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Posts Tagged ‘Trade’

One of the interesting games in Washington is deciding who on the right (however defined) is a “Trumpie” and who is a “Reaganite.”

Here are a few indicators.

But, given the huge gap in their views, trade is probably the biggest way of separating the Trumpies from the Reaganites.

And if you want a clear dividing line for Members of Congress, just see whether they support the “Reciprocal Trade Act” or the “Congressional Trade Authority Act.”

The former is sponsored by Congressman Sean Duffy of Wisconsin and would empower Trump to impose more taxes on trade.

Bryan Riley of the National Taxpayers Union is wisely skeptical.

…treating our trading partners as allies rather than adversaries has paid enormous dividends for Americans. Just since 1990, world tariffs fell by nearly two-thirds as U.S. exports more than doubled, even after adjusting for inflation. …The Reciprocal Trade Act would turn this successful approach to trade on its head. …proponents who endorse this approach often argue that tariff reciprocity is needed to as a lever to reduce foreign trade barriers. But the White House’s own case studies show this is untrue. …Trump wants to replace a successful post-World War II policy based on the understanding that trade is win-win with one that is likely to encourage foreign governments to retaliate against Americans. …History shows trade policy is more likely to succeed if it is based on the Golden Rule instead of on hostile eye-for-an eye reciprocity. It turns out that the United States benefits when we treat our trading partners the way we would like them to treat us. …Princeton University’s Robert Keohane described how countries benefit from this “sequential reciprocity”… The goal of the Trump administration’s trade policy should be to promote reciprocal trade, not reciprocal taxes.

Here’s a chart from Bryan’s study that shows how trade liberalization in recent decades has been very successful.

In an article for National Interest, Clark Packard also pours cold water on the Reciprocal Trade Act.

The United States Reciprocal Trade Act, which will soon be introduced by Rep. Sean Duffy (R-Wis.), would expand the president’s already enormous unilateral authority to impose tariffs and other import restrictions. …the Reciprocal Trade Act would grant the president the authority to match the tariff applied to any given product by a trading partner. To use one of the administration’s favorite examples, the Europe Union applies a 10 percent tariff on imported automobiles, while the United States levies a 2.5 percent tariff on its imports. The Reciprocal Trade Act would allow the president unilaterally to raise the tariff to 10 percent on European cars as leverage for further negotiations.

He lists some of the reasons why the proposed law is bad policy.

The bill is enormously flawed and should be a nonstarter for myriad reasons. …violates U.S. commitments to the WTO’s Most-Favored Nation (MFN) principle of nondiscrimination. …The bill also would violate U.S. commitments under Article II of GATT. …the effect of the law would be that countries would retaliate against American exports and ensnare unrelated industries in a tit-for-tat. …The United States has been successful in getting other countries to lower tariffs and other trade barriers through negotiations. …the Reciprocal Trade Act would jeopardize this American-led system that has paid enormous dividends.

All of his points are accurate, though I don’t expect the president’s supporters would care about violating WTO obligations since they presumably would cheer if Trump pulled the U.S. out of the the agreement – even though it has been very beneficial for the United States.

Now let’s look at the Congressional Trade Authority Act, which would restrict rather than expand the ability of the executive branch to impose higher taxes on trade.

Adam Brandon of FreedomWorks explains the principles at stake.

…the Bicameral Congressional Trade Authority Act would ensure that all tariffs imposed by the executive branch in the name of national security must first be approved by Congress. Article I, Section 8 of the Constitution establishes that Congress “shall have the power to lay and collect taxes, duties, imposts, and excises.” The framers, in their wisdom, made this the very first power they delegated specifically to the legislative branch of the United States. Tariffs are taxes, and they adversely impact American consumers. Such measures should be enacted only after thoughtful debate by the elected representatives most accountable to the people of the United States. They should not be handed down unilaterally from the White House. …it’s time for Congress to reclaim their enumerated Article I power over trade. …FreedomWorks agrees with Rep. Gallagher and Sen. Toomey on the need to respect our Constitution and ensure Congress has full control over its Article I authority.

The Wall Street Journal opines favorably about Senator Toomey’s legislation.

