Category Archives: Trade

Trump Defers Tariff Payments for Struggling Businesses: A Good Start, More Needed

President Trump has deferred selected tariff payments for companies experiencing coronavirus-related hardship. U.S. Customs issued a press release here and the temporary final rule appeared in the April 22 Federal Register. It came after more than two weeks of starts, stops, denials, reversals, and at least one accusation of “fake news” from the president. This indicates that trade policy is still an area of uncertainty and not something rebuilding businesses can plan around—potentially endangering post-virus economic recovery.

The deferrals are better than nothing. But it is important not to oversell them. Here is a bit of context on the impact they are likely to have:

  • They are deferrals, not exemptions. U.S. producers will still pay all affected tariff duties, just 90 days later. Because of this, companies have no reason to reduce prices for consumers.
  • The deferrals are only for imports made in March and April—precisely when imports significantly slowed. That limits their usefulness in buying time for cash-strapped businesses.
  • None of the Trump tariffs from 2017 onwards are eligible for deferrals. Since Trump has roughly doubled tariffs, this means about half of all tariffs are not eligible for deferred payment. That includes the steel and aluminum tariffs, the China tariffs, and other recent measures against the European Union, Turkey, and India.
  • Antidumping and countervailing duties are also ineligible for deferred payments. These are the most common type of trade barrier, further limiting the deferrals’ impact.
  • Companies must be experiencing “significant financial hardship” to be eligible This means a company must have lost at least 60 percent of its sales since this time in 2019.

The Cato Institute’s Dan Ikenson estimates the deferrals will total about $6 billion. That is certainly enough to buy some time for some struggling businesses. For context, total customs duties in 2019 were $85 billion. Total U.S. imports were $3.43 trillion (in chained 2012 dollars; $3.77 trillion in 2019 dollars). The most newsworthy part of these deferrals might be how newsworthy they aren’t.

The administration and Congress could do much better. A more wide-ranging trade relief measure ewould include Trump’s newly enacted tariffs. It could even do away with them entirely.

Considering the hemming, hawing, and uncertainty that surrounded even this small deferral, Congress should give businesses some stability to plan around by taking back the tariff-making authority it delegated away to the president in the 1960s and 1970s. This would prevent further increases while insuring against ad hoc multibillion-dollar policy changes with little or no notice.

While better than nothing, this deferral is far less than what needs to be done to allow businesses to rebuild, save consumers money, and for supply networks to get medical equipment where it is most needed.

That said, the deferral has a subtle hidden benefit. It marks at least the second time the Trump administration has tacitly admitted that Americans, not foreign exporters, pay tariffs. The first admission happened last August when adviser Peter Navarro called a delay in upcoming new China tariffs “President Trump’s Christmas present to the nation.” More such presents would help protect public health right now while helping with economic rebuilding when the pandemic passes.

On the Radio: Tariffs and #NeverNeeded

This morning I was on the David Webb Show on SiriusXM’s Patriot channel to talk about possible tariff suspensions and how they would stimulate the economy. We also discussed the #NeverNeeded movement and how it would assist the coronavirus response while strengthening long-term economic fundamentals.

I’ll update this post with audio if I find a link.

Trump Administration Suspends Tariffs, but Not Confusion, for Three Months

On Friday evening, the Trump administration announced it would stop collecting all tariff revenue for three months, effective immediately. In ordinary times, the news would have been front page news for days. Instead, as with many late-Friday news dumps, it has gone virtually unnoticed. As it turns out, this may be the right response, for two reasons.

First, implementation has been contradictory and uncertain. Over the last week, U.S. Customs and Border Protection had been notifying some companies that some tariffs would be temporarily suspended, but on Thursday, it published a notice saying they wouldn’t. Then on Friday, a senior administration official announced that all tariffs would be suspended for three months, but then President Trump described the announcement, which had been reported by The Wall Street Journal, as “fake news.”

