Category Archives: Trade

New Paper: Traders of the Lost Ark

With the sudden reversion to mercantilist trade policies over the last year and a half or so, my colleagues and I decided some economic archaeology was in order. So Iain Murray and I, with contributions from Fred Smith, Marc Scribner, Daniel Press, and Ryan Khuranaco-wrote a a new “principles of” paper, “Traders of the Lost Ark: Rediscovering a Moral and Economic Case for Free Trade,” which you can read online for free here. Daniel Hannan was kind enough to wrote a foreword.

Iain wrote a short blog post explaining our goal for the paper here.

Press release here.

The American Spectator’s Johnny Kampis did a nice writeup here.

As did World Trade Online, though it’s behind a paywall.

The paper was also mentioned in Politico’s Morning Money and Morning Trade newsletters.

The full paper is here.

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Protectionism Keeps People Poor

Why do people trade with each other at all? Because it makes them better off. As Iain Murray’s and my paper “Traders of the Lost Ark” opens:

Imagine yourself on a tropical island. Plenty of sunshine, trees for shade, and beautiful white sand beaches all around. You have the whole place to yourself. This idyllic paradise would be one of the poorest places on Earth. Why? Because you would have no one to trade with.

In the wider world, everyone is good at something, but nobody is good at everything. That is why people specialize and trade with one another. You might be good at catching fish, but lack the woodworking skills to build a sturdy shelter. If you had another person with you on the island, she might be handy with construction, but not much good at fishing. Instead of toiling separately at both tasks to middling results, you could specialize—you catch fish; she builds a shelter. Both of you can have full stomachs and a roof overhead, and are both better off.

Now instead of two specialists, imagine 7 billion of them. The same logic applies in both cases. That is why for more than 75 years, one of the post-war international community’s biggest projects has been, slowly but surely, lifting trade barriers in countries across the world. Here in the U.S., the average dutiable good carried a 59 percent tariff in the wake of the 1930 Smoot-Hawley tariff. That figure was down to 5 percent when Trump took office—more than a 90 percent reduction. Other countries around the world can tell similar stories. Freer trade is one reason why real per capita global GDP has moved from less than $1.25 per day in 1960 to nearly $30 per day in 2017.

Here in the U.S., the average person makes more than $163 per day, up from $8.24 in 1960. That is a massive improvement in living standards, especially for the poor. Ever-increasing increasing trading opportunities and specialization have a lot to do with it.

The case for free trade is about more than economic efficiency. At heart, free trade is a moral issue. Everyone who wants to make the world better off should be advocating for lower trade barriers around the world. The current administration’s return to pre-industrial trade policies are not just bad politics and bad economics; Trump’s trade policies disproportionately hurt the poor.

Tariffs on agricultural products mean higher food prices. As a proportion of income, the poor spend more on food than their better-off fellows, leaving less left over for other needs, such as transportation and rent. Speaking of which, new steel tariffs mean more expensive cars and buildings. Guess who pays proportionally more for transportation and rent? And so on, for tariffs on thousands of goods that were not in place a year ago.

The principles behind free trade are economically sound and morally right. Economists, who disagree on with each other on most everything else, have almost unanimously favored free trade since the days of Adam Smith.

As we also note in our paper, “The basic principles of a free society are timeless, but they need to be relearned every generation.” This lesson applies to this generation’s conservatives more than most. If there was any doubt that party affiliation trumps principle, those doubts were removed when a Republican-controlled Congress stood idly by as President Trump enacted tariff after tariff, plus a bailout for some of the farmers hurt by those tariffs. Just as many progressives need to be reminded that openness and trade help the poor, so do conservatives need to be reminded that their defense of tradition needs to extend further back than a year and a half.

For more, read the full “Traders of the Lost Ark” paper here.

How to Change Trump’s Mind on Tariffs

It turns out the word “tariff” is of Arabic origin, according to Henri Pirenne, Economic and Social History of Medieval Europe, p. 145.

Congress Should Reclaim Delegated Trade Authority and End President Trump’s Harmful Trade War

This is a press release CEI issued in response to today’s tariff news. Note that my title is “Fellow,” unless I got promoted and nobody told me.

On Friday, China announced it would impose new tariffs on $60 billion worth of U.S. goods, further escalating trade tensions between the two countries.

CEI Senior Fellow Ryan Young said:

“Just as numerous analysts have predicted, China is responding in kind to President Trump’s trade policies, and the costs will be felt by American consumers. China announced plans to enact retaliatory tariffs ranging from 5 percent to 25 percent on 5,207 different U.S. goods worth a total of $60 billion. Trump has been mulling raising recent 10 percent duties on $200 billion of Chinese goods up to 25 percent, on top of an earlier levy on $34 billion of Chinese goods. He is reportedly also considering tariffs on all imports from China, which currently total more than $500 billion of goods.

