Welcome to a little thought experiment. Suppose that Mississippi became a sovereign country. “Sovereign” means that the state apparatus can make any decision, even one that violates international law. The flip side of sovereignty is that the state can also impose its decision on the country’s residents or a portion of them, and that other states in the world have no recognized right to intervene against that imposition. States and their rulers were recognized as sovereign by the treaties of Westphalia in the mid-17th century.
Mississippi would be a poor country relative to the United States. The average hourly wage in Mississippi is $23.91, compared to $38.41 in California (Bureau of Labor Statistics, data for May 2024). On average, wages are thus 38% lower in Mississippi than in California. For the whole (current) USA, the average wage is $32.66, which means that Mississippian wages are on average (about) 27% lower than in the rest of the United States. As a newly sovereign country, Mississippi would be much poorer than the US, although still wealthier than, say, Vietnam or China.
Voices would be raised in the (remaining) United States to claim that American businesses cannot compete against their Mississippian counterparts given the latter’s “unfair” wage advantage. “We need fair trade, an equal playing field, with Mississippi,” American lobbyists and politicians would proclaim.
After the first national-account system in Mississippi is set up and its customs authorities have become effective enough at measuring trade flows, the new data would lead to further conflict. By virtue of a frontier having been drawn on the map, the trade deficit would suddenly become a politically contentious issue. It is likely that Mississippi currently has a trade deficit with the rest of the US, although it cannot be measured in the absence of border surveillance and control. After independence, many Mississippian lobbyists and politicians would get all pumped up about the trade deficit.
From a liberal-individualist viewpoint, nothing would have really changed: it would still be individual Mississippians and their private organizations trading with Americans and the latter’s private organizations. Many variables, including a few new ones, would adjust between the poorer traders in Mississippi and the richer traders in the US: the terms of trade and (if Mississippi had its own currency) currency exchange rates and the terms of trade; interest rates; foreign investment flows; public policy and government, etc.
It should be obvious that few individuals would become richer if the American state imposed tariffs on imports from Mississippi, or if the Mississippian state imposed tariffs on goods imported from the US. It would be the contrary: most people on both sides of the border would become poorer—and probably to a greater extent on the Mississippian side because of the relative size of the two economies. Nobody would become richer except for government favorites and cronies.
To make sure that most Mississippians would not get poorer whatever the government of the US does is if the government of the former adopted unilateral free trade, that is, let its own residents free to trade, to make whatever bargains they can with US residents (and residents of any other country). Mississippi could become a new Hong Kong. This would be true, mutatis mutandis, for the US: if its government did the same and stopped interfering with its residents’ trade, which is the definition of unilateral free trade, most Americans would gain. Temporary disruptions could of course happen, but nothing compared with what we are currently seeing in the US.
Collectivists of the left or the right have problems understanding this thought experiment, or else they are simply happy to exploit their fellow citizens (see my “Patriotism as Stealing from Each Other,” Regulation, Winter 2017-2018, pp. 64-69). It is a good measure of the perverse silliness of the current protectionist claims to compare them with the arguments that would be made on both sides of the new border: “unfair” Mississippian wages exciting American lobbyists, trade unionists, and politicians to clamor for the protection of manufacturing and agriculture; and Mississippian lobbyists and politicians calling for “protection” against high-tech and service imports from the US. Only a bit of imagination is necessary to think of Mississippian populist leaders arguing for protectionism because “the United States has been taking advantage of us and raping us for centuries” (a Trumpian sort of Mississippian populist would probably say “for millennia”).
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Absurd protectionist battles after Mississippi became a sovereign country, by imperfect ChatGPT
READER COMMENTS
Craig
May 27 2025 at 9:24am
Do we need to imagine it sovereign? I mean I remember seeing Chris Christie (R) and Cory Booker (D) rolling out a plan to try to lure HQ2 to NJ, the plan failed, indeed AOC in NY was chastised for potentially chasing Amazon away. They’d ultimately go to VA, I think. So be it, I mean they located it where they located it but I am not convinced that their decision was entirely a ‘market decision’ and indeed I’d say the concept that a kind of quasi-market/government interventionism has pervaded economic decision making. Its quite often this incestuous relationship.