Second, companies would still have to pay the tariffs, just later—assuming the freeze happens at all. That means that when things start going back to normal, companies and consumers will be hit with an outsized tariff bill. The administration has not announced yet when it would collect the deferred tariff revenue, which makes it harder for companies to start rainy day funds to afford the shock payments. How much should they hold back, and for how long? How much of the savings can go to immediate expenses like payroll, rent, and utilities? Moreover, the eventual make-up payments will cancel out part of the $2 trillion stimulus package President Trump just signed.

This confusing mess needs to be resolved soon, one way or another. When Congress reconvenes, it should pass legislation to reclaim the tariff-making power it delegated to the president in the 1960s and 1970s. The Trump administration has already proven it cannot use its tariff powers responsibly. Now it is proving it cannot even handle temporary rollbacks competently. A tariff rollback, even if temporary, could be helpful to companies and consumers during tough times. But the contradictory official statements, the fact that the tariffs are deferred rather than canceled outright, and the uncertain timeline for revenue collection, are creating a mess. Companies and consumers won’t actually save any money, and they have no timetable for making deferred payments.

For more on a responsible trade agenda, see the CEI paper “Traders of the Lost Ark.”

Alfred Marshall on Free Trade

Here is a gem of a quotation by Alfred Marshall on free trade, unearthed by Doug Irwin on p. 221 of his 1996 book Against the Tide: An Intellectual History of Free Trade: 

“[Free trade] is not a device, but the absence of any device. A device contrived to deal with any set of conditions must become obsolete when they change. The simplicity and naturalness of Free Trade–that is, the absence of any device–may continue to outweigh the series of different small gains which could be obtained by any manipulation of tariffs, however scientific and astute.”

In the News: Trade Policy in 2020

The Washington Examiner‘s Sean Higgins quotes me in a piece looking at possible developments in trade policy in 2020, now that China Phase One and USMCA are finished:

Ryan Young, a trade policy expert with the libertarian Competitive Enterprise Institute, nevertheless sees the threat of renewed trade wars as low for the foreseeable future. The administration has an interest in not stirring things up too much before the fall elections, he said. “Of course, with this administration, things can change with a single tweet,” he said.

Read the whole thing here.

In the News: China Phase One Trade Deal

I am briefly quoted in a lengthy Washington Times story about the Phase One trade deal with China that was signed this week.

Fred P. Hochberg – Trade Is Not a Four-Letter Word: How Six Everyday Products Make the Case for Trade

Review of Fred P. Hochberg, Trade Is Not a Four-Letter Word: How Six Everyday Products Make the Case for Trade (New York: Avid Reader Press / Simon & Schuster, 2020)

Hochberg, who headed the Export-Import Bank from 2009-2017, has written a surprisingly good book on trade. Few economists have favorable views of Ex-Im. The agency’s longstanding corruption problems, cozy relationships with Boeing and other large companies, and its mercantilist economics make it almost indefensible on the merits (see my papers here and here). As with many ex-government officials, Hochberg is a much better economist when he doesn’t have to play politics.

Unfortunately, Hochberg says little in the book about his eight years at Ex-Im. This would have made for fascinating reading. It would have been useful to learn, in extended form, about Hochberg’s views on how Ex-Im works in practice, how he would defend the agency, and where he would criticize it.

Hochberg also presided over the most eventful chapter in Ex-Im’s 85-year history, which included its authorization lapse in 2014-15, when the agency practically shut down. Even after its eventual reauthorization, Ex-Im operated at a severely limited capacity for the remainder of Hochberg’s tenure. The Senate refused to confirm the new board members needed to approve large transactions. Ex-Im did not return to full capacity until 2019.

While Hochberg does refer to his old job several times, it is usually in passing, and never in detail. He does not once mention the great post-2014 Ex-Im political controversy.

By sticking instead to broader-brush trade policy and avoiding anything too controversial, Trade Is Not a Four-Letter Word comes across as a subtle job application for a higher-level position in the next Democratic administration, such as Commerce Secretary or U.S. Trade Representative. If the Ex-Im version of Fred Hochberg took such a job, trade policy would likely continue to be ridden with special-interest handouts and trade-unrelated inititatives. If, instead, the Fred Hochberg who wrote this book took office, trade policy would be not perfect, but it would be pretty good, and certainly an improvement over the last few administrations.