…some on Capitol Hill are trying again to rein in the President’s tariff powers. …the Pennsylvania Republican…Mr. Toomey’s bill would require Congress’s blessing. Once a tariff is proposed, lawmakers have 60 days to pass a privileged resolution—no Senate filibuster to block consideration—authorizing it. No approval, no tariff.This is a serious reassertion of the Article I trade powers that Congress has long shirked. Since the bill is retroactive, President Trump would have to convince Congress that his tariffs on steel and aluminum are necessary. If lawmakers didn’t agree, the tariffs would end. …But that’s not all. The Commerce Secretary is now responsible for declaring that an import endangers national security. This bill would give the task, sensibly, to the Defense Secretary.

I like what Senator Toomey is trying to achieve. And I like it, not only because I don’t want politicians interfering with trade, but also because I support the Constitution.

America’s Founders deliberately set up a system based on Separation of Powers because they understood that unilateral power was a recipe for government abuse.

Interestingly, many Trumpies also claim to support the Constitution. Indeed, they are some of the biggest critics of the “administrative state,” which developed as federal agencies began to exercise legislative powers.

Which gives me an opportunity to contribute something to this discussion. I’m a great admirer of the American Enterprise Institute’s Mark Perry, in part because of his very clever hypocrisy-exposing Venn Diagrams (taxation and incentives, the War on Drugs, minimum wage, Food and Drug Administration, and consenting adults).

So, in hopes of showing Trumpies the error of their ways, here’s my humble attempt to copy Mark.

P.S. Even though open trade is very beneficial for American prosperity, I would not want a future president to assert unilateral power to eliminate tariffs. Yes, I want better policy, but I also support the Constitution and the rule of law.

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Donald Trump and other populist leaders frequently are condemned for undermining the “rules-based system” that is the basis of the “postwar order.”

What exactly is meant by this criticism? In the case of Trump, is it disapproval of his protectionism?

Yes, but that’s just the tip of the iceberg.

The broader accusation is that Trump and the others are insufficiently supportive of the so-called “international architecture” of treaties and organizations (the United Nations, International Monetary Fund, World Trade Organization, World Bank, G-7, Organization for Economic Cooperation and Development, NATO, etc) that western nations created after World War II.

And the critics are right, in my humble opinion.

But that’s besides the point. What’s really needed is a case-by-case analysis to determine whether the aforementioned treaties and organizations are making the world a better place.

To help understand this topic, let’s look at some excerpts from an anonymously authored article in  the latest issue of Cayman Financial Review.

What is the oft-cited “postwar order” that ostensibly is being threatened by populism? …begin with some history. There have been three major attempts to create an international architecture in hopes of discouraging war and encouraging peaceful commerce among world’s countries. The first occurred after the Napoleonic wars, the second occurred after World War I, and the third occurred after World War II.

The article explains that first postwar order was a big success, with 100 years of relative peace and prosperity between 1815 and 1914.

But the second postwar order, which followed World War I, was a miserable failure.

…the urgent economic problems that World War I had created – the need for demobilization, the restoration of the gold standard, the resumption of international trade flows, and the reconstruction of war-ravaged areas. Reparations burdened Germany and contributed to hyperinflation. …Germany depended on American loans to make its reparations payments to France and the United Kingdom. In turn, France and the United Kingdom depended on German reparations to repay their wartime loans from the United States. This financial merry-go-round was inherently unstable. …In the 1930s, many countries tried economic nationalism to escape from the Great Depression. Abandonment of the interwar gold standard, high tariffs to discourage imports, and competitive devaluations to boost exports became widespread. However, these “beggar-thy-neighbor” failed economically, caused the collapse of international trade, and contributed to rising international tensions.

And this grim experience was in the minds of policymakers as they sought to restore a system based on peace and open commerce.

…neither Churchill nor Roosevelt wanted to punish ordinary Germans, Italians or Japanese. Instead of the postwar harshness of Clemenceau, Churchill and Roosevelt favored the postwar magnanimity of Metternich, in which Germany, Italy, and Japan would be reconstructed as democratic capitalist countries. …both Churchill and Roosevelt thought that other new international organizations would be needed to help finance postwar reconstruction, provide stable exchange rates, and promote the progressive liberalization of international trade. …At the risk of oversimplifying, there are four major pieces of what is now loosely though of as the postwar order.

