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Posts Tagged ‘Trade’

Back in January, I compared Reagan’s pro-trade views with Trump’s cramped protectionism.

Well, here’s another video of the Gipper talking about trade. I especially like how he used “destructionism” to describe protectionism.

And let’s consider exactly the kind of destruction that may occur.

ScotiaBank in Canada has crunched numbers on the possible consequences to North America in a world of Trump-style tariffs. The “good news” is that the United States suffers the least amount of damage.

The bad news (actually the worse news) is that the American people will suffer a significant and sustained loss of economic growth. And that has very negative implications for long-run prosperity.

But this isn’t just about macroeconomic aggregates.

Here’s an example from the Wall Street Journal of how protectionism backfires.

Lyon Group Holding…is struggling to survive as Donald Trump’s steel tariff gives his Chinese competitors an unfair advantage. Meet the law of unintended tariff consequences with arbitrary harm to the innocent. …Steel has long accounted for 45% of the cost of making lockers at Lyon and Republic, the single biggest expense. Mr. Trump’s 25% tariff has driven up the price of foreign steel and given domestic steel the chance to raise prices. American hot-rolled steel coil recently sold for $900 per short ton…up 38%, or $248 per ton, since the beginning of January. …Raising locker prices isn’t an option. Even before the tariffs, Lyon and Republic’s clients were paying a 10% premium for the convenience of buying American instead of Chinese, and they can’t afford to go any higher, Mr. Altstadt says. …foreign manufacturers are benefiting from Mr. Trump’s steel protectionism.

And here are some of the real-world costs.

If the tariffs remain in place, Mr. Altstadt says he’ll have no choice but to buy foreign-made locker components. Reluctantly, he’s visited factories in China to consider his options. But if Lyon and Republic outsource locker parts from abroad, Mr. Altstadt says he’ll have to lay off at least one-fourth of his American workforce and perhaps shutter and sell one of his metalworking factories. …he is haunted by “the devastating effect on real people.” Two-thirds of his workforce is unskilled.

I feel sorry for Mr. Altstadt, but I won’t lose sleep about his plight. I assume he’s at least in the top-5 percent for income and wealth.

The real victims of Trump’s protectionism are the ordinary workers at the company. These people may not have high skills, but they are playing by the rules and doing the right thing instead of living off the government. Yet now many of them may lose their jobs because the President doesn’t like America’s system of free enterprise.

Disgusting. Protectionism isn’t just bad economics. It’s immoral as well.

P.S. Reagan’s rhetoric on trade was perfect, but not his policy. As I explained last year, his generally strong economic record was marred by some protectionist initiatives.

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On the issue of trade, Donald Trump is wallowing in the swamp of special interest favoritism instead of defending the interests of taxpayers and consumers.

  • He’s wrong on NAFTA.
  • He’s wrong on dealing with China.
  • He’s wrong on steel and aluminum.

And it appears that he is determined to be wrong on automobiles.

The Administration has launched a “Section 232” case at the cronyist Commerce Department, which is the first step toward a big tax increase – which would be unilaterally imposed – on imported vehicles.

By the way, Section 232 is supposed to be limited to issues involving national security. And since American consumers don’t buy cars from countries that are enemies (or even potential enemies) of the United States, the entire case is a farce.

Yet the protectionists in the Administration get to act as judge and jury.

Unfortunately, when a sentence is imposed, it will fall on Americans. The trade experts at the Peterson Institute for International Economics have analyzed the issue and they are not impressed by Trump’s proposed protectionism.

A new PIIE analysis shows that…production in these industries would fall 1.5 percent and cause 195,000 US workers to lose their jobs over a 1- to 3-year period or possibly longer. …If other countries retaliate in-kind with tariffs on the same products, production would fall 4 percent, 624,000 US jobs would be lost… This second scenario would also hurt US exports of these products more than imports. …Both scenarios demonstrate how reliant the domestic industries are on imported parts, or intermediate inputs, that are not produced in the United States or that have no easy US-made substitute. Tariffs would raise the cost of these parts and domestic production, which makes products more expensive to consumers and lowers demand for them in the United States and abroad. … nearly 98 percent of the targeted car and truck imports by value would hit key US allies: the European Union, Canada, Japan, Mexico, and South Korea.