Unfortunately, I have a hunch which side of Hochberg would prevail if he re-entered politics.

Like many politicians who also know better, Hochberg almost bends over backward trying to argue that the American middle and lower-middle classes are net losers from trade. These are America’s largest voting blocs, and many of them live in swing states.

This is a difficult long-term case to make when living standards by almost every measure, from life expectancy to average height to access to air-conditioning, internet, and other technologies, have been improving for both rich and poor for more than a century. In terms of hours of work needed to afford everything from a refrigerator to a new car, goods are becoming more affordable and higher-quality over time, which benefits the poor most of all. This has been happening for decades, and the process is not slowing down. Trade, as Hochberg persuasively argues elsewhere throughout the book, is a major reason why. This doesn’t stop him from trying to appeal to likely voters, though his biggest successes come from reasoning through anecdote, and by omission.

Still, Hochberg gets the big picture right, and he paints it well. The six chapters on the six products he chooses as examples are the strongest part of the book. Trade makes modern life possible, he argues. Whether it’s taco salads, minivans, bananas, smartphones, college degrees (an odd choice, but think of it as a stand-in for human capital), or Game of Thrones, just about everything we enjoy today is a product of international trade. Moreover, this is a good thing. What we have today is far better than what we would have under closed borders. As other thinkers from Hans Rosling to Matt Ridley to Julian Simon have argued for a long time, living standards today are higher, health care is better, ideas are more rigorously tested, and technology improves faster. This is what happens when there is a relatively open global market for both supply and demand.

Narrowing down to policy specifics, Hochberg is strongly anti-tariff. One hopes he would maintain this stance in a cabinet role or in elected office. His long section on why trade deficits don’t matter—in short, because people get something in return for their money—is similarly excellent. It is also inconsistent with his Export-Import Bank tenure. Ex-Im is intended, at least in part, to reduce the U.S. trade deficit by increasing exports. But at least Hochberg knows better now, and is willing to say so publicly now that he is out of office, though he doesn’t mention Ex-Im’s role in the capacity.

His defense of some other policies is weak, such as his case for defending trade adjustment assistance. He does not favor similar measures for workers displaced due to non-trade factors, such as technology or changing fashions. His way of resolving this inconsistent stance is unconvincing. Essentially, he argues that trade-related job displacements are due to government policy, while other job displacements are not. Therefore, the government owes them something to soften the blow of trade-related job displacements. But trade decisions are made by private individuals, and the role of policy in those decisions is indeterminate; how does one calculate how many job losses, or which ones, is policy-related? In jobs that are cut for more than one reason, which is most cases, what proportion is policy-related?

Moreover, many non-trade government policies cost jobs. These range from barriers to entry to environmental requirements to minimum wages to cumulative paperwork burdens. By Hochberg’s criteria, these displaced workers deserve compensation, yet he doesn’t favor it. I would argue that rather that treating symptoms with compensation, it would be better to treat the root problem by getting rid of the bad policies in the first place. But that’s for another time.

Taken as a whole, Hochberg is neither a brave nor an adventurous thinker, but he gets the big picture. As a bonus, Hochberg’s prose style is informal and easy to read, though the Game of Thrones references get to be a little much at times. Trade has costs and benefits. Add them up on a ledger, and the benefits are greater, by far. However, Hochberg’s interventionist streak is almost reflexive and seemingly unthinking. Markets fail all the time, including in international trade. That does not mean policymakers can improve matters. Given knowledge and incentive problems, this is rarely the case. The view that market failures can be fixed by an idealized government is known as the Nirvana fallacy, and Hochberg would do well to take it into account.

Just as a fish doesn’t think of the water it swims through, so do Washington types rarely think about the complicated web of policy they make others swim through. It’s just there, and always has been. It’s nothing to question or give careful thought to in a big-picture sense. Trade Is Not a Four-Letter Word definitely has that Washington vibe to it. But if Hochberg moves more Washington types to favor freer trade at the margin, his book will have done more good than he has, or will, in office.