Austrian Tariffs: Tariffs that Even Hayek Would Love
How currency manipulation and slave labor have turned "free trade" into anything but.
In the pantheon of economic thought, few figures have been more ruthlessly vindicated yet systematically ignored than Friedrich Hayek. The Nobel laureate warned us about the seductive dangers of central planning and currency manipulation, only to be politely applauded and then promptly forgotten like a brilliant dinner guest whose insights might spoil the mood.
The Austrian School: Right for All the Wrong Reasons
The Austrian School emerged from the intellectual wreckage of the early 20th century, when classical economics crashed headfirst into the Great Depression. While mainstream economists scrambled to explain why their perfect models had failed so spectacularly, Ludwig von Mises, F.A. Hayek, and their cohort offered a radical alternative: perhaps governments and central banks were the problem, not the solution.
Their timing, however, was catastrophically poor. As Austrian economists preached monetary discipline and market-clearing recessions, John Maynard Keynes arrived with a much more politically palatable message: governments could spend their way out of depression. Politicians, shocked and amazed to discover an economic theory that justified unlimited deficit spending, embraced Keynesianism with the enthusiasm of alcoholics discovering an open bar.
Then came war – the ultimate Keynesian stimulus package. Nothing achieves full employment quite like drafting half your male population and putting the rest to work building tanks. The apparent success of wartime economies seemingly validated Keynesian approaches, while the Austrian warnings about malinvestment and monetary debasement were drowned out by victory parades.
The Free Market Ideal: Beautiful in Theory, Elusive in Practice
The case for free trade is elegantly simple: voluntary exchange benefits both parties, specialization increases productivity, and competition drives innovation. When Adam Smith’s invisible hand is allowed to work its magic, resources flow to their most productive uses, raising all boats through the miraculous efficiency of self-interest properly channeled.
In Hayek’s vision, the price system serves as an information network of breathtaking sophistication, coordinating the dispersed knowledge of millions of economic actors. No central planner, however brilliant, could possibly replicate its function. The market, when truly free, is humanity’s most remarkable achievement – a spontaneous order arising from chaos.
It’s a beautiful theory. So beautiful, in fact, that we’ve allowed it to blind us to an inconvenient reality: the world we actually inhabit bears little resemblance to the theoretical conditions necessary for free markets to work their magic.
Our Adversaries Aren’t Playing the Same Game
The high priests of globalization sold us on a simple story: free trade would bring prosperity to all and gradually transform authoritarian regimes into liberal democracies. Western consumers would get cheaper goods, developing countries would industrialize, and everyone would eventually converge on the liberal democratic model, and then the liberal democratic ideology.
Instead, we’ve witnessed the rise of what might be called “predatory mercantilism” – authoritarian states using the language of free markets while systematically violating their principles to gain competitive advantage.
Consider China’s use of Uyghur forced labor. The cotton harvested by these modern slaves flows into global supply chains, appearing in products marketed by Western brands who performatively celebrate their ethical standards. But slavery isn’t a “comparative advantage” in any meaningful economic sense – it’s a moral abomination that no civilized trading system should tolerate.
The Austrian model never envisioned “racing to the bottom” of human dignity as the path to prosperity. Hayek championed freedom in all its forms, not just economic. When China exports goods made by slaves and calls it “comparative advantage,” they’re not practicing free trade—they’re weaponizing unfree people. And our economists, in their infinite wisdom, can only see the price differential.
Then there’s the problem of asymmetric protectionism. While Western nations have dramatically reduced their tariffs over decades, many of our trading partners maintain formidable barriers. China, for instance, maintains average tariff rates nearly three times higher than the United States, along with a byzantine system of non-tariff barriers, forced technology transfers, and state subsidies that make a mockery of “free” trade.
One-sided free trade isn’t free at all – it’s unilateral economic disarmament. It’s showing up to a gunfight with a strongly worded letter about the virtues of pacifism. As George Orwell noted in his 1945 essay “Notes on Nationalism,” some ideas are so foolish that only an intellectual could believe them, for no ordinary person could be such a fool.
The Monetary Problem Hayek Foretold
Perhaps most perniciously, our current system has divorced itself entirely from what the Austrians considered the bedrock of sound economics: honest money. Hayek advocated a return to the gold standard precisely because it would prevent governments from manipulating currency for political advantage.
Instead, we’ve created a global system of fiat currencies that can be debased at will, with central banks engaged in competitive devaluation – a destructive force that Hayek would have recognized as unambiguous economic warfare.
China’s currency manipulation operates through artificial suppression rather than traditional inflation, but by maintaining strict capital controls and accumulating massive foreign reserves, Beijing effectively prevents the yuan from appreciating to its market value. This isn’t mere monetary policy – it’s calculated economic warfare designed to preserve artificial export advantages at the expense of trading partners.
This isn’t just competition – it’s monetary manipulation that undermines the very price signals that make markets function. Hayek would be appalled at our pretense that such a system represents “free trade” in any meaningful sense.
Finding Freedom in an Unfree World
The dream of truly free markets remains worth pursuing. But we must recognize that freedom exists on a spectrum, not as a binary state. The perfectly free market inhabits the same mythical realm as the communist utopia – a fantasy world where human nature is fundamentally transformed and history finally ends. While we wait for these fairy tales to materialize, we might consider dealing with the world as it actually exists
This means maintaining a healthy trade balance rather than bleeding ourselves out through perpetual deficits and one-way cargo planes, loaded to maximum takeoff weight with gold, vanishing over the horizon like tribute from a conquered nation. It means evaluating economic policies based on real outcomes – workers’ purchasing power and economic security – rather than ideological purity tests.
Tariffs targeted at nations engaging in currency manipulation, slave labor, or environmental devastation aren’t betrayals of free market principles – they’re attempts to approximate the conditions under which free markets might actually function as intended.
Is this what Donald Trump is doing with his tariff policies? Not necessarily. His approach lacks the nuance and strategic focus that a truly Austrian-inspired trade policy would demand. But the instinct to resist a system rigged against American workers isn’t inherently anti-free market, despite what the corporate-funded think tanks might claim. And the louder China complains, the more certain you can be that it’s working.
Hayek understood that markets function within frameworks of rules. When those rules are systematically violated by neo-mercantilistic regimes, maintaining the pretense of “free trade” becomes a form of economic self-harm.
The Austrian School never advocated economic suicide in the name of theoretical purity. What they championed was a system where honest competition could flourish without manipulation by governments or central banks. If targeted tariffs can help level a playing field tilted by currency manipulation, state subsidies, and slave labor, even Hayek might approve.
After all, in a world where true free markets remain aspirational rather than actual, the choice isn’t between free trade and protectionism – it’s between economic reality and economic theology. The former may be our best path toward the freedom Hayek actually envisioned.