Category Archives: Trade

This is a CEI press release, originally posted at CEI.org.

President Trump this morning announced via Twitter that he is imposing steel and aluminum tariffs against Brazil and Argentina. Tariffs won’t help farmers or manufacturers, warns CEI Senior Fellow Ryan Young:

“President Trump wrongly believes these new steel and aluminum tariffs will help American farmers. Trump should instead remove the tariffs that sparked the trade war and shrank farmers’ export markets in the first place. Today’s new tariffs will have little effect on agriculture but will harm other industries and consumers. More than three quarters of steel goes to construction and automobiles, for example. Before Trump partially rolled back his initial steel and aluminum tariffs, steel prices had spiked enough to add $250 to the cost of most new cars. Those tariffs have so far contributed to more than 15,000 layoffs at auto and steel companies.

“Congress urgently needs to repeal Section 232 of the Trade Expansion Act of 1962 and similar clauses that enable such irresponsible presidential tariff-making behavior. Tariffs are harming the United States both economically and diplomatically.”​

Related reports:

·       Common Myths and Facts about Trade

·       Traders of the Lost Ark

This is a CEI press release, originally posted here.

The U.S. may be on the verge of a North American trade deal, but there are bigger problems with trade that Congress should fix, says Competitive Enterprise Institute Senior Fellow Ryan Young:

“The revised NAFTA/USMCA trade agreement should be less urgent for Congress than reining in the President’s out-of-control tariff-making authority. Parts of NAFTA could use an update, but Canada, Mexico, and the United States already have a mostly tariff-free trading relationship. New tariffs passed under President Trump against China, Europe, and numerous allies are a bigger problem that Congress should fix. Trump tariffs are causing thousands of layoffs and billions of dollars of economic damage, everywhere from the steel and auto industries to farm exports. They could cost the U.S. as much as a percentage point of economic growth going forward, or roughly $200 billion per year. The tariffs have also greatly increased the risk of recession. If President Trump wants to pass USMCA so badly, part of the deal should be returning his tariff-making powers to Congress where they belong.​”

Related:

Traders of the Lost Ark

Common Myths and Facts about Trade

Our friends at the Property Rights Alliance and the Mercatus Center have just released two new papers that are well worth reading.

First, Philip Thompson and Lorenzo Montanari have compiled a Trade Barrier Index, just released by the Property Rights Alliance. The U.S. currently ranks 54^th out of 86 countries. Singapore and Hong Kong rank 1^st and 2^nd, while India and China bring up the rear at 85^th and 86^th, respectively. Among our neighbors, Canada weighs in at 10^th, while Mexico is 58^th. Their index takes into account four policy areas: tariffs, non-tariff barriers, barriers to services, and trade facilitation, such as participating in international trade agreements and the World Trade Organization.

It is highly useful to have a ranking system for making international comparisons. Even with all the tariff hikes of the last two years, it was still surprising and disappointing to see the U.S. ranked as low as 54^th. Hopefully future editions of the Trade Barriers Index can add historical data to give greater context, such as how far the United States has fallen in the last two years, and how much the world as a whole has liberalized trade barriers since the end of World War II.

Protectionists are often quick to point to fast-growing China and India’s protectionism as proof that trade barriers can help growth. But liberalization at the margin can have a huge positive impact on growth; going from terrible policies to merely bad ones still counts as improvement, and can still lift people out of poverty. Further liberalization would help even more. China and India have liberalized, imperfectly, along many trade and non-trade policy dimensions post-1978 and post-1991, as Arvind Panagariya points out in great detail in his excellent book Free Trade and Prosperity: How Openness Helps Developing Countries Grow Richer and Combat Poverty. Thompson and Montanari’s Trade Barrier Index allows us to see how countries fare on trade policy compared to other policy areas such as property rights, regulation, and corruption measured by other indices.

