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Posts Tagged ‘Free Trade’

At the risk of understatement, I’ve been very critical of President Trump’s trade policy.

I pointed out that he was just as bad as Bernie Sanders before the election. And I didn’t change my tune once he got to the White House. I’ve written several columns bemoaning his protectionist approach, including a piece just two days ago where I criticized the President for blowing up the G7 summit for the wrong reason.

That being said, he put forth a very attractive proposal in his post-G7 press conference.

President Donald Trump told foreign leaders at the Group of Seven summit that they must dramatically reduce trade barriers with the United States… Trump, in a news conference before leaving for Singapore, described private conversations he held over two days with the leaders of Britain, France, Germany, Italy, Japan and Canada. He said he pushed them to consider removing every single tariff or trade barrier on American goods, and in return he would do the same for products from their countries.

Part of me thinks this was just a throwaway line. But I’m always willing to look at the glass as being half-full.

Here’s what I said when Dana Loesch asked me about Trump’s offer.

Let’s treat Trump’s statement as a serious offer. Or as something that could evolve into a serious offer.

And I’ll start by observing that mutual disarmament on trade among G7 countries would be good for America, especially from a Trump-ish perspective. That’s because the U.S. currently is slightly better on trade according to the Fraser Institute’s measures of both tariff and non-tariff barriers, so other G7 countries would have to do more if we had complete trade liberalization.

In reality, that simply means that those other countries have even more to gain if trade barriers disappear, but I’m trying to imagine how Trump would see things.

And here’s a map from the World Trade Organization, showing average MFN tariffs. The good news is that the United States is in the top category, with trade taxes that average only 3.48 percent. The other G7 nations also have relatively low tariffs, but not quite as low as the United States. So they would have to do more if there was an agreement, which presumably would appeal to Trump.

Incidentally, my analysis assumes that the average tariff rates that apply generally also apply to trade between G7 nations. If that’s not the case, then I’ll have to go back to the drawing board since I very much doubt Trump can be convinced to support liberalization because of traditional free-market reasons.

To be honest, I’m skeptical about Trump supporting free trade among G7 nations, regardless of how much liberalization other nations would be willing to embrace.

The fundamental problem is that Trump genuinely seems to believe that a “trade deficit” is evidence that a nation is somehow losing or being mistreated. In reality, a trade deficit is simply the flip side of a capital surplus. And that’s generally evidence of a nation’s economic strength.

So while I think it’s good news that Trump floated a zero-trade-barrier offer, I’m not holding my breath it will ever happen.

P.S. Technically, a free trade agreement among the G7 isn’t even possible since Germany, France, Italy, and the United Kingdom (until Brexit is complete) are all part of the European Union, which is basically a single nation for purposes of trade rules.

P.P.S. The nation of Georgia wins the prize for lowest average tariffs (1.51 percent) according to the WTO. New Zealand (2.04 percent), Peru (2.44 percent), and Australia (2.52 percent) also deserve praise for having very low taxes on trade.

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When asked to pick my most frustrating issue, I could list things from my policy field such as class warfare or income redistribution.

But based on all the speeches and media interviews I do, which  periodically venture into other areas, I suspect protectionism vs. free trade is the biggest challenge.

So I want to ask the protectionists (though anybody is free to provide feedback) how they would answer these simple questions.

1. Do you think politicians and bureaucrats should be able to tell you what you’re allowed to buy?

As Walter Williams has explained, this is a simple matter of freedom and liberty. If you want to give the political elite the authority to tell you whether you can buy foreign-produced goods, you have opened the door to endless mischief.

2. If trade barriers between nations are good, then shouldn’t we have trade barriers between states? Or cities?

This is a very straightforward challenge. If protectionism is good, then it shouldn’t be limited to national borders.

3. Why is it bad that foreigners use the dollars they obtain to invest in the American economy instead of buying products?

Little green pieces of paper have little value to foreign companies. They only accept those dollars in exchange for products because they intend to use them, either to buy American products or to invest in the U.S. economy. Indeed, a “capital surplus” is the flip side of a “trade deficit.” This generally is a positive sign for the American economy (though I freely admit this argument is weakened if foreigners use dollars to “invest” in federal government debt).

4. Do you think protectionism would be necessary if America did pro-growth reforms such as a lower corporate tax rate, less wasteful spending, and reduced red tape?

There are thousands of hard-working Americans that have lost jobs because of foreign competition. At some level, this is natural in a dynamic economy, much as candle makers lost jobs when the light bulb was invented. But oftentimes American producers can’t meet the challenge of foreign competition because of bad policy from Washington. When I think of ordinary Americans that have lost jobs, I direct my anger at the politicians in DC, not a foreign company or foreign workers.

5. Do you think protectionism would help, in the long run, if we don’t implement pro-growth reforms?

If we travel down the path of protectionism, politicians will use that as an excuse not to implement pro-growth reforms. This condemns America to a toxic combination of two bad policies – big government and trade distortions. This will destroy far more jobs and opportunity that foreign competition.

6. Do you recognize that, by creating the ability to offer special favors to selected industries, protectionism creates enormous opportunities for corruption?

Most protectionism in America is the result of organized interest groups and powerful unions trying to prop up inefficient practices. And they only achieve their goals by getting in bed with the Washington crowd in a process that is good for the corrupt nexus of interest groups-lobbyists-politicians-bureaucrats.

7. If you don’t like taxes, why would you like taxes on imports?

A tariff is nothing but a tax that politicians impose on selected products. This presumably makes protectionism inconsistent with the principles of low taxes and limited government.

8. Can you point to nations that have prospered with protectionism, particularly when compared to similar nations with free trade?

Some people will be tempted to say that the United States was a successful economy in the 1800s when tariffs financed a significant share of the federal government. That’s largely true, but the nation’s rising prosperity surely was due to the fact that we had no income tax, a tiny federal government, and very little regulation. And I can’t resist pointing out that the 1930 Smoot-Hawley tariff didn’t exactly lead to good results.

We also had internal free trade, as explained in this excellent short video on the benefits of free trade, narrated by Don Boudreaux of George Mason University and produced by the Institute for Humane Studies.

My closing argument is that people who generally favor economic freedom should ask themselves whether it’s legitimate or logical to make an exception in the case of foreign trade.

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