Liberation Day

D.L. Jacobs

April 2, 2025

This article is adapted from a speech given at the Independent Labor Club in New York City, on March 28, 2025.

Should we pick a side on the tariff question? No. Why?

Do the workers have a dog in the fight? Certainly, tariffs will hurt workers. Prices will rise, volatility will discourage hiring. Maybe some workers will benefit from their businesses being protected and others will have new opportunities from the companies choosing to invest in the US to avoid tariffs.

But, the two-parties want you to choose a side on the tariffs. Either they are going to make America great again, or America is going to give itself a stunning self-inflicted defeat.

The question here is what should an independent labor movement do? Is the tariff question just the ruling class bickering over the spoils of its share? Or is there some problem they are trying to solve, however obliquely? Both!

Tariffs are the old in distress

The old, classical critique of tariffs predates Adam Smith [I]. Trade in the Middle Ages was so regulated that a wine trader might have to pay a hundred tolls on their travel from Marseille to Paris [II]. This was considered good – wealth was for those who didn’t work. But modern bourgeois society, the society of labor, made that old system irrational. To participate in this society, required only one thing – that you were productive and allowed others to do the same. People had been told they were all children of God but only labor made the word in flesh. The idea of a tariff was shot through as if it was a pagan auspice – would you listen to the candle makers who petitioned their government to block out the sun? [III] The fetish of the trade balance was shown to be an illusion [IV]. Underneath it all was the cooperation of labor and the brotherhood of man. To rob your fellow man was to steal from yourself.

By the end of the 18th century, tariffs had returned but were justified under peculiar conditions. Maybe tariffs were supposed to be “educational” for new industries. For Henry Clay, prominent defender of the “American System,” the second most important July 4th was that of 1789, when George Washington signed the Tariff Act for "the encouragement and protection of manufactures" [V]. Clay considered this the foundation of labor in the United States. Whereas Thomas Jefferson had believed (at one time) that the US could remain predominantly agricultural in the global system, Alexander Hamilton would, in 1791, try to make the case that some internal differentiation was in the interest of the nation. However, it was unclear how much of his plan was bound up with America’s precarious position as new nation at the time. 

While the tariffs did not cause the industrial revolution, they did accelerate it [VI]. By undermining the measure of social value, labor, the industrial revolution brought about the return of the old crap but with a new content. The Free-traders were puzzled: they could not explain the return of Monopolies and Mercantilism except as lessons forgotten [VII].

This “social question” gave birth to a new social force that was interested in the trade question: the politically organized working-class. Famously, the workers did get involved in a struggle involving tariffs – the Corn Laws. In the course of the reform volley, the workers learned how to play the Whigs off the Tories and the Tories off the Whigs. They had done this by “improving a momentaneous split between the landlords and money lords[.]” What mattered, for Karl Marx and Friedrich Engels, was the how, not the what. The Corn laws and Ten-Hours Bill operated completely in the realm of capitalist politics [VIII]. “The question of Free Trade or Protection,” wrote Friedrich Engels “moves entirely within the bounds of the present system of capitalist production, and has, therefore, no direct interest for us socialists who want to do away with that system”[IX].

Only to the degree that the workers forged political independence through the struggle for these reforms did they have any value. For even the success of the reforms meant the defeat of the workers, the adulterating the self-organization of the working class [X]. 

What manifests in trade policy is the old contradiction of forces and relations of production. Tariffs, as Marx and Engels knew, were an indirect attempt to manage industrial production refracted through bourgeois property or labor. The permanent trade deficit/surplus is the necessary misrecognition of the socialization of production.  

However, without an organized proletariat today, this old contradiction seems either like a scholastic phenomenon or a geopolitical dispute. For example, Michael Pettis and Matthew Klein critique Adam Smith and David Ricardo for assuming that "people happily traded raw materials and finished goods with each other across long distances but would not trade intermediate goods or services” [XI]. The anachronistic character of political economy is reduced to a thought-mistake on the part of the fathers of the science.

Donald Trump defends Adam Smith

But there is another way it is talked about today.