Here’s a table from the PIIE study (click to enlarge).

Unfortunately, the second line is the most relevant since other nations will respond with their own destructive trade taxes.

But let’s not rely on just one source. The Hill reported on some additional research about the potential job losses from higher taxes on auto imports.

President Trump‘s proposed tariffs on imported automobiles and parts would cost the U.S. economy 157,000 jobs, according to a report by the Trade Partnership, a trade policy consultancy. “We find that the tariffs would have a very small positive impact on high-skilled workers in the motor vehicle and parts sectors, but very large negative impacts on workers — both high- and lower-skilled — in other sectors of the economy,” the study says. …the tariff policy would boost jobs in the auto sector by 92,000, but then destroy 250,000 jobs in the rest of the economy, according to the study. The price of foreign vehicles would rise from $30,000 to $36,400, a 21 percent increase. All in all, the economy would lose 0.1 percent of its value. Those effects don’t take into account any potential retaliation by American trade partners for the tariffs.

The Tax Foundation looked at the impact of higher taxes on imported autos and discovered that they would wipe a big chunk of the recent tax cuts.

 increasing tariffs on automobile imports would reduce the gain in after-tax income for households in 2018 derived from the Tax Cuts and Jobs Act while making the tax code less progressive. In 2017, the United States imported nearly $293 billion worth of vehicles for consumption, while paying about $3.4 billion in duties on those imports. If we assume that import levels will remain the same…the new tariff would amount to a $73 billion tax increase. …Using the assumptions mentioned above, we estimate that the new tariffs on automobiles would reduce after-tax incomes for all taxpayers by 0.47 percent in 2018 while making the distribution of the tax burden less progressive. These tariffs would fall harder on those taxpayers in the bottom 80 percent, reducing their after-tax income by 0.49 percent.

Here’s a chart from the report showing – for various income groups – how the trade tax hikes are offsetting the reductions from last year’s tax reform.

The Wall Street Journal opined on the economic harm to ordinary Americans.

The tariffs shave gains in all income brackets, but no one is hurt more than the poor and middle class. …Tariffs are inherently regressive because low-income Americans spend more of their income on household goods. Commerce Secretary Wilbur Ross has argued that no one will notice price increases—what’s a few cents more for a can of soup? But people in Mr. Ross’s income strata are not the Trump base. The Commerce Department is still looking at whether a muffler is a national security threat under Section 232 of the Trade Expansion Act of 1962. President Trump should abandon the idea lest Americans wonder if they really benefitted from that tax cut.

What about the White House’s claim that there should higher taxes on foreign cars because of national security?

Well, I rarely agree with Paul Krugman on fiscal policy, but there’s a good reason why he won a Nobel Prize for his work on international economics. His analysis on this topic is spot on.

…there have been only a handful of Section 232 investigations over the past half century — and most of them ended with a presidential determination that no action was warranted. But Trump is different. He has already imposed tariffs on steel and aluminum in the name of national security, and he is now threatening to do the same for autos. The idea that imported cars pose a national security threat is absurd. We’re not about to refight World War II, converting auto plants over to the production of Sherman tanks. And almost all the cars we import come from U.S. allies. Clearly, Trump’s invocation of national security is a pretext, a way to bypass the rules that are supposed to limit arbitrary executive action.

Showing this is a big tent, the Chamber of Commerce also concurs.

