Archive for the ‘Trade’ Category

Ron Paul On Trump, Jobs And Trade

January 14, 2017

Ron Paul gives a much-needed, clear-headed discussion on Trump and economics.

Advertisements

Trump’s Fascist Tendencies, Pt 2: Protectionism

December 6, 2016

Sheldon Richman explains one of the key components to Mussolini’s fascist Italy:

Beginning in 1929, in preparation for achieving the “glories” of war, the Italian government used protectionist measures to turn the economy toward autarchy, or economic self-sufficiency. The autarchic policies were intensified in the following years because of both the depression and the economic sanctions that other countries imposed on Italy after it invaded Ethiopia. Mussolini decreed that government bureaus must buy only Italian products, and he increased tariffs on all imports in 1931. The sanctions following the invasion of Ethiopia spurred Italy in 1935 to increase tariffs again, stiffen import quotas, and toughen its embargo on industrial goods.

Increased tariffs. Orders for government to purchase ONLY nationally made products. In fairness, there are lots of Americans from both sides of the political divide that share this belief.

And this includes the President-elect.

As quoted in the Wall Street Journal on how to supposedly rebuild the United States:

“We will have two simple rules when it comes to this massive rebuilding effort: Buy American and hire American,” Mr. Trump said at a rally Thursday evening in Cincinnati. “Whether it is producing steel, building cars or curing disease, we want the next generation of innovation and production to happen right here in America and right here in Ohio, right?”

Trump on Oreo cookies:

“Nabisco, they make Oreos. They’re moving to Mexico. I’m never eating another Oreo again. I am telling you. Never.”

Trump on Apple products:

“We’re going to get Apple to build their damn computers and things in this country instead of in other countries,” he said in January at Liberty University.

Trump vs. Ford Motor:

“They think they’re going to get away with this and they fire all their employees in the United States and…move to Mexico,” said Trump. “When that car comes back across the border into our country that now comes in free, we’re gonna charge them a 35% tax. And you know what’s gonna happen, they’re never going to leave.”

And so on.

Trump’s diatribes cherry-pick scenarios (“shipping jobs overseas”) without painting a full picture of supply-chains, value-added work, and how integral those aspects are to Americans as consumers and workers. Demagogues never do deal with the truth.

This isn’t meant to demean anyone who CHOOSES buy strictly American-made products. But Trump’s policy proposals aren’t about choice. It’s about using the powers of the federal government to punish individuals and companies for making consumer choices Trump disagrees with. That’s what protectionism does. Your right to choose what is best for you doesn’t matter. He wants you to pay the price for going against his agenda, no matter how damaging that agenda is to your pocketbook. Or your liberty.

Ratify The TPP

November 4, 2016

Daniel Ikenson on the Trans-Pacific Partnership:

If implemented, the deal would eliminate tariffs on 90 percent of regional trade immediately, open growing Asian services markets to U.S. providers, prohibit customs duties on electronic commerce, expand Americans’ access to imported goods and services, and reinforce the institutional architecture that has enabled the rules-based, global trading system to flourish under U.S. leadership since the end of World War II.

Acknowledging some “baked-in protectionism” exists, Cato determined 15 of the 22 chapters in the agreement were trade liberalizing and would produce a modest increase in real income. But what are its chances of ratification?

But one major hurdle remains — Congress has not yet ratified the TPP, and prospects for doing so are extremely limited. The politics behind the fate of the TPP are more fluid than this suggests, but Congress will either consider implementing legislation in the Lame Duck session — between November 14 and December 23 — or it won’t. Congressional Republican leadership has rejected the idea of a Lame Duck vote, claiming a lack of support for TPP.

The Ramifications Of Trump’s Proposed Trade Wars

March 11, 2016

This doesn’t make America great again:

According to Team Trump, their import tax would (i) force American consumers to pay 10 to 15 percent more for food, clothing, shoes, electronics, and other basic necessities; and (ii) thereby assist American manufacturing companies and their workers.

Put another way, Team Trump has now freely admitted they want to indirectly subsidize U.S. manufacturers via higher prices that American families and businesses would be forced to pay for these domestic producers’ goods.

According to Team Trump, Trump’s import tax would force Americans to pay 10 to 15 percent more for food, clothing, shoes, electronics, and other basic necessities.

This is a wonderful admission—one I don’t think Trump himself has made yet—and I applaud Collins for both his honesty and for revealing the blatant immortality of Trump’s plan. For starters, given that the average American household spends about $11,000 on food, clothing, and other similar items each year, a 10 to 15 percent tax on these goods translates to an extra $1,100 to $1,650 per year that American families would have to spend under President Trump for the same stuff that they’re consuming right now—money they could have saved, invested, or spent on other important necessities like housing or health care.

