Over at Morning Consult, Iain Murray and I have an op-ed explaining why tariffs are ill-suited to achieving the Trump administration’s economic and foreign policy goals:
We often talk about trade between nations as if it is done through the medium of government. But “Mexico” does not trade with “America.” The actual trade going on is between individuals, to the tune of billions of transactions a year. That trade is by definition win-win. Individuals only give something up if they expect something better in return.
That means the term “trade deficit” is incredibly misleading. When Americans buy $592 billion worth of goods from the European Union, and the EU buys $500 billion worth of goods from the United States, both sides are better off. Americans have gotten $592 billion worth of value from trade with the EU, while sending only $500 billion of goods across the Atlantic. The “deficit” is actually a surplus of value. Both sides win.
When policymakers think of aggregates instead of individuals, confusion reigns. In this case, President Trump thinks hurting the economy will help it. As economist Joan Robinson famously said, if another country dumps rocks into its harbors, the proper response is not to dump rocks in your own harbors.
There are better ways. Taking the remaining rocks out of America’s harbors will only help the U.S. economy, and give it more resources to achieve its other policy goals.
Read the whole thing here.
There are a lot of confusions on both sides of the trade debate. A short CEI WebMemo, published today, seeks to clear up three of them. Here’s the gist:
Trade barriers cause short-term job losses but have little long-term employment impact. Higher trade barriers do not improve other countries’ behavior. Finally, lowering trade barriers benefits a country’s economy, regardless of what other countries do.
Free traders have the better arguments in this policy debate, and it is not a close contest. But on employment, some free trade advocates overstate or misstate trade’s benefits. Some foreign policy analysts with little economics background believe a tough stance on trade will improve other countries’ bad behavior. We are finding out, especially with China, that this is not at all the case. Reform is possible, but tariffs actively harm such efforts. Finally, instead of negotiating for trade concessions, we might as well stop harming our own economy with trade barriers, even if other countries continue to harm their own. Trade is win-win cooperation; viewing it as adversarial is a lose-lose mistake.
Read the whole WebMemo here; it’s a quick two-page read. For a more detailed analysis of trade policy, see Iain Murray’s and my “Traders of the Lost Ark” paper.
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.
The Detroit News ran a column of mine, “Will Trump’s Tariffs Kill Free Markets?”
The short answer: no. Classical liberal institutions are strong, enduring, and embedded in American culture. Politicians are none of those things. They pass from the scene after a few years, limiting the damage they can do.
The short answer: no. But the new and upcoming tariffs certainly don’t help matters, here or abroad. I tackle that question in a piece for Inside Sources:
The president’s threats must be fought, but the good news is America’s fundamental institutions will withstand Trumpian bluster. For one thing, our economy remains a powerhouse. America’s $19 trillion economy already withstands an annual $1.9 trillion in annual regulatory costs from Washington. On top of that, Trump’s tariffs will cost “only” a few billion dollars. In short, the economy is dragging along a big, deadweight burden, but it can still get the job done…
Even in trade, where the Trump administration poses the greatest threat to free enterprise, America has been liberalizing for more than 75 years. The Smoot-Hawley tariff bill of 1930 raised America’s average tariff to more than 60 percent and worsened the Great Depression. But today tariffs are closer to 5 percent (source: Douglas Irwin, “Clashing Over Commerce: A History of U.S. Trade Policy,” p. 8), and Trump’s targeted tariffs likely won’t raise that figure more than a decimal point. Trump is reversing a long history of openness, but so far it’s small potatoes. If economists, Congress, and the World Trade Organization all do their jobs, it will stay that way.
In the meantime, defenders of the classical liberal enlightenment traditions of international openness and free trade will be very busy standing up to the administration’s latest populist outburst. Read the whole thing here.
For more CEI tariff coverage, see here by Iain Murray and here by me. For more on Trump’s threat to the values that made America great, see Steven Pinker’s book “Enlightenment Now: The Case for Reason, Science, Humanism, and Progress.”
One of the lessons learned from this year’s “10,000 Commandments” study is that Congress needs to be more involved in the regulatory process. It needs to make sure that agencies only regulate when legislation tells them to, and it needs to vet major new regulations. Over at USA Today, study author Wayne Crews and I make the case that Congress should also establish an annual regulatory budget:
Just as the federal government releases an annual spending budget, an annual regulatory budget would allow each federal agency a certain amount of costs that they could impose on American businesses and consumers. This would force agencies to prioritize rules that are efficient and effective, and ditch rules that are outdated, burdensome or fail to accomplish their goals.
As it is now, agencies largely police themselves, allowing them to get away with number-fudging and skewed assumptions without adequate oversight or accountability. To date, Congress has been unwilling to step in, preferring to blame unelected agencies when a regulation is unpopular or controversial. A regulatory budget would restore some accountability to agency behavior, while allowing Congress to set the rules of the road.
See the full article here. And read the brand new “10,000 Commandments” for 2018 here.