Trump appealed to Adam Smith in his 2011 book, Time to Get Tough. He wrote that while Smith’s Wealth of Nations is usually summarized by “[p]eople who know very little about capitalism” as saying “in essence, that ‘greed is good[.]’” What they leave out are the “moral ground rules for markets, business, and life” that Smith laid out in The Theory of Moral Sentiments. “Open markets are the ideal, but if one guy is cheating the whole time, how is that free trade?” [XII]

Consequently, the old arguments for free trade are rendered moot. Bob Lighthizer, Trump’s former Trade Representative, suggests we should think about trade policy from the Theory of the Second Best or how the world operates when the ideal market conditions are violated [XIII]. Tariffs “are not the main element of these destabilizing industrial policies” he wrote in February of this year, but rather the fix to other countries’ subsidies, value-added taxes [XIV], intellectual property theft and abuse of their “comparative advantage of lower human rights.” This may be true, but two wrongs don’t make a right. Labor has no dog in the fight.

Part of what Trump is doing is carrying on unfinished business from his first term. Phase 1 of the US-China trade agreement was signed right at the beginning of 2020 but was quickly buried by the spiraling COVID-19 crisis. This is why Trump was hesitant to believe the virus would lead to a worldwide shutdown. Trump had just signed the trade agreement that he wanted to make central to his re-election campaign when he tweeted: “China has been working very hard to contain the Coronavirus. The United States greatly appreciates their efforts and transparency. It will all work out well.” But both that agreement and USMCA have not turned out as expected – agricultural purchases were not followed through on, and intellectual property has remained precarious.

Furthermore, Trump is motivated by the fact that inflation did not accelerate when tariffs were applied the first time [XV]. Prices for durables fell, the dollar appreciated against importers (curbing inflation) [XVI], and retail seemed to just eat their margins [XVII]. 

The present tariffs are a shotgun blast directed at those who shirk the treaties. If companies are to dodge the USMCA “rule of origin” requirements to avoid paying workers $16 an hour [XVIII], then Trump is going to unload – for good or for evil – on the country of origin [XIX]. This does not penalize foreign competitors, so much as America’s own companies. The supply chains of multinationals serve as an illustration.

Nylon fibers are manufactured in Mexico, and sent to Canada to be dyed and woven (where there is more water); these are then sent back to Mexico (where the labor is cheaper) to be fitted onto seats that are then installed in cars either in Mexico or in the US by American-owned companies with investors from around the world [XX]. To deliver the good, the factories, machines, raw materials, commodity futures, mixture of factory paint, and financing structure must coordinate in an exact streamlined process as if they existed in one factory– all the way down to friendliness of the dealership that lets you test-drive the car. But these parts relate as if they are the property of individual laborers, exchanging on the market. Indeed, “the absurdity of the statement is self-evident.”

The trade deficit was not always a boogeyman – Ronald Reagan told Cleveland in 1988 that trade deficits were a “sign of strength...of fast-growing economies...experiencing net capital investment from abroad.” But after 15 years, the trade deficit, which exploded post-1980, became a target. A common explanation for the growing wage-inequality was so-called “skill-biased” change [XXI]. There could simultaneously be a shortage of labor for one industry and a superfluity of labor for another because of a so-called mismatch of skills. But this is a common problem in capitalism – robots and sweatshops.

By the 1990s, Bill Clinton felt he could take advantage of the opening up of China and the fall of the Soviet Union to create a market for American workers who had been left behind in the post-1970s deindustrialization [XXII]. For sometime, the neoliberal system seemed to work. This doesn’t mean it was good, but it trucked along.

Problems began to compound. Not only the signing of NAFTA and the granting of China Permanent Trade Relations [XXIII], but the stagnating recovery of employment post-2008 delivered a knock-out punch. The trade deficit was attacked as if it was an IV drip that was propping up deindustrialized communities on a cocktail of cheap imports and credit – and if not that, fentanyl. As early as 2002, Dean Baker – a left-wing economist whose organization was later cited by Trump in 2016 – warned that the run-up in home prices in the US was built on an unsustainable accumulation of debt directly tied to underpayment of the working-class. The stagnation in wages was explained as a result of jobs being “shipped overseas.” All of this allowed the trade deficit to be politicized: even if it is merely an accounting identity, its persistence is a symbol of deindustrialization. 

