President Trump’s Wuhan Virus War: Protectionism Magnified

by | Mar 26, 2020 | Trade

The false principle that fueled Trump’s trade war relates closely to his authoritarian response to the Wuhan (Covid-19) virus.

Amid the Wuhan virus panic – with an alleged “cure” (authoritarianism, mass house arrests, mandatory economic shutdowns) that’s far worse than the disease [1] – President Trump’s trade war against China (and Europe) has been forgotten. But it still exists and relates closely to Trump’s authoritarian, war-like approach to the virus. He’s applying the same false principle, but now more intensely and widely, much like . . . a virus. What’s the principle? That the perceived victims of some wrong, as opposed to the perpetrators, should be made to suffer.  It’s a principle born of ignorance and injustice, whether intended or not.

Ignore for a moment the pre-virus “deal” Trump made with China (called “Phase One”), which was seen by equity investors as a bullish cooling of trade tensions; how likely is it that the “deal” will proceed, in any phase, in a post-virus world?  Slim to none.  At least part of the 35% plunge in U.S. equity prices over the last month is due to the likelihood that Trump’s bearish trade protectionism [2] will return with a vengeance – if it hasn’t already, behind the scenes.

The false principle that fueled Trump’s trade war relates closely to his authoritarian response to the Wuhan (Covid-19) virus. A professional investor recently told me that he was “starting to fear that COVID-19 could morph into our Smoot-Hawley moment.” It was a profound insight, grounded in knowledge of history. The Smoot-Hawley Tariff Act (1930), solicited, shaped, and signed by President Herbert Hoover, triggered the 40% crash in U.S. stock prices in 1929-30 (stocks anticipate policy), a 35% contraction in world trade (due to retaliatory tariffs from abroad), and, after a subsequent doubling of income tax rates in 1932, and FDR’s bearish interventions in 1933-35, a 29% output contraction (1929-1933) in “the Great Depression.”

The U.S. jobless rate peaked at a horrendous 28% (March 1933) during the Great Depression. Consider that when you hear Trump’s Treasury Secretary, Steve Mnuchin, warn that the U.S. jobless rate could reach 20% in 2020, as he did recently.  Mnuchin’s main error was to assume a 20% jobless rate would happen only if the Fed were to forego reckless money-printing and interest-rate cutting, only if Congress were to forego reckless spending and bailouts, and only if his boss were to forego authoritarianism.  In fact, a 20% jobless rate could arise precisely to the extent the Fed, Congress and White House do such things, and if employers were to choose (or were forced) to pay would-be employees above-market wage rates, a policy which makes the supply of labor exceed the demand for it, causing a surplus of labor (aka, unemployment).

Combining the ignorance and vice of Hoover (protectionism) and FDR (authoritarianism), Trump has declared “war” against a virus, in peacetime, meaning: a war against innocent U.S. citizens, those presumed to be guilty (i.e., infected and dangerous). Trump has invoked the never-repealed Defense Production Act (DPA, 1950), which gives the executive branch vast power to commandeer resources, nationalize industries, and impose wage-price controls.  This week he invoked Section 45 of the Act to forbid and criminalize “price gouging” and “hoarding.”

In fact, “price gouging” is merely surge pricing, which reflects (but doesn’t cause) brief episodes of heightened demand, as is common during emergencies, and keeps crucial goods flowing; disallow it and you can hurt and kill people, by causing shortages (which is a major reason why people hoard).[3] If suppliers don’t (or can’t, legally) charge a sufficiently high price, amid some acute scarcity there won’t be demand-side conservation, nor efficient/best usage, nor an influx of much-needed supply. Why suppress all that and make precious goods disappear or never appear? Does the error reflect economic ignorance, fake “virtue signaling,” or both? It’s vicious and inhumane. Now, more than ever, we need profiteers, not their criminalization. Unlike parasitical politicians, profiteers don’t “exploit” but produce, create, and provide.

The authoritarian crackdown of 2020 resembles the trade protectionism of 2018-19, but magnified and intensified. On trade Trump blamed U.S. imports of goods from China (not decades of punitive U.S. taxation and regulation) for the erosion of American manufacturing; imports, he thought, must be blocked and tariffed.  He ignorantly defined a U.S. trade deficit as a “loss” to America, caused by foreign exporters, and even claimed that China paid his tariffs, when in fact they’re paid by American importers of China’s goods (firms and households alike).

Much as he did in 2018-19, in 2020 Trump is again penalizing Americans for his false views, this time by a near-universal economic shutdown and mass house arrest; now he’s punishing not just Americans who’ve imported Chinese goods but all Americans regardless of whether they’ve imported a Chinese virus. Once again, he believes he’s “protecting” Americans, but he isn’t; he’s hurting them, even though, obviously, importing goods is a good thing while importing a virus isn’t. Mass house arrests and mandatory economic shutdowns don’t foster wealth; as such neither can they foster health. Protectionism is bad enough at the border; even then, its cancerous aspects spread domestically, generating distortions and curbing prosperity; but protectionism is much worse – far more destructive – when applied directly and internally, from sea to shining sea. Protectionism itself is a policy virus; it can’t possibly counteract the effects of a biological virus.

Trump’s heavy-handed policy response to the Wuhan virus (aped by autocratic governors in Democratic states), is best understood as an extension and intensification of his already bearish protectionist trade policy. Whereas the trade policy aimed at restricting the movement of people and goods across U.S. borders, the virus policy aims at restricting their movement within U.S. borders. The first policy required Americans to hole up within our own borders to avoid importing China’s goods; the second policy required them to hole up within their own homes to prevent importing China’s virus. Each policy embodies Trump’s ideal of autarky – of minimal human interaction – but the first is driven by xenophobia, the second by mysophobia.


[1] Richard M. Salsman, “The Government Policy Response to the Wuhan China Virus (COVID-19) Pandemic is Worse Than the Disease,” Capitalism Magazine, March 22, 2020.  See also Richard M. Salsman, “Incarceration, Monetization, and Nationalization Can’t Preserve Our Health or Wealth,” American Institute for Economic Research, March 21, 2020. See also Dr. David L. Katz, “Is Our Fight Against Coronavirus Worse Than the Disease?” New York Times, March 20, 2020.
[2] Richard M. Salsman, “Fallout from the Trade Wars,” American Institute for Economic Research, October 12, 2018.
[3] Raymond Niles, “Anti-Gouging Laws Can Kill,” American Institute for Economic Research, March 3, 2020.

Dr. Salsman is president of InterMarket Forecasting, Inc., an assistant professor of political economy at Duke University and a senior fellow at the American Institute for Economic Research. Previously he was an economist at Wainwright Economics, Inc. and a banker at the Bank of New York and Citibank. Dr. Salsman has authored three books: Breaking the Banks: Central Banking Problems and Free Banking Solutions (AIER, 1990), Gold and Liberty (AIER, 1995), and The Political Economy of Public Debt: Three Centuries of Theory and Evidence (Edward Elgar Publishing, 2017). In 2021 his fourth book – Where Have all the Capitalist Gone? – will be published by the American Institute for Economic Research. He is also author of a dozen chapters and scores of articles. His work has appeared in the Georgetown Journal of Law and Public Policy, Reason Papers, the Wall Street Journal, the New York Times, Forbes, the Economist, the Financial Post, the Intellectual Activist, and The Objective Standard. Dr. Salsman earned his B.A. in economics from Bowdoin College (1981), his M.A. in economics from New York University (1988), and his Ph.D. in political economy from Duke University (2012). His personal website is

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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