March 2025: https://www.opportunitylouisiana.gov/news/louisiana-wins-again-governor-jeff-landry-led-secure-5-8-billion-hyundai-steel-plant
Here we see Trump and Landry, but was that a market process? Maybe that plant would’ve gone to Youngstown, OH, Birmingham, AL or Mexico, do we really know?
Of course if you are a steel producer located elsewhere you might not think that is completely fair.
As an aside I’d even say get the FTC to break them up into smaller pieces each incapable of influencing the government to subsidize them. Libertarians seem to be opposed to that as well.
steve
May 27 2025 at 11:55am
I think it has been more prominent among red states but I think most states have made efforts to lure in businesses by offering them tax breaks, subsidies, free land or other goodies. Cheaper housing is also often cited but I do have to wonder about that. If a business is going to build in a big city then its an issue but a lot of these factories they are talking about seem to be going into smaller cities/towns and costs in those places are usually much lower. My corporation bought a 3 bedroom, 2 bathroom house for $40,000 in one of those small places. Spent $20,000 redoing the flooring, painting and adding air conditioning (love those ductless things) and we had a nice place.
Steve
Craig
May 28 2025 at 10:53am
Good points about housing, I think another example might be electrical power in TN which I believe for industrial purposes in TN is very cheap (I have to presume its because of the TVA)
Pierre Lemieux
May 27 2025 at 3:22pm
Craig: You write:
The more power the government has, the more cronyism there will be, not less.
Craig
May 28 2025 at 10:52am
I have to remind myself that dirigisme begets dirigisme. I mean if I am going to steal that copyright from you I better keep it in mind more often!
Pierre Lemieux
May 28 2025 at 5:28pm
Craig: I can sell you unlimited reproduction rights for $1 provided you mention the presumed source. (To be honest with you, as Trump would say, I am not sure that I was the originator of the aphorism!)
Jose Pablo
May 27 2025 at 11:30am
Why do you need the “sovereign” part?
If ending trade with the rest of the world is good for the U.S., then by the same logic, ending trade with the rest of the US should also be good for California (assuming California runs a trade deficit with the rest of the Union).
“Sovereignty” is not necessary for the issue to become politically sensitive andthe economic benefits or harms are independent of sovereignty. Jobs would be brought back to California, capital outflows pared back, dumping from the other states stopped, the whole set of “amazing” benefits.
From a practical standpoint, the process could look like this:
First, enough Californians are nominated and confirmed to the U.S. Supreme Court to form a majority.
Then, the California legislature, of course acting on the advice of constitutional lawyers, passes laws imposing tariffs on goods and services from other states.
The case reaches a now California-friendly Supreme Court, which rules in favor of the federal government “respecting” and “deferring to” California’s right to pursue its own version of greatness.
No, you don’t need sovereignty; a Californian-controlled Supreme Court would be enough.
Pierre Lemieux
May 27 2025 at 3:56pm
Jose: You need the sovereign part to increase the feasibily (decrease the cost) of the protectionist agenda. Without the state of California being sovereign, you would need not only a Californian majority at the Supreme Court, but also a Californian majority who attach no value to the US constitution and to the rule of law in general.
Jose Pablo
May 27 2025 at 5:11pm
Jobs flooding back to California, the Californian deficit miraculously reduced, Alabama’s dumping finally curbed … I don’t see why I couldn’t convince California voters to sign for this “amazing” set of benefits.
It won’t be as smooth as it was down in Appalachia, but it’s doable.