This is sometimes missed. The Unhedged Podcast, just last week, mocked Trump’s narrative for drawing a  “direct connection” [XIV] between the trade deficit, the collapse of manufacturing employment and the opioid epidemic. And yet, it is a compelling narrative.

The previous administration knew this. We shouldn’t forget that Biden’s USTR Katherine Tai argued for “targeted tariffs” on China or that Biden put 100% tariffs on electric vehicles at the end of his presidency [XV]. The volatility behind Trump’s tariffs is the manner in which he has done them – the politics. There is something to learn from Trump in flanking your opponents. He presents the tariffs as the “most beautiful word in the dictionary” – but, also, as setting right “American carnage.” We have been ripped off too-long, he will say. Unlike the neoliberal era, where presidents were “sanctions happy”, Trump sees tariffs as preferable to sanctioning, which “kills your dollar and it kills everything the dollar represents.” Ronald Reagan could impose 100% tariffs on our Japanese friends, but sanctions are politically more extreme.

The jobs can come back

There is a political economy to the tariffs, and one that is cognizant of the costs and the adjustment. When Peter Navarro was told that the “Buy American” executive order would increase costs, he responded by saying “No Shite, Sherlock,' ... Of course it's going to cost more to require that we Buy American. But it's also going to create more jobs and strengthen our manufacturing and defense industrial base” [XVI]. Likewise, Scott Bessent said that tariffs would cause a “one-time price adjustment” but that this was with the recognition that the American dream is not “let them eat flat screens.”

What is sometimes forgotten by very serious people who use phrases like labor-value is that there is an ought to the category. It is not just the rules of the game. For those with only the labor on their backs, it is a practical measure of justice, of what society owes to them so that they can fulfill their duty to society. The ought is real and objective – it is material reality. The idea of a “manufacturing renaissance” is ideology, but that does not mean it is an illusion. Its validity emanates from an insight into the potential of society. It is only false because this potential is twisted. It ought to be true.

The cynical pseudo-wisdom of one who remarks that the “jobs are not coming back” neglects the fact that socialism is going to be achieved on the basis of optimism about the possibilities of society. Our social relations may be anachronistic, but that fact has to be achieved “by means of tenacious struggle with capital, hand-to-hand, in every shop” and not by reference to some time series graph from the St. Louis Fed. 

It is possible that we will see a new kind of “skill-biased” change in the labor market. The Stephen Miran/Scott Bessent strategy is to encourage domestic investment through tariffs (see Honda, Volkswagen, Stellantis, Hyundai, Taiwan Semiconductor), low corporate tax rates, preserving the dollar’s reserve currency and appreciating the dollar against importers to attenuate the effect of tariffs [XVII]. I don’t know if this will work, but things will change: India is intending to curb tariffs, and the EU is currently debating just how “reciprocal” they are going to get with the tariffs. Even the wage inequality between educated and uneducated workers was already shocked by the Pandemic [XVIII]. 2023 was already the “year of efficiency” in the tech world and it might be happening again. 

And the system as it is now, harms all. The borrowing and financialization of the US economy is supported by income inequality in Europe (e.g., Germany) and, in particular, China. Despite all the geopolitical bluster, there has been an implicit agreement between the big-box retail importers in the US and members of the Communist Party of China who are vested in the Special Economic Zones [XXIX]. 

The old problem will reappear under a new form. How can we get out ahead of the coming change?

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[I]: A complete critique of protectionism is available at least as early as Bernard Mandeville’s arguments against restraining imports in The Fable of the Bees (1714). If not, then  David Hume, 1752, “Of the Balance of Trade.”

[II]: Marcel Kadosa, 1925, The Tariff Superstition, Praxeum: 19.

[III]: See Frederic Bastiat, 1845, “The Petition of the Candlemakers” in Economic Sophisms.

[IV]: Quesnay’s 23rd and 24th Maxims: “XXIII. Reciprocity in Commerce.

Let the nation not suffer from loss through reciprocal commerce with other countries even if this commerce were profitable to the merchants, who would gain, regardless of the welfare of fellow-citizens, in the sale of commodities thus brought about The accumulations of the fortunes of these merchants would create a curtailment in the circulation of revenue prejudicial to distribution and reproduction.

