ECONOMYNEXT – Tariffs that disrupt trade has led to real wars throughout history, including in Sri Lanka, top economist W A Wijewardene had pointed out as the US President Trump started wild cat tariffs breaking up a free trade order America itself helped create after World War II, leading to global prosperity.
Wijewardene pointed to a statement made by Dhananath Fernando, chief executive of Colombo-based Advocata Institute, that if soldiers are not to cross the international boundaries on missions of war, goods must cross them on missions of peace.
Fernando was quoting Otto O, Mallery who had argued ‘unless shackles can be dropped from trade, bombs will inevitably drop from the sky’.
Wijewardene pointed to an example from Sri Lanka’s own history in his weekly column in the Daily FT newspaper.
One of Sri Lanka’s exports under ancient monarchies was the export of elephants.
Sri Lanka for many years had been a trading hub where ships from both sides of the Indian ocean stopped in the island and there was also short distance trade with India and closer neighbors.
Parakarama Bahu I and Ramangna Desha
During the reign of King Parakramabahu, I, in the 12th century CE, according to the author of Chulavamsa, Part II of Mahavamsa, elephants had been purchased from Ramangna Desha, present day Myanmar.
King Arimaddana, who, on the advice of somebody who had gone to his court from Lanka, had unilaterally increased the prices of elephants from 30 silver tickels to 1000 or 2000 silver tickels.
“This export tariff was like fixing a minimum retail price for elephants to be purchased from Ramangna Desha making them too costly and, therefore, uncompetitive for King Parakramabahu, I, to reexport to other countries,” Wijewardene wrote.
“Angered by this unilateral weaponisation of tariff by the King of Ramangna Desha, King Parakramabahu, I, had sent an army to invade that country, defeated King Arimaddana and reestablished his source of procuring cheaper elephants.”
Wijewardene pointed out that after the collapse of the 1920s economic bubble in the US led to the Great Depression, import duty hikes proliferated.
In the 1930s the US hiked tariffs under the Smoot-Hawley Act further worsening the Great Depression.
In the 1930s currencies also collapsed as non-US economies recovered from the Depression due to the spread of the policy rate and open market operations, leading to phenomenon called ‘competitive devaluations’.
Directing Hate
Meanwhile, Wijewardene said the import tariffs also help direct anger of the local population against foreigners.
Economic philosophers in the classical tradition had pointed out that the targeting of foreigners very soon leads to targeting of minorities within the country, especially if there was popular vote in the country.
Like Wijewardene, other economists have also pointed out the phenomenon was widely seen in Europe.
Patriotism vs Nationalism
Economic difficulties generally lead to the rise of nationalism and the defeat of liberalism.
Nationalism, explained Austrian economist and philosopher Ludwig von Mises should not be confused with patriotism.
“Patriotism is the zeal for one’s own nation’s welfare, flowering, and freedom,” Mises explained.
“Nationalism is one of the various methods proposed for the attainment of these ends.”
“It is the aim of nationalism to promote the well-being of the whole nation or of some groups of its citizens by inflicting harm on foreigners. The outstanding method of modern nationalism is discrimination against foreigners in the economic sphere.
Foreign goods are excluded from the domestic market or admitted only after the payment of an import duty. Foreign labor is barred from competition in the domestic labor market.
“This economic nationalism must result in war whenever those injured believe that they are strong enough to brush away by armed violent action the measures detrimental to their own welfare.”
But the liberals believe that the measures recommended by nationalists are inappropriate, and that their application would not only not realize the ends sought but on the contrary must result in disaster for the nation.
“The liberals too are patriots, but their opinions with regard to the right ways toward national prosperity and greatness radically differ from those of the nationalists,” explained Mises.
“They recommend free trade, international division of labor, good will, and peace among the nations, not for the sake of foreigners but for the promotion of the happiness of their own nation.”
MAGA shatters Cordell Hull’s dream
As the policy rate led to depreciation and currency troubles, the Bretton Woods system of fixed exchange rate were devised to re-create the free trading regime that existed before World War I and before depreciation.
Among the leaders were former US Secretary of State Cordell Hull, who was a free trader coming from the agricultural exporting south.
He helped pass the Reciprocal Trade Agreements Act of 1934, allowing the President to cut tariffs by 50 percent without Congressional approval giving economic freedoms to the people.
In 2025 President Trump robbed the economic freedoms of Americans by issuing executive orders claiming a national emergency.
READ MORE : Eighty Years After the Reciprocal Trade Agreements Act
Hull also led the US delegation to the London Monetary and Economic Conference of 1933 where an attempt was made to stabilize currencies and the US dollar. However Roosevelt backed out of the deal, which Keynese (who had previously supported the collapse of the Sterling in 1931) hailed as ‘magnificently right’.
The ideals of Cordell Hull are now in tatters with the US promoting economic nationalism and domestic investment. Meanwhile, monetary instability and inflationism is also rife with the Federal Reserve operating an excess liquidity framework.
Gold prices, which were 20 dollars an ounce when the Federal Reserve was set up in 1916, are now 3,200 dollars an ounce.
Hull was also a key mover behind the creation of the United Nations, which was also supposed to end the next World War. Hull got a Nobel Prize for his efforts.
However, UN agencies including UNDP and UNESCAP sometimes promoted protectionism and import substitution, preventing the growth of newly independent developing countries in the 1960s. (Colombo/May11/2025)