Monte
May 27 2025 at 11:40am
Interesting that you chose one of the poorest, most dependent states in the U.S. for this thought experiment. How might an independent Texas or California fare against this backdrop, given their abundance of natural resources, high tech manufacturing capacity, and geographic locations?
I’m not defending tariffs, just posing a hypothetical.
Pierre Lemieux
May 27 2025 at 11:59am
Monte: You are right that I chose the poorest state to illustrate my point more clearly. But note that Mississippi is still richer than Vietnam and China, as I pointed out. And note that the presence of “natural resources” just changes the comparative advantage and is rather immaterial, as the case of Hong Kong illustrates.
Further note that if the government of a newly sovereign California or Texas became as protectionist as the government of North Korea, Texas or California would, after some time of consuming their residents’ capital, become as poor as North Korea.
To answer more specifically the point you raise, consider this. California and Texas nearly certainly have a “trade surplus” with the rest of the United States as well as higher wages, so it would be lobbyists and politicians in the US who would complain that they have been raped by them, and it would be lobbyists and politicians in these new countries who would clamor against their the low wages and unfair competition of “the United States.” It’s the mirror case of the one I chose.
Warren Platts
May 28 2025 at 1:40pm
That could be, but California also has a -$300 billion+ international trade deficit with the ROW, so if they seceded, they would still probably have an overall trade deficit. I don’t know about Texas.
Pierre Lemieux
May 28 2025 at 5:45pm
Warren: Probably not. There are no official figures for the international trade position of the American states, and for a very good reason. Such data would require much surveillance. Most of “California”‘s international imports come from China and just pass through its large maritime ports in transit for consumers and businesses all over the United States.
Not only is the notion of a “trade deficit” or “trade surplus” meaningless by itself (especially as it does not include services), but it can only be measured (estimated) for a “sovereign country.” Does your village have a trade surplus or a trade deficit?
Warren Platts
May 27 2025 at 8:45pm
A more interesting counterfactual would be if the Confederate States of America had somehow succeeded in their war of independence. The Southron planters, after all, were the original American free traders. They hated tariffs, and at least made sure the original U.S. Constitution banned export tariffs. The resulting state would not have been as big as the Northern Union, but it would not be a rump state like Mississippi would be if it were to unilaterally declare independence. That would have been a great natural experiment with the Southern Confederates pursuing Smithian free trade economics and the Northern Union pursuing Hamiltonian “American System” protectionism. I wonder which system would have prevailed in the GDP growth race…
Jon Murphy
May 28 2025 at 5:42am
The South were not free traders. Doug Irwin’s “Clashing Over Commerce” goes deep into detail of the economic policies and tendencies of the various regions of the US. The story is quite complicated.
Craig
May 28 2025 at 10:51am
Well, slavery a big caveat of course to the concept but when discussing tariffs as the cause of the conflict, the South does note the protectionist tariff. Of course the argument goes that somehow if the tariff is A cause that it must be THE cause, but whatever, I’m just saying that it was unequivocally A cause because they said it was a cause, they said slavery was a cause too of course, but I digress, at that time the Confederates levied the ‘free trade’ tariff of 15% (No, it was NOT completely uniform). Today that would be considered ‘high’ but in that era 15% was considered to be the ‘free trade’ position relative to the North (see Republican platform of 1860). The Southern planters were often told that the import tariff was the equivalent of taxing their cotton exports and the example would be made that it was akin to taking 1 out of 5 or 1 out of 4 bales of cotton, true or not, it WAS said and cotton at that time was 2/3 of all US exports (not imports of course). Indeed in the Declarations of Causes of Secession the South obviously does note slavery quite heavily but it IS noted that taxation falls onerously on the South in order to pay ‘bounties’ (19th century term for subsidies) to northern industries. I think that one was GA’s version, but I could be wrong on that one of course.
Jon Murphy
May 28 2025 at 11:18am
The South noted the particular protectionist Tariff of Abominations because it seemed aimed directly at them, but they supported other protectionist tariffs. Again, the story is quite complicated (the chapter in Irwin’s book I cited is some 50 pages long).