Second, the Mercatus Center’s Veronique de Rugy has a much-needed new policy brief, “New Protectionism: Still Protectionism and Bad Economics,” which punctures some common myths about trade. These include:

• The 19^th-century United States grew despite high tariffs, not because of them. Territorial growth and open immigration grew the domestic market for U.S. goods faster than protectionism could shrink their international markets.
• The East Asian tiger economies didn’t grow because of tariffs or industrial policy. On net, post-war South Korea, Singapore, Hong Kong, and Taiwan were vastly more liberal than before, even accounting for their varying levels of tariffs, export subsidies, and other interventions. It was this net liberalization that paid dividends. As Panagariya points out, growth accelerated once export promotion policies were lessened.
• U.S. manufacturing output is at near-record levels. At the same time, manufacturing employment is down, and this is a good thing. The goal of manufacturing is not to create jobs, it is to create things that people value. In an ideal world, all that value would be created without anyone having to lift a finger. This will obviously never happen, but when record output comes from ever fewer workers, it’s a step in that direction. The workers whose time and talent are being freed for other, additional uses make the rest of the economy more productive, too. The adjustment is not always painless, but many government policies intended to help can worsen the problem. Legislators should heed Veronique’s advice and tread lightly here.
• The middle class is indeed shrinking—because people are moving into the upper classes. The proportion of people making between $35,000 and $100,000 per year, inflation-adjusted, has been shrinking for years. This isn’t because incomes are going down. It’s because they’re going up. Declining global trade barriers over the last 75 years are a significant reason why.
• Subsidies do not make trade fair. China subsidizes many of its exports. This is good for American consumers, but bad for the Chinese people, who are paying to further enrich people who are mostly richer than themselves. A similar dynamic applies in the United States. In order to subsidize or protect one American industry, Washington must penalize American consumers and other American industries, all in order to give foreign buyers a price break. Contra Peter Navarro, trade cannot be fair unless it is free.

Trade protectionists have called on a wide variety of arguments to justify raising barriers, from growth to nostalgia to inequality to fairness. As Veronique points out, none of them hold up to scrutiny.

Philip Thompson and Lorenzo Montanari’s Trade Barrier Index is here. Veronique de Rugy’s “New Protectionism: Still Protectionism and Bad Economics” is here.

America’s trade policy landscape has some big events on the horizon. The House of Representatives will vote next week on Rep. Maxine Waters’ (D-CA) Export-Import Bank reauthorization bill. The Trump administration has signaled opposition to it, making it unlikely to become law. The administration favors Ex-Im renewal, but likely wants it to be more bellicose towards China. As I predicted earlier, Ex-Im’s most likely next step is a short-term reauthorization in the upcoming Continuing Resolution, due November 21st. The agency should be closed, but that is unlikely in the current policy environment. A recent paper of mine lists some second-best reforms that Congress and Ex-Im should pursue.

On Tuesday, November 12th, President Trump is set to give a major speech on trade. He will likely give an update on the first phase of a new trade deal with China. High-level meetings have been taken place, though nothing has so far been formally agreed to. Nothing would be signed until December at the earliest.

European car tariffs are also in play, and may also come up during the speech. President Trump has long wanted to tax European cars on national security grounds, and is due to make a decision on whether to enact such tariffs by November 14th. A new tariff, by raising tensions with an ally Trump needs on China issues, would work against the administration’s efforts to encourage Chinese trade reforms. Further complicating matters, many European cars contain significant amounts of U.S.-made parts, and European carmakers own several U.S. factories employing U.S. workers.

Finally, a vote on the new North American Free Trade Agreement (NAFTA)/United States–Mexico–Canada Agreement (USMCA) still has a chance of happening by the end of the year, though there is no guarantee. The new agreement changes little from the first NAFTA, and 57 percent of its language is taken verbatim from the Trans-Pacific Partnership, which Trump pulled the U.S. out of on his third day in office. Due in part to the low stakes, Democratic opposition has not been forceful. The main holdup right now is organized labor trying to get rent-seeking provisions added to the final agreement. Given the high priority Trump has placed on passing NAFTA/USMCA, they may well succeed.