Good friend and Rude subscriber Jim S. wants to know how I can oppose tariffs and still mourn America's lost factories. It’s a great question. The answer begins in 1971, passes through the Federal Reserve, and ends with The Swamp taxing the very machines we'd need to rebuild.

Enjoy!

The Question

Hi, Sean.

Help me out. If I recall from your missives over the last year or two, you are anti-tariff. But then you write an article… that states this problem with workshops going overseas. I can't square the two positions.

What other means does America have to become the world's, or at least its own, workshop without tariffs?

Sure, maybe removing regulations would help, but that's almost impossible without allowing people and companies to go absolutely rogue on our environment and health.

For example, how does one ever get pesticides and chemicals out of our food? This is one of many examples of immoral and amoral people raping nature and society without any way for society to control them.

Regardless, tariffs can be imposed by one person. Removing regulations and stupid laws requires a body of 535 incompetents to act for the betterment of America, not themselves.

Anyway, how do you square these two perspectives, or are you for tariffs?

Jim S.

The Answer

Thanks for writing in, Jim. That’s a great question.

No, I’m not for tariffs. I’m also not for shipping our workshops to Shenzhen or our coding jobs to Hyderabad. Those two positions don’t clash because tariffs don’t fix what sent the jobs away in the first place.

I suspect a line of mine caused the confusion. In “Who Ate the Seed Corn?” I wrote that capital consumption is what The Donald is trying to stop “in his own way… with mixed results.” He’s right about the disease. I just think he picked the wrong medicine. I back the goal, but not the tool he’s using.

So why did the factories leave? It’s not because Americans forgot how to make things. They left because The Swamp made manufacturing in America a bad trade.

Three baddies were responsible.

The Three Culprits

First, our money.

Since Nixon cut the dollar loose from gold in 1971, the world has held the USD (and Treasury bonds) in place of gold. That demand keeps the dollar strong and American exports expensive. It also let us buy more than we sell for over half a century because foreigners lend those dollars right back to America. No other country gets that deal. But it came with a cost: America’s factory floor.

Second, an insane amount of cheap credit.

The Fed held rates near zero for most of 14 years. Cheap financing buys back stock, flips real estate, and funds apps. Building capital-intensive businesses? Why bother?

Capital went where the Fed told it to, away from the factory floor. America’s seed corn was depleted in the process.

Third, policies that change every four years.

A factory is a 30-year bet that no CEO would make under rules that change by the year.

That last point is where tariffs do their real damage. A tariff is a tax, and the American buyer pays it, despite White House protestations.

Tariffs raise the price of the imported machine tool, and that in turn raises the cost of the American factory needing that machine tool. We tax the cure along with the disease.

You wrote that one man can impose a tariff, while fixing bad laws takes 535 people. The Supreme Court just disagreed. In February, it ruled 6–3 that tariffs are a tax, and the Constitution gives the power to tax to Congress alone. The emergency tariffs fell. Within hours, the White House announced new ones under a different law. I wish The Donald had cut his losses there, but that’s not his style.

Think about what this back-and-forth does to a company weighing a new plant. The tariff that protects it this year could vanish in a courtroom next year or double next Tuesday. So the money waits. Uncertainty is its own tax, killing capital investment.

The Founders put the taxing power in Congress on purpose. They’d just fought a war over taxes set by one Mad King across The Pond. Slow and hard tax imposition was by their design.

But at least this version of the “Do Nothing” Congress already did one thing right. Last year’s tax law lets a manufacturer write off the full cost of a new factory the year it opens. That does more for American industry than any tariff schedule because it rewards building, not lobbying.

The sad part is that it’s temporary. Construction has to start before 2029. If they make the law permanent and pull the tariff roulette off the table, you’d see a flood of concrete pouring.

However, we need two more things.

The first is cheap, plentiful energy because factories run on kilowatts, and we sit on more energy than anyone else. See Germany if you doubt that.

The second is sound money, so the dollar finds a level where American goods can compete again. This is why The Donald wants the dollar down.

Regulation

Jim, your point about regulation is the strongest thing in your letter.

You’re right in that nobody wants a free-for-all on our water and our food. But there’s a difference between rules and permission slips.

Rules say if you poison your neighbor’s well, you pay him, and you may go to jail. That’s old common law, which worked for centuries. Permission slips say you can’t act until a federal office signs off. That office ends up answering to the big firms it oversees.

We have the second system, and look what it gave us. The EPA didn’t keep the pesticides out of your food. The big chemical makers can afford the years of paperwork it takes to license those pesticides. The small competitor with a cleaner product can’t do that. A captured regulator like the FDA protects the incumbents and calls it safety.

So I’m not for gutting the law. I’m for liability with teeth and fewer offices selling permission. If we make the polluter answer to a jury, order will be restored.

Wrap Up

There’s a narrow case where I’d hold my nose and accept a tariff: a true national security chokepoint. If China controls nearly all the gallium or antimony our weapons need, I’m happy to live with a targeted shield.

But that’s a precision target, not a blanket tax on everything.

So no, Jim, I’m not for tariffs. I’m for fixing what broke America’s workshop: the money, the credit, and the permission state.

Thanks again for writing in. I hope I’ve cleared that up for you.