1. The United Nations and other multilateral bodies
2. The International Monetary Fund and World Bank
3. The World Trade Organization and affiliated trade pacts
4. NATO and other military/security alliances

The article is filled with details on how these various institutions evolved.

But for our purposes, let’s focus on ostensible threats to this order. Here’s what “Hamilton” wrote.

All four components of the current international architecture have critics, but they should be examined separately.

  1. The United Nations is routinely condemned for being ineffective, wasteful and anti-Western. However, the UN part of the post-war order is not under serious threat. However, the OECD is subject to considerable attacks because of its statist policy agenda.
  2. The IMF and World Bank are routinely condemned for being wasteful and anti-market. The IMF also is singled out for bailout policies that are said to encourage profligacy in developing nation and to reward sloppy lending practices by big western banks. Notwithstanding the instability than many say is caused by the IMF, this part of the postwar order is not under serious threat.
  3. The WTO and regional FTAs are under threat from a populist backlash in the United States and Europe, driven in large part by angst over financial prospects for lower-skilled workers. This part of the postwar order is under serious threat, especially because U.S. laws give the president significant unilateral powers over trade policy.
  4. NATO and other security arrangements are being questioned for both cost and changing geopolitical factors (e.g., the rise of China, Islamic terrorism). While unlikely at this point, dramatic policy changes from the United States could substantially alter the structure and/or operation of these military alliances.

How depressing. The part I like is the part that is under assault.

Here are the key points from the article’s conclusion.

The so-called postwar order is not a monolithic entity. …Some have been very successful. Consider, for instance, the sweeping reduction in trade barriers and the concomitant rise in cross-border commerce. …But other parts of the post-war order do not have very strong track records. Bureaucracies such as the IMF and OECD arguably deserve some hostile attention because of their support for anti-market policies. Policymakers who want to preserve the best parts of the post-war order may want to consider whether it is time to jettison or reform the harmful parts.

This is spot on.

Parts of the “postwar order” should be preserved. The World Trade Organization definitely belongs on that list. And presumably nobody wants to disrupt or eliminate the parts of the “international architecture” that facilitate things such as cross-border air travel, international shipping, and global telecommunications.

But the helpful work of those entities doesn’t change the fact that other entities engage in activities that are counterproductive. A “rules-based order” is only good, after all, if it advancing good rules.

Needless to say, the answer to all of these questions is no.

Which brings to mind the old saying about “Don’t throw the baby out with the bathwater.”

As “Hamilton” wrote, the bad parts of the postwar order should be jettisoned to preserve the good parts.

For those interested in this topic, Adam Tooze of Columbia University has a very interesting article on the same topic.

Published in Foreign Policy, his article basically applies a “public choice” description of how the current postwar order evolved. And he says it initially was not very successful

For true liberals in both the United States and Europe, who hankered after the golden age of globalization in the late 19th century, the resulting Cold War economic order was a profound disappointment. The U.S. Treasury and the first generation of neoliberals in Europe fretted against the U.S. State Department and its interventionist economic tendencies. Mavericks such as the young Milton Friedman—true advocates of free markets in the way we take for granted today—demanded a bonfire of all regulations. …The reality of the liberal order that supposedly came into existence in the postwar moment was the more or less haphazard continuation of wartime controls. It would take until 1958 before the Bretton Woods vision was finally implemented. Even then it was not a “liberal” order by the standard of the gilded age of the 19th century or in the sense that Davos understands it today. International mobility of capital for anything other than long-term investment was strictly limited.

Tooze argues that genuine liberalism (i.e., open markets and trade) didn’t really take hold until the 1980s, with the market-based revolution of Thatcher and Reagan, the “Washington Consensus,” and the collapse of communism.

The stakeholders in the 1970s were obstreperous trade unions, and that kind of consultation was precisely the bad habit that the neoliberal revolutionaries set out to break. …the global victory of the liberal order required a more far-reaching struggle. …the market revolution of the 1980s…  the aftermath of the Cold War, the moment of Western triumph. …the defeat of inflation, this was the age of the Washington Consensus.