Don’t bet on these proposed tariffs producing a net gain for jobs. Tariffs are historically job killers. But Trump has made it abundantly clear he won’t let things like the truth get in the way of his presidential ambitions.

Political Demagoguery On Trade: Donald Trump Edition

August 23, 2015

Add Donald Trump to the list of political candidates who falsely condemn international trade as a zero-sum game instead of speaking the truth about trade’s benefits.

Trump on Ford Motor Company’s plans to build plants in Mexico:

“Let me give you the bad news: every car, every truck and every part manufactured in this plant that comes across the border, we’re going to charge you a $35 tax—OK?—and that tax is going to be paid simultaneously with the transaction.”

And Trump on Oreo cookies:

“I love Oreos. I will never eat them again. Nabisco closes the plant in Chicago and they are moving the plant to Mexico. Why?”

Sheldon Richman eviscerates Trump’s naive nativism:

The purpose of production is not job-creation; it’s consumption. If Americans find foreign-made cars a better value than American cars, so be it. To the extent they save money, they have more discretionary income with which to buy other things or to save and invest. For those who (needlessly) worry about jobs, this new ability to buy and save ought to be comforting. If Americans’ direct auto-making talents aren’t valued in the marketplace, Americans will make other things that consumers (here and abroad) will want. That’s the law of comparative advantage in action. (Again, this assumes no government distortions, such as those created by subsidies, taxes, occupational licensing, zoning, central banking, intellectual property, and other special-interest political mischief.)

Replace “cars” with “cookies” above and you still have the same thing.

So my question for Mr. Trump: how come you insist on stealing American country club jobs and shipping them to Europe?

Protectionism, Not Free Trade, Is The Job Killer

February 13, 2015

To believe Senator Bernie Sanders on trade policy must mean you believe in the trade policies of Herbert Hoover that produced all the “wonderful” economic growth of the 1930s. Senator Sanders states his opposition to the Trans-Pacific Partnership thusly:

The TPP follows in the footsteps of other unfettered free trade agreements like NAFTA, CAFTA and the Permanent Normalized Trade Agreement with China (PNTR). These treaties have forced American workers to compete against desperate and low-wage labor around the world. The result has been massive job losses in the United States and the shutting down of tens of thousands of factories. These corporately backed trade agreements have significantly contributed to the race to the bottom, the collapse of the American middle class and increased wealth and income inequality. The TPP is more of the same, but even worse.

Zero-sum economic theory might work to win elections in Vermont, but it does a poor job explaining economic realities.

Free trade benefits consumers who are able to buy goods at more affordable prices, thus increasing American incomes. Competition for customers forces businesses to become more efficient lest they find themselves out of business. More efficient businesses use their resources better, enabling them to grow, necessitating the need to employ more workers.

Protectionism locks in higher prices for protected interests, reducing the efficiency of companies that have to do business with the protected businesses and creating a bigger strain on American budgets. The protected interests, facing reduced competition, have less incentive to innovate. This creates a potential domino effect where other countries retaliate with their own tariffs, shutting out markets for American exporters.

Consider the following:

-In their book Out of Work: Unemployment and Government in Twentieth-Century America, economists Richard Vedder and Lowell Gallaway estimate 20% of the increased unemployment from 1929 to 1932 was a result of the notorious Smoot-Hawley Tariff Act.

-In the 1960s, Dr. Dean Russell estimated prohibitive tariffs destroyed 20 jobs for every 16 saved.

A recent Cato policy analysis cites a Commerce Department study that states 3 candy-making jobs are lost for every sugar-growing job saved thanks to our sugar subsidies, at a cost of $800,000 per saved job.

-While a lot of good was accomplished in the 1980s, protectionist trade policies enacted by the Reagan administration cost jobs in the automotive industry and by steel-using firms.

Per Jay Baron from the Center for Automotive Research, manufacturing is going to Mexico because they have more free trade agreements in place than the US, thus enabling manufacturers to avoid paying import duties they would by doing business in the US. This is why Volkswagen moved an Audi plant to Mexico and not Tennessee.

The purpose of free trade is to increase our well-being through voluntary exchange. It is not a jobs program, yet does a better job than the job-killing track record of protectionism.

Cuban Policy Reform

December 17, 2014

“In the most significant changes in our policy in more than fifty years, we will end an outdated approach that, for decades, has failed to advance our interests, and instead we will begin to normalize relations between our two countries. Through these changes, we intend to create more opportunities for the American and Cuban people, and begin a new chapter among the nations of the Americas.”

That is from President Obama’s speech, discussing the re-establishment of partial diplomatic relations with Cuba.