The U.S. Chamber strongly opposes the administration’s threat to impose tariffs on auto imports in the name of national security. If this proposal is carried out, it would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war. In fact, the U.S. auto industry is prospering as never before. Production has doubled over the past decade, it exports more than any other industry, and it employs nearly 50 percent more Americans than it did in 2011. These tariffs risk overturning all of this progress. This isn’t about national security. The administration has already signaled its true objective is to leverage this tariff threat in trade negotiations with Mexico, Canada, Japan, the European Union, and South Korea. These allies provide nearly all U.S. auto imports and are among America’s closest partners. Neither they nor these imports endanger our national security in any way. The president’s Section 232 authorities should not be abused in this way, and doing so only encourages other nations to do likewise.

As does the Business Roundtable.

The Section 232 tariffs on steel and aluminum imports have harmed the U.S. economy, resulting in higher costs on U.S. businesses and consumers, and exposing U.S. exporters to foreign retaliation. Imposing such tariffs on automobile and automotive parts imports would only make things worse. Using ‘national security’ arguments under Section 232 to investigate and potentially impose tariffs on auto imports doubles down on a bad precedent for U.S. trade policy. It undermines our nation’s credibility in the global community, weakens the international trading system, and emboldens other countries to use ‘national security’ to limit U.S. goods and services exports to their markets.

Even the auto industry – including some American manufacturers – is opposed, as reported by ABC.

Two Washington D.C.-based automaker groups are slamming President Donald Trump’s decision to launch an investigation into auto imports, which could lead to tariffs on foreign-made vehicles. “To our knowledge, no one is asking for this protection. If these tariffs are imposed, consumers are going to take a big hit,” said John Bozella, President of Global Automakers, a trade group representing foreign manufacturers doing business in the U.S. …The legal mechanism for the investigation “has rarely been used and traditionally has not focused on finished products,” said Gloria Bergquist, spokeswoman for Auto Alliance, a group that represents foreign automakers like Volkswagen and BMW in addition to U.S. manufacturers like GM and Ford. “We are confident that vehicle imports do not pose a national security risk to the U.S.,” Bergquist said. …”Last year, 13 domestic and international automakers manufactured nearly 12 million vehicles in the U.S. The auto sector remains the leading exporter of manufactured goods in our country,” Bergquist said.

And the Financial Times notes that the rest of the world isn’t happy, either.

Donald Trump’s threat to impose tariffs on automotive imports in the name of national security has drawn condemnation from US trading partners around the world and warnings that it would disrupt global supply chains and put the international trading system at risk. …The European Commission…said it was “far-fetched” to invoke a national security consideration for car imports. That sets the stage for a possible challenge to any US tariffs at the World Trade Organization. …Japan also responded in unusually strong terms. “If they were to go ahead with such wide-ranging trade restrictions, it would throw the global market into confusion,” said Hiroshige Seko, minister of economy, trade and industry. “There could be a negative effect on the WTO multilateral trading system. It is extremely regrettable.”

In my humble opinion, “extremely regrettable” is the understatement of the century. As Walter Williams observed, protectionism is a punitive form of government intervention. Politicians and bureaucrats decide that their prejudices should take priority over consumer preferences.

That’s morally offensive, but it’s also economically self-destructive since the research unambiguously demonstrates that protectionism is a net job destroyer.

Yet politicians don’t care, either because they are motivated by “public choice” or because they lack the cognitive skills to realize that the “seen” jobs that are saved by trade barriers are easily offset by the “unseen” jobs that are destroyed (h/t: Bastiat).

I suspect Trump is part of the second group, but I’ll reserve judgement until I have the opportunity to ask him these eight questions.

Let’s close by making the elementary observation that national security is easier to finance with a strong economy. Yet protectionism reduces economic vitality. All the more reason why Section 232-instigated trade barriers are so senseless and illogical. And all the more reason why I wish Trump was serious when he proposed zero trade barriers with American allies.

P.S. Here’s a bit of trade history. The United States already imposes a 25 percent tax on imported light trucks. So why did American politicians decide to hurt American truck buyers with this tax? As explained in this video, it’s because European politicians decided to hurt their consumers with taxes on American chickens.