For those not familiar with this particular piece of jargon, the “Washington Consensus” refers to the 1980s-era acceptance of free markets as the ideal route for economic development.

And “neoliberal” refers to classical liberalism, not the modern dirigiste version of liberalism found in the United States.

I’ll close by recycling this visual, which attempts to distinguish between good globalism and bad globalism.

The image uses the example of trade and jurisdictional competition, so I don’t pretend is captures all the issues and controversies that we discussed today.

But it reinforces why it is wrong to blindly accept and support the anti-market components of the postwar order simply because there are other parts that deserve our support. The goal is more global prosperity, not less.

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Since trade promotes prosperity, I want increased market-driven, cross-border commerce between China and the United States.

But you can see in this CNBC interview that I’m worried about achieving that outcome given protectionism from President Trump and mercantilism from President Xi in China.

There’s never much chance to elaborate in short interviews, so here’s some additional analysis on the key points.

1. China’s economy is weak because of insufficient liberalization.

I have written about how China got great results – especially huge reductions in poverty – thanks to partial economic liberalization last century. But those reforms were just a step in the right direction. The country currently ranks only #107 according to Economic Freedom of the World, largely because so much of the economy is hampered by subsidies, regulation, protectionism, and cronyism. Sweeping pro-market reforms are needed if China’s leaders want their country to become rich.

2. Trump’s unthinking protectionism hurts both sides, but China may be more vulnerable.

I mentioned in the interview that Trump’s protectionism meant that he was harming both nations. This is what always happens with protectionism, so I wasn’t saying anything insightful. But it is quite likely that China will suffer more because its economy doesn’t have the flexibility and durability of America’s more market-oriented system.

That is one of the conclusion from a recent news report.

Policymakers in Europe have spared no effort to emphasize that there can be no winners in an escalated trade conflict between the United States and China. But a fresh study shows there are several beneficiaries. …But a study by research network EconPol Europe suggests such an assertion isn’t quite true — in fact, it isn’t true at all. The survey analyzes the impact of tariffs imposed by the US on China and the effect of China’s retaliatory tariffs. …The EconPol Europe study calculates that Chinese exporters are bearing approximately 75 percent of the costs… in Asia, Vietnam has been gaining the most from firms relocating their production away from China. Malaysia, Singapore and India have also been profiting from this development.

3. China’s cronyism presents a challenge for supporters of unilateral free trade.

I’m a supporter of unilateral free trade. America should eliminate all trade barriers, even if other nations want to hurt themselves by maintaining their restrictions. That being said, it’s not genuine free trade if another country has direct or indirect subsidies for its companies. As I noted in the interview, some economists say we shouldn’t worry since the net result is a wealth transfer from China’s taxpayers to America’s consumers. On the other hand, that approach means that some American workers and companies are being harmed. And if supporters of free markets are upset when American workers and companies are hurt by domestic cronyism, we also should be upset when the same thing happens because of foreign cronyism.

The challenge, of course, is whether you can use trade barriers to target only cronyism. I worry that such an effort would get hijacked by protectionists, though Professor Martin Feldstein makes a good argument in the Wall Street Journal that it’s the right approach.

China’s strategy is to give large government subsidies to state-owned companies and supplement their research with technology stolen from American and other Western companies. …That is the real reason why the Trump administration has threatened tariffs of 25% on $200 billion of Chinese exports to the U.S.—nearly half the total—unless Beijing reforms its policies. …The purpose of the tariffs is not to reduce the bilateral trade deficit but to counter Chinese technology theft and forced transfer. …the U.S. could impose heavier tariffs and other economic penalties in order to force China to play by the rules, ending its attempt to dominate global markets through subsidies and technology theft.

4. Trump should have used the World Trade Organization to encourage Chinese liberalization.

I wrote last year that the President would enjoy more success if he used the WTO to apply pressure on China.

It’s not just me making this claim. Here are some excerpts from a story in the Washington Post.

