Category Archives: Trade

U.S.-China Trade Deal at G20 Small Move in Right Direction

Nobody knew what to expect going into the G20 summit in Argentina, especially from a planned meeting between Chinese President Xi Jinping and U.S. President Donald Trump. The headlines coming out of the meeting are largely positive. China is ending its 40 percent tariff on U.S.-made autos, while the U.S. will delay for 90 days a rise in tariffs on $200 billion of Chinese goods from 10 percent to 25 percent, previously scheduled for January 1.

During that 90-day period, the U.S. hopes to convince China to reform a number of its protectionist trade policies. But after that, anything goes.

President Xi is walking back a policy that was only just put in place as a direct retaliation to U.S. tariffs, and is leaving other retaliatory tariffs in place. On the U.S. side, the 10 percent Trump tariff that inspired the retaliations will remain in place.

The takeaway is much the same as from the July meeting between Trump and European Commission President Jean-Claude Juncker. As I noted then:

[N]either 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.

China aspires to become a global economic power. To become one, it must liberalize. The new U.S. tariffs have pushed China in the opposite direction. Its trade policies are now even more protectionist than before. This is not changing as a result of the meeting.

Moreover, after the 90-day ceasefire expires, China’s government will likely retain its intellectual property theft, forced technology transfer, and government ownership and control policies. On this point, I sincerely hope my prediction is wrong. For as long as they are in place, these policies will hinder poverty eradication in China, while causing difficulties not just with the U.S., but with China’s trading partners throughout the world.

On the U.S. side, President Trump’s trade policies will also remain unchanged. Admittedly, they are stimulating some sectors of the economy. Lobbyists who work on the Commerce Department have reported 879 clients so far this year, up 40 percent since the end of the Obama administration. But intended beneficiaries, such as General Motors and its employees, are finding the Trump tariffs less than helpful.

The G20 summit and the Trump-Xi meeting could have gone much worse. But the headlines should not be so congratulatory. Productive meetings and negotiations would yield not just a ceasefire, but actual disarmament. That remains the goal—for in a trade war, the weapons fire inward.

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It’s Not What it Looks Like

According to Google, I was recently cited in an article on sandhillsexpress.com. It isn’t nearly as saucy as the URL implies.

GM Layoffs, Tariffs, and Subsidies

Over at Fox Business, I explore three lessons policy makers should learn from General Motors’ announcement of 14,700 layoffs and five plant closures:

One, GM is being too shy about the reasons for the layoffs. President Trump’s tariffs have already cost the company a billion dollars. GM is skirting the topic, possibly to avoid political blowback—a strategy that is already not working.

Two, President Trump is right to want to end GM’s government subsidies, but for the wrong reasons.

Three, contrary to popular belief, U.S. manufacturing is healthy, despite GM’s bad news.

On that third point, real value-added manufacturing output recently set an all-time record, eclipsing the old mark set in 2007. As is often the case, popular fears are unfounded. Read the whole thing here.

Free Trade and Elections

Over at the American Institute for Economic Research, Max Gulker has a perceptive take on why support for free trade doesn’t much matter for winning or losing elections. As he points out, tariffs “were only a hot campaign topic in select states and congressional districts. When candidates did discuss trade, they presented it as an issue of gamesmanship rather than economics.”

In other words, politics and policy are different things.

Gulker is also kind enough to cite something I wrote a while back about public choice and trade. Aside from that, he makes a valuable contribution to the debate.

In the News: Steel Tariffs

An ABC News story cites some research I did finding that President Trump’s steel tariffs will increase car prices by an average of about $250.

A few weeks ago, ABC News also quoted me on how steel tariffs are affecting the economy:

Saving 33,000 steel-industry jobs costs the economy 179,000 jobs, a net loss of 146,000, Ryan Young, a fellow in regulatory studies at the Competitive Enterprise Institute, told ABC News.

“Basically,” Young added, “the few are benefiting at the expense of the many.”

What Do the Midterms Mean for Trade?

Trade was a highly contentious issue during President Trump’s first two years. He has doubled tariffs, other countries have enacted equivalent retaliatory tariffs, and tensions are unlikely to ease anytime soon. This unease will not change under a newly divided Congress. The midterm elections will have significant implications for trade policy in the short, medium, and long runs.