So if the Trump Administration moves forward with a big tax hike of foreign cars, video makers in the future will have new stories to tell about how reciprocal protectionism hurt various American industries, workers, and consumers. Maybe politicians will take the sugar program and extend that moronic approach to other sectors of the economy.

Gee, isn’t government wonderful?

P.P.S. This is yet another reason why I miss Reagan.

P.P.P.S. Here’s the only acceptable argument for import taxes.

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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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The good news is that Donald Trump is not imitating all of Herbert Hoover’s statist policies.

The bad news, as I explain in this interview, is that his protectionist mistakes could trigger a repeat of Hoover’s beggar-thy-neighbor protectionism that wreaked havoc in the global economy during the 1930s.

George Santayana is famous for warning that “Those who cannot remember the past are condemned to repeat it.”

Well, this is why I’m so agitated about what Trump is doing. It’s true that the economy will not be wiped out by the trade taxes he’s imposing today. But what happens when other nations retaliate, and then Trump doubles down with additional taxes on global commerce?

That’s a potential recipe for a big reduction in worldwide liberty. Which is exactly what happened in the 1930s, as illustrated by this chart from an academic study.

At the risk of understatement, that would not be good for American prosperity. And blue-collar workers would be among the victims since protectionism always destroys more jobs than it saves.

So what can be done about this?

The Washington Post reports on some bipartisan legislation that would curtail Trump’s authority to unilaterally destabilize world trade.

Sen. Bob Corker (R-Tenn.) introduced a bipartisan bill Wednesday that would give Congress new authority to check the president’s trade moves… Corker’s bill would require congressional approval when the president enacts tariffs under the auspices of national security, as Trump did last week in imposing levies on aluminum and steel imports from Canada, Mexico and the European Union. The legislation, which Corker released with a total of nine Democratic and Republican co-sponsors, is the most forceful congressional response to date to Trump’s protectionist trade agenda. …The bill’s prospects are unclear. Corker acknowledged that some Republicans are unwilling to cross the president, and Majority Leader Mitch McConnell (R-Ky.) has ruled out bringing up the measure as a stand-alone bill. But Corker’s bill appeared to be gaining traction on and off Capitol Hill on Wednesday. The U.S. Chamber of Commerce announced its support, as did Koch Industries. …Corker’s legislation would require the president to submit to Congress any proposal to adjust imports in the interest of national security. The legislation would qualify for expedited consideration for a 60-day period. …The co-sponsors are Republican Sens. Patrick J. Toomey (Pa.), Lamar Alexander (Tenn.), Mike Lee (Utah), Ron Johnson (Wis.) and Jeff Flake (Ariz.), along with Democrats Heidi Heitkamp (N.D.), Mark R. Warner (Va.), Brian Schatz (Hawaii) and Chris Van Hollen (Md.).

I’m sympathetic to such legislation, not only to thwart Trump’s protectionism, but also because I don’t think any White House should have so much unilateral power. In other words, I’m philosophically consistent. I didn’t think it was right for Obama to have the authority to arbitrarily change provisions of Obamacare and I don’t think it is right for Trump to have the authority to arbitrarily change provisions of trade law.

But let’s stick to the trade issue. Lower taxes on global commerce are one of the great achievements of post-World War II era. Policy makers around the world have lowered barriers and allowed the free market more breathing room.

That’s been a very successful policy.

By the way, politicians from developing nations deserve special credit. They’ve been especially aggressive in lifting the burden of trade taxes. Here’s a chart prepared by the Confederation of British Industry.

I started today’s column by warning that Trump shouldn’t emulate Hoover. I’ll end the column by pointing out that Reagan is a better role model.

And if that doesn’t work, maybe we can educate the President on why it’s good to have a capital surplus, which is the flip side of having a trade deficit.

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I explained last month that the World Trade Organization’s dispute-resolution mechanism is the best way of discouraging China from short-sighted mercantilist and cronyist trade policies.