XXIV. Balance of Money in Trade is Illusory.

Let no one be deceived by an apparent advantage in reciprocal commerce with foreign countries, which is simply a balance received in money, without examining and comparing the profits that result from the merchandise one has sold and the merchandise which has been bought. For often the loss is to that nation which receives a surplus in money. And that loss reacts to the prejudice of the distribution and reproduction of the revenues.”

[V]: See Henry Clay, February 2, 3, and 6, 1832, In Defense of the American System. In particular, he continues by emphasizing protection as true to American principles i.e., “[t]he great principle was then established by the fathers of the Constitution, with the father of his country at their head.”

[VI]: “Protection beings a means of artificially manufacturing manufacturers, may, therefore, appear useful not only to an incompletely developed capitalist class still struggling with feudalism; it may also give a life to the rising capitalist class of a country which, like America, has never known feudalism, but which has arrived at that stage of development where the passage from agriculture to manufactures becomes a necessity. America, placed in that situation, decided in favor of protection. Since that decision was carried out, the five and 20 years of which I spoke to my fellow traveller have about passed and, if I was not wrong, protection ought to have done its task for America, and ought to be now becoming a nuisance.” Friedrich Engels 1888 introduction to On the Question of Free Trade, Karl Marx, January 9, 1848.

[VII]: “Even the Mercantile System cannot be correctly judged by modern economics since the latter is itself one-sided and as yet burdened with that very system’s premises. Only that view which rises above the opposition of the two systems, which criticises the premises common to both and proceeds from a purely human, universal basis, can assign to both their proper position... This is why modern liberal economics cannot comprehend the restoration of the Mercantile System by List, whilst for us the matter is quite simple. The inconsistency and ambiguity of liberal economics must of necessity dissolve again into its basic components. Just as theology must either regress to blind faith or progress towards free philosophy, free trade must produce the restoration of monopolies on the one hand and the abolition of private property on the other.” Friedrich Engels, 1843, “Outlines of a Critique of Political Economy”.

[VIII]: “Factory legislation, that first conscious and methodical reaction of society against the spontaneously developed form of the process of production, is, as we have seen, just as much the necessary product of modern industry as cotton yarn, self-actors, and the electric telegraph.” Karl Marx, 1867, “Chapter Fifteen: Machinery and Modern Industry,” Capital, Volume One

[IX]: Or as Marx puts it, “[the protectionists] summarise their philanthropy in the following words: It is better to be exploited by one’s fellow-countrymen than by foreigners.” See Karl Marx, September 1847, “The Protectionists, The Free Traders and the Working Class.” 

[X]: “The Ten Hours’ Bill provided splendid terrain for these reactionary classes and factions to combine with the proletariat against the industrial bourgeoisie. While significantly restricting the rapid development of the wealth, the influence, and the social and political power of the manufacturers, it gave the workers merely material, indeed exclusively physical advantages. It protected their health from being too rapidly ruined. But it gave them nothing which could make them dangerous to their reactionary allies; it neither gave them political power nor altered their social position as wage-labourers. On the contrary, the Ten Hours agitation kept the workers still under the influence and partly under the leadership of these propertied allies of theirs, which they had been more and more striving to draw away from since the Reform Bill[226] and the rise of the Chartist agitation. It was quite natural, especially at the start of the industrial upheaval, that the workers, who were in direct conflict only with the industrial bourgeoisie, should ally themselves with the aristocracy and the other factions of the bourgeoisie by whom they were not directly exploited and who were also struggling against the industrial bourgeoisie. But this alliance adulterated the labour movement with a strong reactionary admixture which is only gradually disappearing; it reinforced significantly the reactionary element within the labour movement-those workers whose trade still belongs to manufacture and is thus itself threatened by industrial progress, like for instance the handweavers." Friedrich Engels, March 1850, “The English Ten Hours’ Bill.”

[XI]: Klein, Matthew C., and Michael Pettis. Trade wars are class wars: How rising inequality distorts the global economy and threatens international peace. Yale University Press, 2020: 11.

[XII]: Donald J. Trump, Time to Get Tough, (Regnery Publishing: 2011): 40.

[XIII]: Lipsey, Richard G., and Kelvin Lancaster. "The general theory of second best." The review of economic studies 24, no. 1 (1956): 11-32. Lighthizer cites this classic statement in his 2023 book, No Trade is Free Trade (HarperCollins, June 27, 2023).

