In early 2019, I released this video summarizing some of the evidence for free trade.
The bad news is that I must not be very persuasive. Trump continued with protectionist policy.
The good news is that we now have more evidence against that form of government intervention.
But first, I’m going to start with a bit of theory. Here’s a chart from the Council of Foreign Relations showing the relationship between prosperity and trade balances.
And here’s the explanation, courtesy of Benn Steil and Benjamin Della Rocca.
President Trump says that America running a trade deficit means that “jobs and wealth are being given to other countries.” …this statement is logically and historically false.
The left-hand figure above shows that the relationship between trade deficits and growth in the United States, going back nearly 30 years, is the opposite. Rising growth tends to increase imports through higher consumption. The imports have not meant that “jobs and wealth are being given to other countries”: they have been a sign of a strong U.S. economy.
This is spot on. As I explained in my video on the trade deficit, people in richer, faster-growing countries can afford to buy more goods and services (regardless of where they are produced) than people in countries with anemic economic performance.
Indeed, this is why (at least in the pre-coronavirus era) America’s trade deficit was expanding.
Now let’s shift to the additional evidence that has accumulated since the video was produced.
Here’s are the key findings from a study by Kyle Handley, Fariha Kamal, and Ryan Monarch, which was just published by the Federal Reserve.
Using 2016 confidential firm-trade linked data, we document the implied incidence and scope of new import tariffs. Firms that eventually faced tariff increases on their imports ac-counted for 84% of all exports and they represent 65% of manufacturing employment.
For all affected firms, the implied cost is $900 per worker in new duties. To estimate the effect on U.S. export growth, we construct product-level measures of import tariff exposure of U.S. exports from the underlying firm micro data.More exposed products experienced 2 percentage point lower growth relative to products with no exposure. The decline in exports is equivalent to an ad valorem tariff on U.S. exports of almost 2% for the typical product and almost 4% for products with higher than average exposure.
Here are some results of a recent study by Stephen J. Redding, Mary Amiti, and David Weinstein.
Using data from 2018, a number of studies have found that recent U.S tariffs have been passed on entirely to U.S. importers and consumers. …Using another year of data including significant escalations in the trade war,
we find that U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers. We show that the response of import values to the tariffs increases in absolute magnitude over time, consistent with the idea that it takes time for firms to reorganize supply chains.
Here’s a chart from the study showing how Trump basically tripled average trade taxes over the past couple of years.
Next we have a 2019 study authored by Davide Furceri, Swarnali A. Hannan, Jonathan D. Ostry, and Andrew K. Rose.
We estimate impulse response functions from local projections using a panel of annual data that spans 151 countries over 1963‐2014. Tariffs increases are associated with persistent economically and statistically significant declines in domestic output and productivity,
as well as higher unemployment and inequality, real exchange rate appreciation and insignificant changes to the trade balance. Output and productivity impacts are magnified when tariffs rise during expansions and when they are imposed by advanced (as opposed to developing) economies; effects are asymmetric, being larger when tariffs go up than when they fall. Results are robust to a large number of perturbations to our methodology, and hold using both macroeconomic and industry‐level data.
These charts from their study paint a damning picture.
The bottom line is that Trump’s trade policies are hurting the U.S. economy (just like China’s protectionist policies are hurting that nation’s economy).
P.S. A great mystery is how some analysts understand that it’s bad to have higher taxes on trade, yet also think it’s perfectly okay to impose even bigger tax increases on work, saving, investment, and entrepreneurship. The folks at the International Monetary Fund are very guilty of this type of fiscal hypocrisy.
[…] interested in these numbers, which show that there’s a modest benefit from unwinding some of Trump’s protectionism, but there’s a lot of damage from the the other changes proposed by the former Vice […]
[…] At the risk of sounding petulant, my answer is no. I don’t care how good the data looks in any particular year. Excessive government spending is never a good idea, and it’s also never a good idea to throw sand in the gears of global trade. […]
[…] state, there were other forms of intervention, as illustrated by the video, as well as lots of protectionism and […]
[…] If my column is about the former, I generally complain about excessive spending, punitive taxation, senseless red tape, easy-money monetary policy, and trade protectionism. […]
Sometimes I think Libertarians should change their name to Material-tarians or Money-tarians or Cash-atarians, because they care more about money than they do about actual liberty.
Actually, my theory is that a lot of Libertarians are actually shills for the Globalists, hired for the purpose of misleading honest and sincere libertarians to support policies that are inimical to actual liberty and libertarianism.
[…] Protectionism vs. Prosperity […]
Yes, in an ideal world completely free trade is best. But we do NOT have an ideal world.
Countries like China actively steal our intellectual property and hovered up PPE in Australia (actually world-wide) to profit from the Coronavirus pandemic that the Chinese Communist Party purposely inflicted on the world by banning internal flights from Wuhan but not to the rest of the world.
Companies are so short-sighted focussed on this year’s profit rather than long-term stability that they ship drug manufacturing off-shore and then America suffers when China threatens to stop allowing drugs to be exported back to America.
Then there’s Hauwei who were proven guilty of spying on the African Union headquarters, yet still vehemently pretend they do not spy on their customers. see then proof at:
https://www.dailysignal.com/2019/12/13/the-growing-threat-of-china-and-how-us-should-respond/#comment-4724869101
Other people have listed numerous other reasons for shunning trade with China:
1. They are international trade bullies.
2. They steal our intellectual properties and sell them as their own.
3. They have stolen Pacific islands claimed by other countries.
4. They have over a million Chinese Uyghurs in penal camps. Are they slaves?
5. They forcibly remove people’s organs and sell them internationally.
6. They jail (or murder) anyone who criticizes their communist government.
7. They invaded and occupy Tibet, a country that doesn’t want them there.
8. They send spies posing as students to steal our defense and economic secrets.
All this means that sanctions against countries like China until they stop breaking the law are entirely sensible and should be commended not vilified.
Reblogged this on Boudica BPI Weblog.
Dems pretend to believe the 1930 tariff was the trainwreck the Crash predicted, while God’s Own Prohibitionists imagine FDR was somehow to blame 3.5 years before he even became a candidate. The 1930 tariff raised the sugar rate and demanded stifling prohibitionist regulations. Nobody points to those specifics–and certainly not asset-forfeiture under the 1929 Increased Penalties Act. In a struggle for individual rights, repealing the individual capitation tax is important, not ditching the for-revenue tariff that financed America before communism began amending the Constitution.
I also need to say that it is a strange sort of “libertarianism” that sells out its own liberty for a few lousy yuan.
I’m thinking this has been the problem with “libertarianism” from the beginning, the short sighted foolishness of thinking that liberty could be purchased with nothing but hot air and snarky attitude, instead of blood, sweat, toil, and tears.
I no longer trust anyone who claims to be “libertarian” yet doesn’t acknowledge that many people will have to die in the struggle to achieve anything remotely resembling actual liberty.
I’m all for having a “liberal” trade policy with friendly nations, but since China is a deadly enemy of the US in particular and decent people everywhere in general, they need to be boycotted completely and shunned by any and all nations that don’t want to be infected by their evil wickedness.