The Trump Administration, though, thinks that the best response to bad Chinese trade policy is to adopt bad American trade policy.

In this interview, I fret that tit-for-tax protectionism is bad, and might even lead to a 1930s-style trade war.

The Wall Street Journal also is concerned, opining this morning about Trump’s self-destructive protectionism.

Stocks have given up their earlier gains since the President unveiled his protectionist trade agenda…the main policy concern is the new uncertainty from rising trade tension. China slapped punitive tariffs on 128 categories of American goods on Monday in retaliation for the Trump Administration’s national-security levies on steel (25%) and aluminum (10%) imports last month. …it sends a pointed message that a larger trade war would hurt American businesses, farmers in particular. …China’s retaliation is best understood as an economic and political demonstration, hitting a small number of products to signal where future blows could fall if the Trump Administration imposes punitive tariffs on $60 billion in Chinese goods to punish the theft of intellectual property. It’s notable that both Republican-leaning and Democratic states were hit. Tariffs on America’s biggest exports to China, such as soybeans and Boeing aircraft, were held in reserve. But don’t be surprised if they’re on the list if the President imposes Section 301 tariffs as he has vowed to do. …there will be significant collateral damage to innocent business bystanders, American consumers, and the overall U.S. economy. Mr. Trump risks undermining the policy gains from tax reform and deregulation that have teed up the economy for faster growth.

Amen, especially that last sentence.

As I warned in the interview, Trump is sabotaging the progress he made on tax policy and regulation.

Not a smart move since he likes to use the stock market as a report card on his performance. Live by the Dow Jones, die by the Dow Jones. Though, in this case, his protectionism means he wants to commit suicide by the Dow Jones.

Speaking of report cards, here’s a mock report card I created for the President. It’s not as amusing as the mock college transcript from Obama’s time at Columbia, but it highlights how bad policy – on spending as well as trade – is offsetting good policy.

It’s a bit different from the grades I gave on the one-year anniversary of Trump’s inauguration, but more time has passed.

P.S. In the section for “teacher comments,” I suggested that the President needs extra tutoring to understand that a capital surplus (the flip side of a trade deficit) is generally a very positive indicator.

P.P.S. Let’s not forget that Trump is also threatening to deep-six NAFTA, so there are multiple threats to open global trade.

P.P.P.S. Makes me miss the Gipper even more. Heck, makes me miss Clinton, since he was in office and played a positive role when NAFTA and the WTO were ratified.

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At the risk of stating the obvious, I’m not a fan of international bureaucracies. The International Monetary Fund and the Organization for Economic Cooperation and Development are the worst multilateral institutions because of their promotion of bad policy, but I’ve also gone after the United Nations and World Bank for their periodic efforts to advance statism.

But this doesn’t mean I’m reflexively against international organizations. My criticisms of the IMF, OECD, UN, and WB are solely a function of their work to empower governments at the expense of people.

And this is why I generally like the World Trade Organization. The WTO is a Geneva-based international bureaucracy, but its mission is to empower people at the expense of governments by reducing import taxes and other trade barriers.

Which explains why I think President Trump will be making a mistake if he imposes unilateral tariffs on China. Yes, there seems to be strong evidence that China’s government is misbehaving, but I think that a positive outcome is far more likely if the U.S. government takes the issue before the WTO. Which is what I said in this short interview with Neil Cavuto.

And I’m not alone.

Bloomberg editorialized recently about this issue.

President Donald Trump…is…addressing a legitimate trade dispute: China’s alleged theft of intellectual property and forced technology transfers. …the U.S. alleges — with reason — that China has been stealing U.S. trade secrets, forcing American companies to hand over proprietary technology as a condition of doing business on the mainland, and providing state support for Chinese firms to acquire critical technology abroad. …Yet unilateral blanket tariffs of the sort the administration is considering are the wrong answer. In the first instance, they’d hurt U.S. consumers and producers even if they didn’t provoke retaliation (which they probably would). They’d undermine the World Trade Organization’s dispute-resolution system, perhaps fatally.