Pressure from Europe and Japan is amplifying the president’s vocal complaints about Chinese trade practices… “it wasn’t a Trump issue; it was a world issue,” said Jorge Guajardo, …a former Mexican ambassador to China. “Everybody’s tired of the way China games the trading system and makes promises that never amount to anything.” …Germany and the United Kingdom joined the United States this year in tightening limits on Chinese investment. …In September, trade ministers from the United States, European Union and Japan issued a joint statement that blasted the use of subsidies in turning “state owned enterprises into national champions and setting them loose in global markets.” The statement…also rejected forced technology transfer… The United States did win E.U. and Japanese support for a complaint to the WTO alleging China has violated U.S. intellectual property rights. But rather than use the global trade body for a broader attack on China, the administration has demanded changes in the way the organization operates. To critics, the administration missed an opportunity to marshal China’s trading partners behind an across-the-board indictment of its state-led economy.

5. The imperfect Trans-Pacific Partnership was an opportunity to pressure China to reduce cronyism.

Because of my concerns about regulatory harmonization, I wasn’t grievously disappointed when the United States chose not to participate in the TPP, but I fully recognized that the pact had very positive features. Including the pressure it would have placed on China to shift toward markets and away from cronyism.

6. Additional Chinese reform is the ideal outcome, both for China and the rest of the world.

Three years ago, I wrote that China needs a Reagan-style revolution of economic liberalization. That’s still true today. The bottom line is that China’s leaders should look at the progress that was achieved last century when the economy was partially liberalized and decide that the time is ripe for the free-market version of a great leap forward. In other words, the goal should be great economic success, not modest economic success.

I’ll conclude by pointing out that I don’t want China to copy the United States, even though that would be a step in the right direction.

According to data from Economic Freedom of the World, there’s a much better role model.

Indeed, I would like the United States to copy Hong Kong as well.

The recipe for prosperity is the same all over the world. The challenge is getting politicians to do what’s best for citizens rather than what’s best for themselves.

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Last November, I shared a one-minute video from Freedom Partners on the economics of trade.

Here’s a full-length (but still only four minutes) treatment of the issue from the Center for Freedom and Prosperity.

The first part of the video is a quick glimpse at some of the academic evidence for open trade, and I hope it helps make the case against protectionism.

I then cite some country-specific examples, including how Herbert Hoover’s protectionism contributed to the economic misery of the Great Depression.

Argentina is another bad example mentioned in the video. It used to be one of the world’s richest countries, but it plummeted in the rankings in part because of its protectionist policy of “import substitution.”

The video also mentions the examples of China and India. Since I think this point is especially compelling, I want to take this opportunity to briefly elaborate on my comments in the video.

First, let’s establish that both nations did liberalize trade. Here’s a chart from Economic Freedom of the World, and you can see that there was dramatic liberalization starting about 1990.

Both nations are still a long way from total free trade (Singapore and Hong Kong, for instance, respectively get scores of 9.29 and 9.32), but it goes without saying that there was considerable liberalization in China and India.

And how did that work out?

Trade liberalization was a slam-dunk success. Based on data from the World Bank, here’s a look at how China and India started converging with the United States after opening to the world economy.

To be sure, both nations still have a long way to go. And it’s highly unlikely that either nation will ever fully converge to American living standards unless there is a lot more pro-market reform. Not just in trade, but all facets of economic policy.

But as I mentioned in the video, the reforms that already have occurred – particularly trade liberalization – have contributed to huge reductions in poverty in China and India.

Given all this evidence, I’ll close with a version of my two-question challenge. Can anybody identify a nation that has prospered by moving to protectionism (h/t: the USA in the 1800s is not a good answer) or a nation that has suffered because of trade liberalization?

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I’m for free trade because I want more jobs and more prosperity for the United States.

Indeed, I’ve argued we should copy that incredible economic success of Hong Kong and Singapore by unilaterally eliminating all trade barriers.

But some people complain this is akin to disarmament in a hostile world. I reject that analogy. If my neighbor shoots himself in the foot, I’ve never thought I should “level the playing field” by also shooting my foot.

That being said, we all should agree that the ideal scenario is for nations to adopt free trade agreements in order the maximize the economic benefits for all consumers and businesses.

