Personal Reflections on Tariffs and the Law of Unintended Consequences

I grew up in a blue-collar neighborhood. Nobody in our area had much money, except for a few people who might have been connected to organized crime, and I assume they did what they could to hide evidence of prosperity and to obscure the provenance of any alleged ill-gotten gains. 

When I moved from primary school to middle school – what we called junior-high school back then – I found myself in an unforgiving milieu, where the denizens were often inclined to violence as a first resort in any interpersonal exchange. Consequently, I had as many as ten fistfights – after a while, who’s counting? – in my first year of middle school. 

That might sound like a lot of fighting, but I can assure you I did my best to avoid every violent encounter. I never started a fight, but I realized quickly that pacifism had little efficacy in the mean streets of a working-class neighborhood. Bullies and predators targeted kids who appeared submissive or weak. Victims would be badly beaten, humiliated, relieved of their lunch and snack money – sometimes held upside down and shaken so that the coins would fall from their pockets – and much else besides. There was no end to the madness. 

How bad could it be? Well, while walking up a school stairwell one day, I saw blood on the ground and looked up to see the remnants of a thumb, nerves attached, hanging from the hinges of a metal door. It was a feral type of place, and that was a different time, but, unfortunately, I don’t think it was all that different from many other places and many other times. 

I’m telling you this story to suggest that I know how bullies operate. Bullies feed on fear. The more fear you show, the worse it will get for you. 

You have to demonstrate to the bully that he, too, will pay a price for his aggression. That first year of junior-high school was pretty hellish, but nobody bothered me in the next two years. I’d done enough, by standing my ground, to deter gratuitous aggression. (I had other worries afterward, like figuring out what to do with the rest of my life.)   

Now let’s turn our attention to the technology industry, and perhaps to industry more broadly. Donald Trump is president again, and he’s threatening to apply tariffs to goods and services from any country that is not the United States. He’s taking particular aim at China, but his approach is scattergun and indiscriminate, hitting out in all directions. 

These are bully-boy tactics, albeit taking place on a geopolitical stage and not in a schoolyard. As I said above, the best way to counter a bully is not through abject submission or obsequious appeasement – you can never appease a bully – but to defend yourself. If Trump hits out at so-called allied countries with indiscriminate tariffs, they must hit back – not because they dislike Americans (they don’t), but because things will only get worse for them if they allow economic and industrial aggression to go unchallenged. 

The Perverse Result of Unintended Consequences 

You perhaps have heard of the law of unintended consequences. According to a Wikipedia entry, unintended consequences come in three flavors:

Unexpected benefit: A positive unexpected benefit (also referred to as luck, serendipity, or a windfall).

Unexpected drawback: An unexpected detriment occurring in addition to the desired effect of the policy (e.g., while irrigation schemes provide people with water for agriculture, they can increase waterborne diseases that have devastating health effects, such as schistosomiasis).

Perverse result: A perverse effect contrary to what was originally intended (when an intended solution makes a problem worse).

If Trump follows through with an indiscriminate array of tariffs, ostensibly in defense of American industries (including the tech industry), it’s possible that we’ll see law of intended consequences manifest in a decidedly perverse result, an effect entirely opposite to what was intended. The world beyond U.S. borders – in Western nations, not just in China – is already preparing to defend itself from a fusillade of Trump tariffs. The long-term impact could be pernicious for all companies that trade goods and services internationally. 

Few of us would benefit from a global trade war. I wouldn’t think many people want a global trade war, but it’s what we might get if sweeping and largely unjustified tariffs are applied by Trump to U.S. friend and foe alike. 

Empathy can help to frame an understanding of the situation. Governments of other nations are compelled by necessity to defend and protect their own industries, businesses, and workers. They can’t simply take a public beating, absorb the blows, and ask for mercy. Hope and mercy are not elements of strategy. These governments are going to have to fight back – their industries and electorates will demand it – even in the knowledge that the situation might get worse before it gets better. In such a scenario, a period of reciprocal misery, in the U.S. as well as the rest of the world, might serve as a precursor to a return of restraint and reason. 

Beggar-Thy-Neighbor Mercantilism 

If the worst happens, the tech industry could get swept up in a geopolitical maelstrom. An article published by CNBC earlier this week suggests that European concerns, already dependent on U.S. technology firms and concerned about the specter of rising geopolitical tensions, are looking at how they can achieve greater technological autonomy and sovereignty. Europe has a long way to go in that regard, of course, but some of the progress Europe makes on that front could come at a direct or indirect cost to U.S.-based technology giants. 

Words, of course, are one thing and actions are another. Perhaps the mooted tariff regime will not materialize; or maybe it will take a different form from what has been declaimed on the campaign trail. Before and during the first Trump Administration, the former and soon-to-be U.S. president said he would compel Mexico to pay for a wall along the southern U.S. border. The wall was never finished, and Mexico didn’t shell out. 

Similarly, Trump invoked a wide range of tariffs against China and Western countries during his first administration; he later rescinded many of them. That gives us reason to believe that perhaps the threatened tariff blanket will never envelop the globe. Any objective observer would agree that Trump makes an astounding number of contentious and provocative statements on a daily basis, and few of those utterances ever metamorphize from hot air into hard reality. Ignore the words, if you can, and pay attention to the deeds. The words come and go, as fleeting as the minutes and hours in a day, but the deeds will matter.

We should all hope cooler heads prevail because, even though globalization brought many complications and problems in its wake, confrontational mercantilism promises to be even worse. Trump’s beggar-thy-neighbor gambit could result in unanticipated impoverishment everywhere, including the United States. Today nearly everybody has a wafer-thin attention span, but many of those who’ve studied history remind us that bloody-minded mercantilism exacerbated the effects of the Great Depression. 

What one wants and what one gets are often very different things. That’s what the law of unintended consequences is trying to tell us. Is anybody listening?