Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Who's got the trade policy delusions?
The counter-attack by the "free-traders" is under way. It's unfortunate for them that they have little more to sell than lies, distortions, and delusions.
Case in point is a recent piece on trade in The Daily Beast by Will Marshal and Ed Gerwin (http://www.thedailybeast.com/articles/2016/04/11/donald-trump-and-bernie-sanders-are-delusional-on-trade-policy.html).
The U.S. exports half as many cars as it imports. Imposing tariffs on countries like China and Japan that have worked hard to exclude U.S. made cars from their markets might well move trade toward balance. Tariffs on imports from Mexico would perhaps change Ford's calculus about its newest shipment of U.S. auto-production to that country.
Such a tariff would also provide valuable incentives for some re-shoring of production to the US if maintained. The United States goods trade deficit with China in 2015 was $365 billion dollars. If some cell phones, laptops, and clothing production were brought back to the U.S. in response to trade balancing tariffs (or shifted to countries that engage in balanced trade with the U.S. rather than mercantilism, consumers in their other role -- as workers -- would gain significantly.
If the tariffs were imposed by means of the balanced trade "scaled tariff" then retaliation would only further hurt these country's exports. Their better policy would be to begin taking down trade barriers, stop manipulating their currencies, and start finding ways to buy more U.S. products.
This criticism may or may not be valid concerning Trump, but it is clearly overly simplistic and wrong headed. It reflects a very simplistic understanding of international trade. The world is more complex than this Econ 101 level understanding of commerce. Of course trade isn't a zero sum game. But that doesn't mean that elementary comparative advantage is the last word either. U.S. workers had a genuine stake in the prosperity of the U.S. industrial base. When that base was outsourced out from under them, they suffered, and the country as a whole suffered. Perhaps for starters the authors should read Global Trade and Conflicting National Interests by two authors at NYU. While NYU is not an Ivy League institution, it is ranked in the top ten in the world for economics and business by some raters. So it's no backwater.
The problem with this argument is that recent experience suggests that trade deals tend to hurt the U.S. balance of trade. How much of that "foothold" in Asian markets will consist of U.S. firms outsourcing more production? As we have noted previously past trade deals have been much better for American importers and outsourcing than American workers because they have been associated with larger trade deficits.
The best way to seize this opportunity is to begin pursuing a policy of balanced trade.
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