And the good news is that nations have been building on the multilateral success of the WTO by also adopting free trade agreements.

The United States, for instance, has 14 FTAs that govern trade with 20 nations, most notably NAFTA. And while I grouse about some of the E.U.’s statist tendencies, there is genuine free trade among member nations.

But there is some bad news. Politicians and bureaucrats are slowly but surely hijacking FTAs and undermining their pro-growth impact with red tape.

It’s become so much of a problem that some free traders are questioning whether the current approach is worthwhile. For example, Iain Murray of the Competitive Enterprise Institute explains why he isn’t losing any sleep about America backing out of the Trans-Pacific Partnership.

The Trans-Pacific Partnership is an example of why free trade came to have such a bad reputation with the American public. Rather than a simple agreement to lower tariffs for mutual benefit, it morphed into a massive international regulatory regime over 5,000 pages long. It was weighed down by numerous non-trade provisions aimed at appeasing non-trade special interests. …the TPP went down the road of regulatory harmonization.

He makes sure to point out that the TPP may still have been worthwhile when using cost-benefit analysis.

This is not to say that…the TPP’s tariff reductions would not have outweighed the regulatory burden.

But he argues that a much better approach is FTAs based on regulatory competition.

…there is an alternative to 5,000 pages of regulatory harmonization. …regulatory competition may be a better solution than harmonization… Regulatory competition works best by mutual recognition. For instance, Australia and New Zealand have formed a single economic market based around the Trans-Tasman Mutual Recognition Agreement, whereby…Goods legally sold in one country can be sold in the other.  This principle operates regardless of different standards, or other sale-related regulatory requirements between New Zealand and Australia. …Such an agreement would probably work very well between the U.S. and Canada – and, indeed, between the U.S. and both Australia and New Zealand in the Trans-Pacific context. …Australia, New Zealand, Canada, Chile, Singapore, and Hong Kong…A series of mutual recognition agreements with these former TPP countries would effectively form the nucleus of a Global Free Trade Association.

I would add the United Kingdom to Iain’s list (assuming it manages to extricate itself from the European Union).

Indeed, just yesterday I submitted a comment to the United States Trade Representative on a proposed FTA between the U.S. and the U.K.

Here’s some of that analysis.

A trade agreement between the United States and United Kingdom would be a chance to increase prosperity in both nations by eliminating all forms of trade barriers… It’s also an opportunity to refocus trade agreements in ways that recognize sovereignty and promote pro-market policies. More specifically, a free trade pact between the U.S. and U.K. would offer a much-needed opportunity to discard the clutter of exceptions, long phase out periods, and non-trade issues, which has characterized recent agreements, and instead go with a cleaner approach that would allow the simplicity of unfettered commerce. The ideal trade pact should seek to make trade between the U.S. and the U.K. as simple as trade between New York and Pennsylvania. That type of trade agreement doesn’t need to be cumbersome and doesn’t require a detailed thousand-page document.

I give my two cents on the benefits of mutual recognition and the value of reorienting FTAs in a pro-market direction.

…such a pact should be based on the principle of “mutual recognition,” which means that nations can have their own laws governing economic activity inside their borders, but they recognize that other nations have the same right. Most important, they also agree that there should be no restriction on the ability of consumers to buy from producers in the other nation(s). …Under such a regime, a company in the U.S. wouldn’t have to produce separate products for U.K. customers since there would be no policy restricting a consumer in, say, London, from buying a product made in, say, Cleveland. …A pact for free and open trade between the U.S. and U.K. could become a new role model for agreements between industrialized, high-income nations. If based on mutual recognition, such a free trade agreement should reverse the unfortunate trend of deals getting saddled with extraneous and/or harmful provisions.

And explain that FTAs based on mutual recognition produce an added benefit.

This approach respects national sovereignty and also would have the added benefit of encouraging policy competition between nations. If either the U.S. or the U.K. was over-regulating in a certain sector, it would mean a loss of sales to the other country, which surely would create pressure for regulatory relief. Very similar to the way tax competition puts pressure on governments today not to impose excessive tax rates.

By the way, we also shouldn’t have regulatory harmonization since that increases systemic fragility.