Senator Marco Rubio’s reaction deserves special attention. He claims this move is “providing the economic lift that the Castro regime needs to become permanent fixtures in Cuba” and mockingly states the ability to “buy Coca-Cola” will not improve the economic fortunes of everyday Cubans. Also, there’s this statement:

“I don’t care if the polls say 99 percent of people in Florida want to lift the embargo. I would still be for (keeping) it,” Rubio said. “My goal is freedom and democracy in Cuba, and the embargo gives us leverage.”

My counterpoints to Senator Rubio:

1. Don’t you think our embargo has done more to make the Castros “permanent fixtures” than any attempt to normalize relations?

2. Instead of trivializing freer markets, maybe we should recognize the power of more open markets to improve Cubans’ livelihoods. That appears to be happening as we speak.

3. I don’t believe majority rule should dictate everything, but it’s a funny thing to invoke support for “freedom and democracy” for a policy that imposes burdens and is losing the support of your constituency.

It’s not like President Obama’s action overturns 50-plus years of policy towards Cuba; further congressional action is needed. Maybe Senator Rubio has more faith in the efficacy of government than I do; personally I’d prefer policies toward other communist countries that encourage them to become “richer and more prosperous, because that’s a potential trading partner, customers for our products and services.” Which will also do more to undermine political oppression than any embargo.

Mad About Trade by Daniel Griswold

April 16, 2013

Probably the one thing I found most annoying about the last presidential election (and most election cycles in general) is the constant bashing of globalization. One of President Obama’s campaign talking points involved ending tax “incentives for companies that are shipping jobs overseas.” Mitt Romney wasn’t much better, claiming he was ready to declare China a “currency manipulator” had he assumed the White House, which would’ve likely resulted in protectionist trade policies.

This epitomizes what I hate most about politics: crass emotional appeals without explaining the truth.

For anyone who wants the truth on trade and globalization, read Daniel Griswold’s 2009 book Mad About Trade: Why Main Street America Should Embrace Globalization.

Trade is not about a jobs program; it’s about a providing us with a higher standard of living, enabling us to peacefully engage in the world through mutually beneficial transactions. Not only does it raise our living standards, it brings the world out of poverty, democratizes nations, and expands basic civil rights.

The evidence Griswold provides is overwhelming:

-Greater variety from imports boosts American incomes by $400 billion per year, or $1300 per person or $5000 for a family of four.

-Global integration add $1 trillion to US GDP. Achieving global free trade would add $450 billion, or $4000 to a family’s annual income.

-600 million are no longer in poverty in China since market reforms and expanded trade policies were implemented.

-The “shipping jobs overseas” rant may score politically, but it doesn’t bear reality. According to economists Mihir Desai, C. Fritz Foley, and James Hines Jr., a 10% increase in capital investment to existing foreign affiliates was associated with a 2.2% increase in domestic investment and a 4% increase in domestic workforce compensation.

-The net loss of manufacturing jobs has been dwarfed by the gain in higher-paying service sector jobs.

-Among the top 28 countries which contain the most economic freedom (including the freedom to engage in international transactions), 22 have a “free” rating by Freedom House, a think tank that ranks countries based on freedom of speech, religious freedom, and freedom to participate in open elections. Among the 28 countries with the least economic freedom, only 5 receive the “free” rating by Freedom House. As Griswold explains, “People in a free and open market tend to see people outside their ethnic and religious group not as threats but as potential customers and business partners.” This breeds “tolerance and compromise in their everyday lives, essential public traits for a democracy.”

Griswold explains how the US corporate tax code provides disincentives for US companies to repatriate their foreign earnings into the US. Far from being a “tax break for shipping jobs overseas,” the tax code creates a penalty for investing in the US economy. By extending the US corporate tax rate to the deferred international earnings of US multinationals as some have suggested, the results would be (in Griswold’s words) “lost sales, lower profits, and fewer employment opportunities in the parent company back on American soil.”

Another important discussion in the book relates to our trade with China. Chinese imports haven’t so much replaced domestic production as much as they’ve replaced imports from other Asian regions. Nor does the trade deficit with China factor that approximately two-thirds of the value of imports from come from other countries, with the US claiming much of that value with technology imports.

My only critique: I think Griswold possibly undersells the “jobs” argument in favor of trade. While trade is not about jobs, there is evidence that trade lowers unemployment thanks to increased productivity and efficiency.

If there’s only one book you read on trade and globalization, make it this one (although I’d also recommend Johan Norberg’s In Defense of Global Capitalism to learn about globalization’s international benefits). Highest recommendation.

The Good & Bad of Reaganomics

April 8, 2013

A former co-worker who blogs on politics from a left-wing perspective wrote a post titled “Slings And Arrows” which had some choice comments for Reaganomics, calling it “a shell game of crony capitalism” where middle- and bottom-income earners were “casualties.”

