Tariffs and non-neoliberal globalisation – I

When there is something fundamentally wrong, it needs to be fixed to the extent that those fundamentals get corrected through a policy that takes least time, and minimum disturbance. It may even require giving a shock, if what it needed is a big jolt to re-form the form into something that is necessary for sustainably moving forward for most.

The policy of shaking trading relations by US through the deep use of tariffs, although could have been more nuanced, and perhaps should have been, given the unnecessarily deep economic ripples, but ultimately such shake-up was necessary to deal with the unjust global economic and trading order since the double-standard practice of economic policy of those in power against the weaker segments.

This will likely remain a limited answer to the overall neoliberal order, as reflected in domestic policies, and mainstream educational knowledge and teaching, and as carried by multilateral institutions like International Monetary Fund (IMF), World Bank, and World Trading Organization (WTO).

So-called ‘sound’ economics never worked. It was an outcome of wrongly reading Adam Smith, most likely intentionally because it served the interests of capitalists, and political-, and economic elites in general. This is because Adam Smith never advocated ‘division of labour’, which becomes clear in the latter pages of his book ‘The Wealth of Nations’, as pointed out by Noam Chomsky as follows: ’So for example take say ‘division of labour’.

Now, everyone is familiar with the early paragraphs about the butcher, and the baker… but when [Adam] Smith continues a couple of hundred pages later, he sharply condemns ‘division of labour’, and says it’s kind of an abomination. That any civilized society will have to overcome by government intervention, and the reason is, goes right back to the roots of classical liberalism.

Now, the reason is that ‘division of labour’ will turn every human being into a creature as stupid, and ignorant as a person can possibly be because… repeating the same actions over and over doesn’t have a chance to exercise his intelligence and reaches full development…’

He did advocate practice of’ comparative advantage’ principle by colonies, but which was not followed to their immense advantage, by the newly liberated United States of America (USA) where, for instance, Alexander Hamilton apparently understood it, and applied protectionism, and put the country on building its industrial base away from maximizing utility through opening economy in a very liberal way, nor did he allow the country to continue to produce low value-added goods just because such comparative advantage was there.

Noam Chomsky pointed out in this regard: ‘For example, if you look at [Adam] Smith’s recommendations to the newly independent American colonies, actually during the revolutionary war, he gave advice to the colonies.

The word was, now the United States, to as to what policies they should follow. And the policy he advised is what are now called ‘sound economics’, basically the ‘Washington Consensus’, neoclassical economics, basically just what’s told to the ‘Third World’ today. So concentrate on what you’re good at, you know what later was called ‘comparative advantage’. For the colonies he said produce primary products… fish, and fur, agricultural products, and don’t try to develop industrial products because England is much superior.

So everyone will gain if you import… by the standard of the day was advanced industrial products from England, instead of producing your own that will be beneficial to everyone. That’s contemporary economics.

Well, of course the colonies were independent, so they didn’t have to follow ‘sound economics’, so they did exactly the opposite. What they did was block British manufacturers with very high tariffs, the highest tariffs in the world well into the twentieth century. …On the other hand, take say Egypt, go back to say the early nineteenth century… Egypt was very similar to the early United States in its prospects.… It had the conditions that could have led to Industrial Revolution, but they had to follow ‘sound economics’ by force.’

Similarly, while the colonizers adopted protectionism, and extracted resources, for instance, cotton from the colonies under the garb of practicing liberal ‘or sound’ policies they ushered industrialization in their own countries, and out competed colonies first – like China, India, and Egypt, who had a significant portion of world GDP around the time they were colonized, and were on the cusp of industrialization – and then excelled them to the extent that they were reduced to being the ‘third world’ at the time of independence.

Hence, while China was among the wealthiest countries in terms of share of income in global GDP before being colonized, but this situation had dramatically changed by practice of so-called ‘sound economics’ by the time the country got independence after the Mao Zedong-led Communist Revolution.

In her book ‘How China escaped shock therapy: the market reform debate’ noted economist Isabella M. Weber pointed out in this regard: ‘On the eve of revolution, China was among the poorest countries in the world… In 1950, China’s share in world GDP had fallen from about one-third in 1820 to below 5 percent…’

The Ottoman Empire had the same consequence of adopting liberal policies in terms of trade, for instance, and although they were not colonized, the so-called practice of ‘sound economics’ diminished the once superpower, which also ranked among the most wealthy after China and India during the seventeenth century. It was reduced to being called the ‘sick man’ of Europe before it became a republic after the end of first Word World War (WWI).

By the time the era of colonization ended, the first world had developed enough under the wings of protectionism on one hand, and also because they could no longer extract raw materials from colonies – which were becoming independent countries – and therefore it suited them to bring in a system of globalization, of free trade, that allowed them to sustain the system of extraction through the employment of ‘comparative advantage’, which meant that lack of protectionism made it difficult for a newly independent colony to develop its position in terms of graduating to higher value-added products.

In addition, whatever space these countries had under a slightly restrained flow of capital movement under Bretton Woods, and ‘New Deal’ policies was done away with by moving towards Neoliberalism, which also created a ‘virtual parliament’ in the shape of capital flight under free capital movement, announcing policy by policy decisions on otherwise ‘sovereign’ countries, who were tested in their grit to break the shackles of dependence on ‘hot money’ or foreign portfolio investment.

To augment this system further multilateralism under Neoliberalism was entrenched through basing the policy thinking of institutions like International Monetary Fund (IMF), World Bank, and World Trade Organization (WTO) on neoliberal ideals, and deepened it after the breakdown of the Bretton Woods system, and particularly through the IMF programme-related policies evolved in the wake of the International Debt Crisis of early 1980s, and later on after the breakup of the Soviet Union. This is because of the rampant increase in basically developing countries going to IMF for primarily balance of payments support.

Neoliberalism was also rooted through the channel of education, through center-staging an economic education that was based on so called ‘sound economics’, a time when the term ‘Neoliberalism’ did not come into existence, but in essence it was the same fundamental principles, except for the financial sector, which took off in the later part of the twentieth century with greater role of finance due to improvement in technology.

Hence, education of economics was distanced from its initial main influence, may that be through wrongly invoking Adam Smith or not giving much emphasis to his works like ‘The theory of moral sentiments’ that laid emphasis on normative aspects in economic decision-making.

Moreover, the initial accompanying tradition of seeing economics through the lens of institutionalism, social democracy, and multi-disciplinary way, which was why it was called political economy and not economics early on, and which overall based economics in moral philosophy, and did not see human beings as reduced to some low specie that just was kept at low intellect through ‘division of labour’, and where people in every economy could grow to any extent, and were not subjected to virtual stationarity or status quo by pushing to adopt ‘comparative advantage’ mentality.

Such thinking still remains dominant, and one of the reasons for so much furore in neoliberal minded media outlets, intellectuals, and politicians is because Trump’s recent tariff-hiking related policy opens the door – however small– of changing this otherwise onerous economic thinking, which binds many in the global South into producing low value added intermediary- or final products, for instance, and allow the developed countries to continue to produce high value-added goods, and virtually continuously strengthen their economic dominance, especially in terms of balance of payments situation.

(To be continued)

Copyright Business Recorder, 2025