And the editorial points out that the WTO is a better place to settle the dispute.

…one can question the WTO’s effectiveness in resolving disputes of this kind: The process moves slowly. On the other hand, it works. The U.S. has won the great majority of the cases it’s taken there. The complaint against China’s practices would be stronger if it was coordinated with other governments. Japan and the European Union share U.S. concerns and would be willing to cooperate. As recently as last month, this seemed to be the strategy. …the U.S. needs to take the lead, once more, in global economic statecraft. Champion the rules-based order that has served the country and the world so well. Strengthen the WTO, don’t subvert it.

And the Wall Street Journal opined today on this topic.

…there’s no denying that Beijing’s mercantilism has fueled the political backlash against free trade. China’s increasingly predatory behavior, especially intellectual-property theft, poses a particular problem to a sustainable trading system. The question is how to respond in a way that encourages better Chinese behavior without harming the global economy and American companies and workers. …the danger is a tariff tit-for-tat that harms everyone. …Beijing is more likely to respond in kind at such a broad public assault on its goods.

The WSJ notes that China’s behavior has left something to be desired.

Beijing has turned to mercantilism over the last decade. …The government gives subsidies in several forms, including loans from state-owned banks on easy terms and low interest rates. …Along with subsidies and government help in acquiring foreign companies, the policy explicitly requires foreign companies to transfer intellectual property in return for access to the Chinese market. …Beijing has also stepped up its use of regulations to discriminate against foreign companies. …All of these policies violate WTO agreements. …The China problem now is the predatory use of government power to punish foreign competitors to benefit Chinese companies.

The WSJ doesn’t necessarily think the WTO is the right vehicle to respond, but it definitely supports a plurilateral approach.

…remedies should be based on the principle of reciprocity. If Beijing pressures multinational car companies to build electric cars in China, the U.S., EU and Japan could impose a tariff on Chinese-made vehicles and restrict the transfer of related technology. This would avoid the Trump Administration’s approach of tariffs on a wide variety of goods, a policy that alienates allies and raises the risk of a wider trade war. A targeted approach…could even strengthen the WTO as China would have an interest in modernizing and using the organization’s courts to resolve the disputes.

I’m a fiscal wonk rather than a trade wonk, so I’m open to the notion that perhaps a plurilateral approach is better than the WTO’s dispute resolution mechanism.

Though it’s worth noting that the United States has a very high batting average when bringing cases to the WTO.

Dan Ikenson, director of Cato’s Herbert A. Stiefel Center for Trade Policy Studies, reviewed WTO trade disputes involving the U.S. from 1995 to March of this year. He found that the U.S. prevailed in 91 percent of cases that it brought against other countries. “When the United States has been a complainant (as it has in 114 of 522 WTO disputes over 22 years — more than any other WTO member) it has prevailed on 91 percent of adjudicated issues,” he wrote.

I’ll close by noting that China’s bad policies don’t make it an enemy. The European Union is a semi-protectionist bloc and it isn’t our enemy either.

My goal is to simply point out that China’s approach to trade can be improved and should be improved. And since the country has moved in the right direction on overall economic policy (with very positive effects for the Chinese people), my hope is that coordinated opposition to Chinese mercantilism will have a positive effect.

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I’ve been very critical of Trump’s protectionism. I explained why he was wrong before the 2016 election and I’ve continued to argue he is misguided ever since he became President.

Most recently, I even expressed hope that Congress would overturn his new taxes on American consumers.

Some people are arguing, however, that the situation isn’t quite so bad because Trump may have a clever plan to use tariffs as a tool to force other nations to reduce their trade barriers.

I very much hope that’s the case, as I noted in this interview with Fox Business, but I’m not holding my breath for a favorable outcome.

