The Hong Kong dollar has been pegged to the U.S. dollar since 1983. It was also pegged to the dollar for two years in the early 1970s.
The above rates mention in consideration of recent supply-side attempts to put a happy face on President Trump’s tariffs. They’re mistaken. While Trump’s presidency has been marked by the good and the bad, the tariffs have been bad. There’s no excusing them. Supply-siders surely know better.
Imports Improve Us in All Ways
For background, a recent opinion piece penned by the great Brian Domitrovic tied the importing of foreign goods into the U.S. with economic decline. As his op-ed put it,
For decades now, untold numbers of massive container ships have been floating into the likes of San Francisco Bay laden with goods marked “Made in China,” etc. These wares have been stacked up in big box stores as Main Streets have taken on the look of the dead. And domestic factories have cut operations or closed with mordant regularity, consigning innumerable former mill towns across the country to the ranks of the pathetic, desperate, and once-thriving.
It says here that Domitrovic doesn’t mean what he wrote. He understands history far too well—and economic history, in particular—to argue that there’s a downside to imports. And as a supply-sider, Domitrovic knows that our ability to supply is directly related to our ability to divide up work with as much of the world as possible. Stated simply, imports improve us in all ways. Always.
When we can leave the production of myriad other necessities and luxuries to others, we can focus on what we do best. And when we’re doing what most elevates our talents, we’re much more productive. To be clear, we can supply more; supplying is what precedes consumption. That “massive container ships” have been coming the way of the U.S. for decades is not only a sign of how great Americans are at producing goods and services, the arrival of those same container ships helps explain why we produce so much in the first place: they allow us to specialize, and in specializing, they set us up to supply a great deal more.
Consider Hong Kong
Domitrovic understands all of the above intimately, and not just as an American. He also understands it given his near-certain knowledge that Hong Kong has absolutely no tariffs. While the City-State does tax a few goods regardless of their origin, it has no tariffs. None.
Looked at in light of President Trump’s false perceptions of imports, and Domitrovic’s momentarily false perception (Domitrovic’s characterization of Main Streets as “dead” makes one wonder where he’s been walking…), Hong Kong must be littered with “pathetic, desperate, and once-thriving” areas to reflect its feverish import of the world’s plenty; all of it tax free.
Implicit in what Domitrovic likely doesn’t believe is that trade harms us. Except that it doesn’t.
Except that the latter in no way describes Hong Kong. It just continues to boom, and it does so simply because what we call an economy is just individuals, and individuals are better off the more that they have the world competing to serve their needs, and the more that they can divide up their work with the world. The U.S. is similarly rich for the same reasons: while not totally tariff-free, the average tariff across all foreign goods coming into the U.S. is 1.4 percent.
Considering the “pathetic, desperate, and once-thriving” parts of the U.S., what’s obvious is that those are the parts of the United States least exposed to globalization. Implicit in what Domitrovic likely doesn’t believe is that trade harms us. Except that it doesn’t. It expands the exchangeable value of our paychecks thanks to competition for our dollars, and then the global competition from businesses improves the ones here just as local competition among businesses always and everywhere improves the ones here.
As for jobs, trade is merely an acknowledgment that we all bring different skills to the table. Trade just gives us better odds of doing what we do best. Broken down to the individual, trade always and everywhere improves us.
Disasterously Building on Nixon's Folly
Domitrovic adds that desperation in certain parts of the U.S. is an effect of bad dollar policy. He writes that,
Our trade imbalances are ridiculously severe—container ships, blighted towns, shuttered factories, and the attendant opioid/suicide crises are major real things. We have them because we got rid of the monetary system of the ages, the gold standard, without a thought in 1971.
About President Nixon’s decision to sever the dollar’s link to gold in 1971, it was surely mindless. Money is only money if it holds its value. The dollar lost a lot of what made it such a useful global currency as a result of Nixon’s monumental error. Unseen are the endless technological advances related to health, communications, and transportation that we’re not enjoying today thanks to the mistaken monetary views of Nixon.
Trump’s tariffs amount to a piling on.
Still, Hong Kong’s booming growth since the 1970s disputes Domitrovic’s attempt to tie Nixon’s biggest economic mistake to “pathetic, desperate, and once-thriving” parts of the U.S. More realistically, a good dollar would have authored a great deal more investment (Domitrovic makes this clear in his wonderful book, Econoclasts) that would have automated away the human element to manufacturing even more quickly, and that by extension would have elevated the work of Americans even more quickly. The result of this expedited specialization would be even more “massive container ships” laden with foreign goods coming to the U.S., not less.
In defending Trump’s tariffs, Domitrovic must know that he’s supporting the indefensible whereby he cheers our 45th president’s decision to add to Nixon’s mistake. In Nixon’s case, his devaluation of the dollar robbed every American worker of his work product and proved a repellent to the very investment that improves worker productivity. The latter is the source of higher pay.
Trump’s tariffs amount to a piling on. American workers who aren’t earning as much as they could be would face a shrinkage of buying power in concert with the lower productivity that always results from barriers being put up to labor division. All because parts of the U.S. are now “pathetic, desperate, and once-thriving.” Talk about a non sequitur.
As Hong Kong’s endless exuberance reminds us, even though its dollar has long been pegged to ours, “pathetic” and “desperate” are more an effect of bad decisions made on the individual level than people would like to admit. As for the erasure of old forms of work, that’s called progress. Brian Domitrovic knows this. And he knows the erasure of the past would have taken place with much greater speed absent Nixon’s mistake. Let’s not add to Nixon's egregious error now.