considerations are being pitted against old-fashioned capitalism.
Not really “old fashioned capitalism”. Just “capitalism”. We had more than a decade of ultra-low interest rates via quantitative easing. During this period, the business case for eliminating fossil fuels and powering a modern economy via solar, wind and happy thoughts appeared viable. With interest rates at their more normal long-term levels, some of the more fanciful projections don’t add up. This is called “reality”. Capitalism, which hinges around private property rights, voluntary exchange, and the desire to maximise the use of scarce resources that have alternative uses, is based on reality. Elsewhere, the article alludes to how capitalism produces “negative externalities” (carbon emissions) that must be controlled. What the article doesn’t stop to consider is that there are “positive externalities” from a prosperous world: more resources to fix problems, more wealth, higher living standards, more resilience, etc. (This is the broad thesis of the excellent book by Alex Epstein, Fossil Future, which totally debunks the alarmist case. See this video also featuring Epstein and Bryan Caplan, among others.)
Banks that had enthusiastically committed to align their entire operations with net zero goals are having second thoughts as the real-world ramifications of acting on those pledges become painfully apparent.
That’s what happens when you sign up to something that appears fashionable. Ditto with DEI (diversity, equity and inclusion, or, as I read the other day, “Didn’t earn it”).
Some of the world’s biggest lenders, including Deutsche Bank AG, HSBC Holdings Plc and Bank of America Corp., are adding caveats to their restrictions on financing coal, the planet’s most-polluting energy source.
Very wise.
BlackRock Inc. Chief Executive Officer Larry Fink says he has stopped using the term ESG and emphasized the world’s largest asset manager’s work with energy firms in a letter to investors this week. The firm has scaled back its participation in international climate investing alliances.
Fink is now more likely to focus on the imminent retirement crisis of the US and the developed world. Some of that has been brought around as birthrates have fallen. But hang on a minute, I thought having kids was bad for the Earth?
It is tough being green, isn’t it?
I cannot add to this article by Fran Ivens in the Telegraph: “How Argentina’s ‘chainsaw man’ Javier Milei slashed rents by 20pc”
Rents in Argentina have fallen 20pc since President Javier Milei scrapped a “destructive” cap for landlords in December.
Under four-year rent controls, landlords fled the market in their thousands and rents increased 286pc, fuelling an even deeper housing crisis.
Since the legislation was scrapped, rents have fallen and the number of properties that are available for rent has increased significantly, according to industry body the Argentine Real Estate Chamber.
The drastic change in outlook for the country’s rental market adds further weight to arguments that even with the aim of reducing the burden on renters, rent caps often have the opposite effect.
The rules, introduced in 2020 by then-president Alberto Fernández, included a mandatory lease term of three years and a limit on rent to an average growth rate of the consumer price index and the wage index. This cap was set by the central bank.
Even before the new legislation came into force, the effect was significant. Unsure of how much and when they would be able to increase rents, landlords hiked their pieces to try and avoid being caught out.
Worsening the situation, 45pc of landlords decided to sell their properties in the wake of the announcement significantly reducing the amount of accommodation on offer and further pushing up prices.
In the 12 months to February 2024, rents increased 286.7pc in Buenos Aires, according to rental platform Zonaprop. There was also a currency aggravation. While many use dollars in Argentina as a hedge against the peso that has been losing value, the law mandated that rental payment must be in the local currency.
Over the past five years, the Argentinian peso’s value against the dollar has decreased by around 95pc.
The reason Beijing seems so relaxed about the crisis is obvious: this is a situation in which China wins either way. Either the threat continues but shipping is safer for Chinese vessels than for others, in which case sailing under the protection of the red and gold flag may become a coveted competitive advantage, or Beijing finally tells Iran to knock it off, in which case China becomes the de facto go-to security provider in the Middle East. Both outcomes would be geopolitical coups. No wonder China is willing to accept a little short-term economic pain as the situation plays out.
– Nathan Levine
“Both Adam Smith and Joseph Schumpeter were much more realistic than Marx about the bourgeoisie’s political wisdom. Smith regarded capitalists as short-term actors who never gathered together other than to hatch a conspiracy against the public. Schumpeter regarded them as idiot savants who might be brilliant at building businesses but who were frequently fools when it came to dealing with politics. It’s not clear who can save us from the world of trouble that seems to be brewing. But anybody who is counting on the business elite to fill that role is making a dangerous mistake.”
– Adrian Wooldridge. Bloomberg ($)
But the proposed UK law would go beyond just FaceTime and iMessage to encompass all Apple products.
Earlier in January, civil liberties groups including Big Brother Watch, Liberty, Open Rights Group and Privacy International, put out a joint briefing opposing parts of the bill.
The groups said they were concerned the proposed changes would “force technology companies, including those based overseas, to inform the government of any plans to improve security or privacy measures on their platforms so that the government can consider serving a notice to prevent such changes”.
They added this would be “effectively transforming private companies into arms of the surveillance state and eroding the security of devices and the internet.”
– Zoe Kleinman
“In the UK, the Financial Reporting Council has just opted against including ESG requirements in the UK Corporate Governance Code — these were to have increased the role of audit committees in overseeing ESG and expanding diversity and inclusion. BlackRock Inc. Chief Executive Officer Larry Fink rarely mentions ESG any more. Elon Musk reckons that “DEI must DIE.” Bill Ackman (whose money matters) has called DEI the “root cause” of the sharp rise in anti-semitism at US universities. Donald Trump has promised to cancel all DEI initiatives across the federal government. The courts have already called a halt to race-based affirmative action at US universities, and last year the Attorney Generals of 13 US states wrote to Fortune 100 CEOs to let them know they would face serious legal consequences if they were to treat people `differently because of the color of their skin.'”
– Merryn Somerset Webb. She argues that much of the driving force is not just the absurdities of much environmental and “diversity” policies, but the brute fact of rising interest rates. Companies’ balance sheets and cost control issues are taking more urgency. ESG/DEI or whatever other piece of fashionable stuff is a lot harder to justify when capital is no longer “free”.
I trust and hope that interest rates remain around current levels for many more months to come, so as to force firms to compete harder for capital, to put it to genuinely profitable uses, reward long-term saving and habits of thrift and competence, and other generally good things.
As an aside, I can recommend The Price of Time, by Edward Chancellor, which demonstrated the great harms caused by artificially low interest rates over the centuries.
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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