[XIV]: Gary Clyde Hufbauer, January 29, 2025, “Trump escalates EU-US tax wars,” Peterson Institute for International Economics.

[XV]: Wolf Richter, February 3, 2025, “What Trump’s Tariffs did Last Time (2018-2019): No Impact on Inflation, Doubled Receipts from Customs Duties, and Hit Stocks.”

[XVI]: Jeanne, Olivier, and Jeongwon Son. "To what extent are tariffs offset by exchange rates?." Journal of International Money and Finance 142 (2024): 103015.

[XVII]: Cavallo, Alberto, Gita Gopinath, Brent Neiman, and Jenny Tang. "Tariff pass-through at the border and at the store: Evidence from us trade policy." American Economic Review: Insights 3, no. 1 (2021): 19-34.

[XVIII]: Mary Anastasia O'Grady, March 9. 2025, "Trump Boosts the Mexican Left," Wall Street Journal.

[XIX]: “The UAW also recommended that the Administration and Congress consider increasing the U.S. MFN tariff on autos and auto parts, with particular attention on EVs and related components to address potential Chinese EV imports. During the February 7 hearing, the UAW argued that the 2.5 percent U.S. MFN tariff on passenger vehicles is only a “minor infraction” for not following the USMCA rules. The UAW pointed to recent U.S. import statistics showing that a greater share of autos imported from Mexico are not claiming the USMCA preference as evidence of companies taking advantage of cheaper Mexican labor but not increasing content to meet the full USMCA ROOs. Further, the UAW claimed that Chinese auto producers would exploit the North American automotive infrastructure and ecosystem that have been developed over the past 25 years by establishing operations in Mexico, paying the 2.5 percent MFN tariff, and having access to the U.S. market free of the Section 232 and Section 301 tariffs. During the same hearing, industry representatives commented that it is important for policymakers to be tracking the rapid growth of China’s automotive industry and for the United States, Canada, and Mexico to work together to help ensure the North American automotive industry retains its integrity and high standards” See Report to Congress on the Operation of the United States-Mexico-Canada Agreement with respect to trade in automotive goods, July 1, 2024: 25.

[XX]: Jude Webber, Shawn Donnan and John Paul Rathbone, January 30, 2017, Nafta: First Shots in the Trade War, Financial Times. 

[XXI]: See Bound, John, and George Johnson. "What are the causes of rising wage inequality in the United States?." Economic Policy Review 1, no. 1 (1995).

[XXII]: “...America cannot and will not succeed and we will never restore stability to the lives of the working people of our country until we have more folks buying what we sell, until the work of our people is rewarded more. And that can only happen if we have a fair and increasingly open world trading system that allows the free market to work and rewards the most productive people in the world.” William J. Clinton, December 08, 1994, “Remarks on Signing the Uruguay Round Agreements Act.

[XXIII]: Pierce, Justin R., and Peter K. Schott. "The surprisingly swift decline of US manufacturing employment." American Economic Review 106, no. 7 (2016): 1632-1662.

[XIV]: Unhedged Podcast, March 25, 2025, “Can Trump drive down bond yields?” Financial Times About 4 mins, 50 seconds.

[XV]: Kate Magill, September 16, 2024, “Biden finalizes China tariff hikes, including for EVs, batteries and solar panels,” Utility Drive.

[XVI]: Navarro, Peter. Taking Back Trump's America: Why We Lost the White House and How We'll Win It Back. Simon and Schuster, 2022: 206.

[XVII]: See Stephen Miran, November 2024,  “A User's Guide to Restructuring the Economy,” Hudson Bay Capital.

[XVIII]: While it is true that the pandemic was one of the largest wealth transfers in history, this was concomitant with wage compression between educated and uneducated workers. See Autor, David, Arindrajit Dube, and Annie McGrew. The unexpected compression: Competition at work in the low wage labor market. No. w31010. National Bureau of Economic Research, 2023..

[XXIX]: No wonder China has become the last defender of the WTO. For example, see Global Times, June 14, 2022, “WTO holds high banner, and multilateralism will eventually triumph: Global Times editorial,” Global Times. This was also reflected in the internal conflict in the first Trump administration, between Peter Navarro and Gary Cohn/Steven Mnuchin.