Craig
May 28 2025 at 3:31pm
“The South noted the particular protectionist Tariff of Abominations because it seemed aimed directly at them, but they supported other protectionist tariffs.”
“Tariff of Abominations”
Great name of course but that one was Nullification Crisis of course, the one associated with Civil War was Morrill tariff.
“it seemed aimed directly at them”
It was, Thaddeus Stevens notes for instance, ““the Tariff would impoverish the southern and western states, but that was essential for advancing national greatness and the prosperity of industrial workers.” [In the context of the Civil War those who opine that the cause was slavery often undermine tariffs as a cause while those who opine that tariffs were a cause tend to undermine slavery as a cause. For me one does not preclude the other, but I digress]
“but they supported other protectionist tariffs”
I think sugar went along with it, but without the North, the Confederacy’s tariff is described as a ‘revenue’ tariff and I don’t believe they enacted even a protectionist tariff for sugar either. The Confederacy born of war and would exist only during a war and aside from that they obviously faced a blockade so any blockade inspired notions of import substitution was born solely of realism. The one that comes to mind was to impel plantations to shift from cotton to food. –under duress.
Warren Platts
May 28 2025 at 4:20pm
Yes, that’s right. As I said, the CSA Constitution makes this point explicit: “The Congress shall have power to … collect … duties … for revenue … but no bounties shall be granted from the Treasury; nor shall any duties or taxes on importations from foreign nations be laid to promote or foster any branch of industry.“
Warren Platts
May 28 2025 at 1:31pm
If the South were not free traders, then they were what: 18th century British-style mercantilists or Hamiltonian protectionists? Actually, neither makes sense. And Irwin’s book isn’t really relevant to Pierre’s post or my comment because both propose thought experiments rather than a rehashing of American history. The relevant document is the CSA Constitution, that, in terms of trade policy, is radically different from the USA’s:
If that is not an embrace of Smithian free trade, then I don’t know what is. It certainly represents a rejection of Hamiltonian protectionism in that it explicitly bans infant industry bounties (what we call subsidies) and any sort of protectionist tariffs to promote the manufacturing sector. Granted, as Smith himself pointed out, revenue-raising tariffs can also provide protection for Home workmen; but since Smith himself said that, the CSA Constitution can’t be considered anti-Smithian merely for having revenue raising tariffs. Certainly, the CSA Constitution would have forestalled the debates that actually happened regarding whether to raise tariffs when tariffs were collecting too much tax revenue!
So my question still stands: if the free trade theory is true, then (and as Pierre suggests above wrt Mississippi by itself) a victorious CSA would have grown faster than the Northern USA. Right?
Jon Murphy
May 28 2025 at 6:17pm
They absolutely were mercantilist. It was obvious from their economic policies during the war. That’s not even a question.
And the reference to Irwin’s book is relevant. Your thought experiment starts from a faulty premise.
Pierre Lemieux
May 28 2025 at 6:22pm
Warren: Ceteris paribus, economic theory and history strongly suggest that a country where residents are freer to buy from, and sell to, whomever they want will certainly grow faster–in the sense of better satisfying the demand of its residents.
It is, however, difficult (I would say impossible) to call “free trading” a country or area where than one-third of the population have no right to trade with anyone. (The estimate that 32.1% of slaves in the Confederate population is from Jeff Hummel’s “Deadweight Loss and the American Civil War: The Political Economy of Slavery, Secession, and Emancipation.”)
Besides this, I can only support Jon’s recommendation of Doug Irwin’s monumental history of international trade in America, which I reviewed in Regulation (it is of course the 860-page book that matters, not my review). In the “dirty compromise” 0f 1787, the Southern state delegates accepted the federal right to regulate international commerce on condition that the slave trade continued and that export taxes be forbidden.