“One does not lower trade barriers by raising them. Trump’s long history of protectionism mean he is almost certainly not telling the truth when he says his goal is zero tariffs and zero trading barriers. Tellingly, he already has the power to lower tariffs himself, and is not doing so. Proper authority to set tariff policy belongs with Congress, not the president. Congress needs to take back the authority it delegated away, and end President Trump’s harmful and unpopular trade war.”

Tariffs and Vaping

Trade really does affect everything. Michael McGrady quotes me on tariffs and intellectual property reform in a piece on how the trade war is affecting the vaping industry.

CEI Press Release on 4.1 Percent GDP Growth in Q2 2018

Cross-posted from CEI.org. The short version: this week’s growth report is good news, but the long-term outlook is less rosy.

The Department of Commerce announced Friday morning the U.S. economy grew by 4.1 percent in the second quarter of 2018.

CEI Vice President for Strategy Iain Murray said:

“Today’s growth numbers are yet more proof that supply-side policies work. Freeing up labor and capital by reducing the burden of government regulation and taxation will lead to high growth, more opportunity, more innovation, and lower unemployment. This rising tide will lift all boats, so it is important both that these policies continue and no new policies, like trade barriers, contradict them.”

CEI Fellow Ryan Young said:

“Four percent economic growth is wonderful news. An economy can double in size in just 18 years at that pace. While President Trump deserves much of the criticism he gets for his economic policies, his slowing of regulatory growth and some short-term benefits from his income tax cut probably helped boost growth.

“The long-term outlook is less sanguine. The extra debt from the tax cut will have to be repaid, dampening growth. And as the economic effects from his tariffs begin to be felt, growth could noticeably slow as soon as this year. Most troubling are Trump’s rumblings about exercising more control over the Federal Reserve, which is supposed to be politically independent. If there is anything economists across the political spectrum hold sacred, it is the price system. Politicians toy with it at our peril, as Herbert Hoover and Richard Nixon found out.

“If President Trump restrains his impulses, the near future will be as bright as today’s report. If not, rough economic times are ahead.”

Trump’s Trade Meeting with European Commissioner Juncker: Better than Nothing

Tariffs are the greatest!

-President Trump, July 24, 2018

I have an idea for them. Both the U.S. and the E.U. drop all Tariffs, Barriers and Subsidies!

-President Trump, also on July 24, 2018

Many trade-watchers are breathing a sigh of relief about President Trump’s meeting yesterday with European Commission President Jean-Claude Juncker. The result was essentially a cease-fire. Juncker agreed that the EU would not impose a retaliatory car tariff it has been considering. In return, Trump agreed not to further raise steel and aluminum tariffs. These are both good things. But neither side is lowering any barriers. And neither side’s promises involve making things better. They have agreed to not make things worse. But in a bizarre, only-in-this-administration kind of way, nothing is better than nothing.

President Juncker also promised that the EU would buy more U.S. soybeans and natural gas, as though he has control over EU consumers’ spending decisions. He also pledged to work toward a US-EU bilateral trade agreement. Negotiations for such a deal will almost certainly last longer than Trump’s presidency, even if he wins reelection. This could be precisely why Juncker made the promise—Trump saves face, which is important to him, while Juncker can kick that can down the road until the White House has a less mercurial occupant. So even the actionable takeaways from the meeting amount to essentially nothing.

What does the new EU ceasefire mean? It is probably more of a strategic shift than anything else. The president’s biggest target on trade issues is China. To get China to reform its bad-faith trade policies—here the president has a point—will require both internal reform in China and international pressure. The U.S. is hardly the only country upset with the Chinese government’s penchant for intellectual property theft, disdain for property rights, and need for state control. And that’s ignoring the Chinese government’s human rights record, which we shouldn’t.

Trump’s tariffs are alienating allies the U.S. needs to achieve its policy goals against China. So rather than shifting toward free trade, what Trump is likely doing with the EU meeting is simply prioritizing the Chinese theater as the most important front in his imagined war.

While I dislike the phrase “trade war,” it may be an apt description for the way the Trump administration views trade. The analogy is obviously incorrect; trade is based on mutual consent, while war is the opposite. But the president and several of his advisors don’t see the issue the same way most people do. To them, trade really is like a war with winners and losers, fought at the level of nation-states and regional alliances. For one side to win, another side must lose.

Trade doesn’t work that way, of course. People only agree to a trade in the first place unless everyone involved expects to benefit. And, as even the best analysts sometimes forget, countries do not trade with each other, people do. But, with apologies to Larry Kudlow and a few other sound thinkers, the president hasn’t exactly chosen the best advisers on trade issues. So here we are, in a self-created trade war.

I no longer believe the president when he says he wants free and open trade (there are many other skeptics). Trump’s nationalism and zero-sum, adversarial thinking won’t allow it. So while it’s good that his trade battle against the EU won’t be escalating any further for the time being, that doesn’t mean Trump is admitting that his protectionist policies aren’t working. He is sacrificing one battle to gear up for a larger trade war against China. After all, Trump has the power to lower tariffs right now with the stroke of a pen, but he is not doing so. The Juncker meeting is likely the first step in doubling down against China, and that could hurt the United States economy, and the world’s, for years to come.