In other words, it’s not a good idea to put all your eggs in one basket.

Let’s close with a picture that powerfully captures what’s wrong with the current approach to free trade agreements. Does anybody think the new Singapore-E.U. pact is really about unfettered commerce?

Looks to me like it’s really about politicians and bureaucrats micro-managing economic activity.

My FTA would fit on one page, or a scrap of one page: “There shall be no restrictions on commerce between Country A and Country B.”

Sort of like my version of a tax system compared to the mess we have now.

P.S. It goes without saying, but I’ll say it anyhow, that Switzerland should be high on the list for a pro-market FTA with the United States.

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Time for the final installment in my four-part video series on trade-related topics.

  • Part I focused on the irrelevance of trade balances.
  • Part II looked at specialization and comparative advantage.
  • Part III explained trade and creative destruction.

Here’s Part IV, which looks at the very positive role of the World Trade Organization.

My basic argument is that it is a good idea to get other nations to reduce trade barriers, but tit-for-tat protectionism is not the right approach.

As I explained when writing about Chinese mercantilism, the U.S. would have far more success by using the WTO.

Let’s look at what experts have said.

Writing for the Wall Street Journal, Greg Rushford explained why the WTO is good for the United States.

President Harry S. Truman and Secretary of State George Marshall successfully pressed America’s war allies to create the General Agreement on Tariffs and Trade more than 70 years ago. Leaders across the globe, mindful of how economic nationalism in the 1930s had contributed to the devastation of World War II, wanted to open the world up again. The agreement focused on slashing of tariffs and other barriers to trade—bringing unprecedented prosperity to hundreds of millions of people. The GATT, which evolved into the World Trade Organization in 1995, became the world’s most successful international economic experiment. …Despite Mr. Trump’s assertion that the WTO has been “a disaster” for the U.S., Washington has won 85% of the 117 WTO cases it has brought against foreign trading partners. Japan complained in 2003 that WTO jurists had stretched the law by determining that Japanese health officials used phony science to ban American apples. The real U.S. gripe is that foreign governments have won most of the 145 cases that they have brought against American protectionist policies. …Both political parties would be well-advised to consider the wisdom of Truman and Marshall. They understood that true national-security imperatives meant resisting protectionism.

And here’s some more background information from a column in the WSJ by James Bacchus, who served as both a Member of Congress and as a Chief Judge at the WTO.

…let’s say Mr. Trump managed to get his way and pull the U.S. out of the WTO. The consequences for the world and U.S. economies would be immense. Among them: diminished trade growth, costly market and supply-chain disruptions, and the destruction of jobs and profits, especially in import- and export-dependent U.S. industries. The resulting trade barriers would compel some American companies either to downsize or move offshore. The global economic spiral set in motion by Mr. Trump’s reckless trade actions on steel, aluminum, Canada, Mexico, China, and Europe would accelerate. …WTO membership provides goods and services produced in the U.S. with protection against discrimination in foreign markets. Nondiscrimination rules are the heart of the WTO trading system, which currently applies in 164 countries and to 98% of all global commerce. …Instead of waging war on the WTO, the U.S. should help modernize it by making it more effective in addressing digital trade, services, subsidies, sustainability and intellectual property. Internationally agreed rules for international trade—and a process for resolving disputes about those rules—are an indispensable pillar of national prosperity.

I agree with everything in both columns.

And I’ll add one very simple – and hopefully very powerful – point.

Here’s a chart from the WTO showing that the United States is one of the world’s most pro-trade nations, with average tariffs of only 3.48 percent. Not as good as Hong Kong (0.0 percent) or Singapore (0.1 percent), but definitely good compared to most other nations.

In other words, it would be good if we could convince other nations to lower their trade barriers to our level.

Yet that’s exactly what’s been happening thanks to the WTO (and GATT, the predecessor pact). Here’s a chart prepared by the Confederation of British Industry, which shows how trade barriers have been continuously dropping. And dropping most rapidly in other nations, which is something Trump should be happy about.

The bottom line is that the WTO unambiguously advances U.S. interests, as I noted in the conclusion of the video.