I’m not the only one who is skeptical.

In her column for the Wall Street Journal, Mary Anastasia O’Grady pours cold water on the hypothesis that Trump is playing a very clever game.

President Trump’s practice of staking out extreme positions on trade as a negotiating tactic is a sign of his brilliance. Or so we’re told. But that theory took on water last week, when Mr. Trump had to backtrack on a promise to hit Mexico and Canada with a 25% tariff on steel and a 10% tariff on aluminum, without any concessions from either Mexico City or Ottawa. …Mr. “Art of the Deal” figured out that his opening tariff bid was on track to blow up the two best foreign markets for American-made steel and significant markets for American-made aluminum. It’s a good bet that the same producers who are lobbying for protection asked the president to back off the neighbors. The gaffe exposes the Trump administration’s failure to grasp the complexity of the supply chains that interconnect the global economy.

Well said.

By the way, I’m not just picking on Trump. I’ve criticized other Presidents for protectionist policies, most notably Hoover.

And I even dinged Saint Ronald for trade barriers (though I also noted Reagan’s good policies regarding NAFTA and the GATT).

Unsurprisingly George W. Bush also belongs on the list. Professor Vernon Smith relates a story about Bush’s protectionism in the Wall Street Journal.

I was one of nine American Nobel laureates invited to visit the White House Nov. 19, 2002, by President George W. Bush. Each of us had a few minutes to speak privately with the president… Mr. Bush congratulated me on my award in economics. …I added: “You must be doing some things right, but you did two things wrong—your steel tariff proposal and the farm bill.” I startled him, but our exchange was not over. …Later in the Lincoln Room, Mr. Bush was talking with a group of my colleagues from George Mason University. Seeing me nearby, he raised his voice in a friendly retort: “Earlier, your laureate friend gave me a hard time about the steel tariff. I’m thinking that he should handle the economics, and I’ll take care of the politics.”

Professor Smith points out, however, that Bush was wrong on the politics as well as the economics (a lesson the GOP should have learned from Reagan).

His proposal collided with a widespread political backlash at home and abroad, and with retaliation from our foreign trading partners. The Bush steel tariff, imposed in 2002, was rescinded in 2003. It was not feasible. He recognized its unreality, and backed off.

Hopefully Trump will retreat as well.

The last thing the world needs is a repeat of the 1930s.

But if that happens, be prepared for very bad news. Here’s a report on how trade taxes would undermine America’s economy.

A full-blown trade war would erase any economic benefits from the Republican tax cuts passed last year, according to an analysis by the University of Pennsylvania. …The Penn Wharton Budget Model, a research center at the university, imagined the worst case — no US imports or exports crossing borders tariff-free. The United States has free trade agreements with 20 nations. Wharton’s model assumes those all disappear. Such a trade war would make US economic output 0.9% lower than otherwise by 2027, according to the analysis. …Over the longer term, the costs of a trade war would heavily outweigh the benefits of the tax cut. By 2040, the US would lose 5.3% of economic output in the worst trade-war scenario, compared with a 1.6% increase from the tax cuts, the university found. Put another way, a full-blown trade war would cost the economy $200 billion over 10 years, and $1.4 trillion by 2040. American wages would decline, too, falling 1.1% over the next 10 years.

Last but not least, Mark Perry recently shared three videos from Khan Academy on international trade and economics. All of them are worth watching if you really want to understand the issue.  But here’s the one that I think everyone should watch.

And Mark adds this chart, which reinforces the point from the video – and something I’ve also tried to explain – about a capital surplus being the necessary and automatic flip side of a trade deficit.

In other words, when foreigners get dollars, they oftentimes think the best use of that money is to invest in America’s future. That’s a sign of strength, not weakness.

P.S. If you think protectionism is a good idea, please review these five charts.

P.P.S. Though I’m willing to go back to 19th-century tariffs – assuming we roll back all the government that has accumulated since then.

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