The biggest short-term question will be what happens to the renegotiated NAFTA, called the United States-Mexico-Canada (USMC) Agreement. Congress is currently in the middle of a 90-day window to vote on the revised agreement, but Republicans are lukewarm on it. Many Republicans share economists’ skepticism of President Trump’s trade protectionism. At the same time, they are reluctant to buck a Republican president—some Republicans have even gone one further and reversed their stances on trade and other issues in deference to the president. Lame duck Republicans will likely punt to the next Congress in an attempt to avoid cognitive dissonance.

That’s where the new Democratic House majority comes in. The new NAFTA/USMCA changes very little in terms of actual trade policy. But it has significant symbolic value as a political victory for President Trump. Democrats would love to deny Trump this victory. But they will also be reluctant to cause further tensions with Canada and Mexico’s governments, staunch allies which endured many slights during the negotiating process, both domestically and from President Trump. They would like to have something to show for their indignities, even if it’s just getting President Trump out of their hair for a bit. This could push foreign policy-minded Democrats in favor of passing NAFTA/USMCA. At this point, it is hard to predict which impulse is stronger.

This is also partially because Democrats are just as divided as Republicans on trade issues. Traditional Democrats often favor a more-or-less open approach to trade, not terribly different from the average pre-Trump Republican. The original NAFTA and the creation of the World Trade Organization happened under Bill Clinton, and President Obama signed about half a dozen trade agreements that liberalized trade on net. Going further back, President Kennedy signed a major trade bill in 1962 that led to a successful round of international negotiations bearing his name that sharply reduced tariffs around the world. Franklin D. Roosevelt’s Secretary of State, Cordell Hull, presciently argued that if goods do not cross borders, soldiers will.

Democrats have slowly become more protectionist in recent years, with Sen. Charles Schumer (D-NY) even arguing for a 27.5 blanket tariff against Chinese goods in the mid-2000s. This makes him roughly 2.5 percentage points different from President Trump, which sounds about right. But Trump’s vocal advocacy of government-managed trade has pushed many Democrats somewhat back towards the free trade side.

At the same time, the party’s labor and environmental wings tend to oppose free trade. Labor interests often see protectionism as a rent-seeking opportunity to kneecap competitors. Many environmental activists reflexively oppose policies that create wealth and development. The party’s ideological left flank also tends towards protectionism; Sen. Bernie Sanders (I-VT) is uncomfortably similar to President Trump on trade.

In the medium term, between now and the 2020 election, President Trump hopes to pursue trade agreements with the United Kingdom, European Union, and Japan. As with NAFTA/USMCA, House Democrats will be eager to deny President Trump a political victory. The question is whether Democrats can overcome their own protectionist elements enough to be an effective opposition party.

The biggest long-term policy that could come out of the new congressional alignment is similar to the biggest possible upside to regulatory reform: a renewed separation of powers. Under the Constitution, only Congress has the power to tax. But Congress delegated away much of its tariff-setting authority to the president during the 1960s and 1970s. That is how President Trump was able to enact so many tariffs without congressional input. Democrats should rein in a too-powerful executive branch and reclaim Congress’ intended constitutional taxing authority.

Trade will be a busy issue for at least the next two years. Unlike their Republican colleagues, the new Democratic House majority can be an effective check against President Trump’s government-managed trade policies. But they have to keep their own populist impulses in check in order to do so effectively. Perhaps Iain Murray’s and my “Traders of the Lost Ark” can serve as a guide, as well as excellent primers by Don Boudreaux and Pierre Lemieux.

Official Disdain for Commerce

Most cultures have held trade and commerce in low regard. This is true in nearly all times and places, and whether people are rich or poor, religious or secular, and cuts across political beliefs. Governments don’t much like the merchant class either, even though this disdain is biting the hand that feeds. James C. Scott provides an example from ancient China on p. 131 of his thought-provoking 2017 book Against the Grain: A Deep History of the Earliest States:

One reason for the official distrust and stigmatization of the merchant class in China was the simple fact that its wealth, unlike that of the rice planter, was illegible, concealable, and fugitive. One might tax a market, or collect tolls on a road or river junction where goods and transactions were more transparent, but taxing merchants was a tax collector’s nightmare.