But it actually advances the interests of all nations by gradually reducing global barriers to trade.

Is it as good as unilateral free trade? No, but it is a big win-win for America and the rest of the world.

Which is why, despite my usual disdain for international bureaucracies, I’m a big fan of the WTO.

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I started my end-of-year “best and worst” series back in 2013, but didn’t begin my start-of-year “hopes and fears” series until 2017.

In that first year, I got part of what I hoped for (some tax reform and a bit of regulatory easing) and part of what I feared (no Medicaid and Medicare reform), but I mostly felt relieved that some of my fears (border-adjustment tax and an infrastructure boondoggle) weren’t realized.

For 2018, none of my hopes (government collapse in Venezuela and welfare reform) became reality, but we dodged one of my fears (Trump killing NAFTA) and moved in the wrong direction on another (a bad Brexit deal).

Time for third edition of this new tradition. It is the first day of the year and here are my good and bad expectations for 2019.

We’ll start with things I hope will happen in the coming year.

  • Hard Brexit – There is a very strong long-run argument for the United Kingdom to have a full break with the European Union. Unfortunately, the political establishment in both London and Brussels is conspiring to keep that from happening. But the silver lining to that dark cloud is that the deal they put together is so awful that Parliament may vote no. Under current law, that hopefully will lead to a no-deal Brexit that gives the U.K. the freedom to become more free and prosperous.
  • Supreme Court imposes limits of Washington’s power – I didn’t write about the fight over Brett Kavanaugh’s nomination to the Supreme Court because I don’t know if he believes in the limits on centralized power in Article 1, Section 8. But I’m semi-hopeful that his vote might make the difference in curtailing the power of the administrative state. And my fingers are crossed that he might vote with the Justices who want to restore the Constitution’s protection of economic liberty.
  • Gridlock – Some people think gridlock is a bad thing, but it is explicitly what our Founders wanted when they created America’s separation-of-powers system. And if the alternative to gridlock is politicians agreeing to bad policy, I will cheer for stalemate and division with great gusto. I will be perfectly content if Trump and House Democrats spend the next two years fighting with each other.
  • Maduro’s ouster – For the sake of the long-suffering people of Venezuela, I’m going to keep listing this item until it eventually happens.
  • Limits on the executive branch’s power to impose protectionism – Trade laws give a lot of unilateral power to the president. Ideally, the law should be changed so that any protectionist policies proposed by an administration don’t go into effect unless also approved by Congress.
  • Chilean-style reform in Brazil – Brazil recently elected a president who is viewed as the Trump of Latin America. But he might be the good kind of populist who uses his power to copy Chile’s hugely successful pro-market reforms.

Here are the things that worry me for 2019.

  • Trump – The President does not believe in small government, so I’m concerned we may get the opposite of gridlock. In my nightmare scenario, I can see him rolling over to Democrat plans for a higher minimum wage, infrastructure pork, wage subsidies, and busting (again) the spending caps.
  • Recession-induced statism – If there’s an economic downturn this year, then I fear we might get an Obama-style Keynesian spending orgy in addition to all the things I just mentioned.
  • More protectionism – Until and unless there are limits on the president’s unilateral power, there is a very real dangers that Trump could do further damage to global trade. I’m particularly concerned that he might pull the U.S. our of the very useful World Trade Organization and/or impose very punitive tariffs on auto imports.
  • Fake Brexit – This is the flip side of my hope for a hard Brexit. Regardless of the country, it’s not easy to prevail when big business and the political elite are lined up on the wrong side of an issue.

Sadly, I think my fears for 2019 are more likely than my hopes.

And I didn’t even mention some additional concerns, such as what happens if China’s economy suffers a significant downturn. I fear that is likely because there hasn’t been much progress on policy since the liberalization of the 1980s and 1990s.

Or the potential implications of anti-market populism in important European nations such as Germany, Sweden, and Italy.

Last but not least, we have a demographic sword of Damocles hovering over the neck of almost every nation.

That was a problem last year, it’s a bigger problem this year, and it will become an even-bigger problem in future years.

We know the right answer to this problem, but real solutions are contrary to the selfish interests of politicians.

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