Reaganomics is what first triggered my interest in public policy years ago. While I’m no longer a Reagan idolator (and likely consider him the most overrated Republican president ever thanks to the collateral damage that trickled down from his drug war policies), the debate over his economic policies still peaks my interest.

Reagan has one of the most eloquent defenses of the free market I’ve read, when he stated:

We who live in free market societies believe that growth, prosperity and ultimately human fulfillment, are created from the bottom up, not the government down. Only when the human spirit is allowed to invent and create, only when individuals are given a personal stake in deciding economic policies and benefiting from their success — only then can societies remain economically alive, dynamic, progressive, and free. Trust the people. This is the one irrefutable lesson of the entire postwar period contradicting the notion that rigid government controls are essential to economic development.

So did his policies live up to the rhetoric?

The heart of his fiscal agenda was the across-the-board cut in income tax rates, with the top marginal rate falling from 70% to 28%. Capital gains taxes and corporate taxes were initially cut, although those were partially rescinded. To handle mounting deficits, instead of seriously tackling spending, a series of tax increases were implemented.

Maybe even more important than the fiscal agenda was the monetary policy of the time, as Reagan gave his support to Paul Volcker’s anti-inflationary measures. Without Reagan’s support, it’s highly unlikely the Fed could have operated as it did.

What impact did these policies have? The economy’s standing at the end of Reagan’s presidency (unless a hyperlink is included, the numbers come from this Cato report):

-17 million new jobs

-Growth in real-median income by $4000.00

-A 3.2% growth rate in GDP

-An unemployment rate of 5.5%. During the peak of Volcker’s anti-inflationary measures, the rate peaked at 9.7%.

-A productivity rate of 1.5%.

-A CPI of 4.1%, compared to 13.5% in 1980.

-Overall government spending as a percent of GDP at 22.1%, compared to 22.9% at the start.

Rising incomes for each income quintile (the smallest gain coming to the lowest income) and, more importantly, income mobility in which the poor and middle class were able to move up the ladder.

Per the late William Niskanen, the rate of deregulation started by the Carter administration continued at a slower rate.

-Assuming he’s not fudging numbers, Paul Krugman notes the tax rates middle-class Americans paid on their income went up slightly due to payroll tax increases.

There’s quite a bit of good from this. The Reagan years show incentives matter. If an entrepreneur can enjoy a greater portion of the fruits his/her labor produces, the end result is more work, more entrepreneurship, and greater prosperity for the economy as a whole. Even in the case of Krugman’s stat about middle America, a case can be made that happened because of Americans moving up the income ladder.

Equally important is the need for sound money. Inflation robs us of our standard of living and worsens our living conditions. Sound monetary policy fosters security in what we possess and encourages capital formation, as there is real value to investments that pay off. Taming inflation is arguably the biggest accomplishment of the Reagan years.

But not everything was peachy. As Milton Friedman stated, government spending is the true burden on the economy, because what is not paid by tax revenue is paid either through inflation or borrowing. Borrowing gets paid back (with interest) in the form of future tax increases. And borrowing is apparently what happened with the 1980s, as debt went from 27% of GDP to 42% by the end of Reagan’s presidency. While spending as a percent of GDP went down ever so slightly, it averaged 22.4% during his term, which is a good bit higher President Clinton’s time in office. If you feel the deficit spending paid for the end of the Cold War, than it’s probably justified. Even so, entitlement reform was kicked down the road, and the massive overhauls needed to really make the Reagan “revolution” a sustaining one never materialized.

While I strongly disagree with Mr. Kroeger’s assessment that lower- and middle-income workers were “casualties,” there may be something to the accusation of “crony capitalism” at play. As Sheldon Richman documented years ago, Reagan was arguably the most protectionist president since Herbert Hoover, supporting a host of tariffs, import quotas, and anti-dumping measures meant to protect domestic industries. These protections came at the expense of the American consumer, which paid the equivalent of a 66% income tax surcharge via higher prices. But even these protectionist policies hurt domestic companies, as the report cites American steel-using firms shed 52,000 jobs thanks to tariffs on specialty steel.

Overall, the good was really good, the bad was fairly bad, but not bad enough to overwhelm the good. It’s unfortunate the country didn’t go further with the Reagan economic “revolution” as maybe the doldrums of the last 5 years could have been avoided.

Obama & Romney and Trade Policy with China

September 24, 2012

President Obama goes after Governor Romney, Romney goes after Obama.

It would be nice instead of a bunch of nativist sabre-rattling in the name of gaining political power, the major parties would embrace economic reality. This Daniel Ikenson piece is a must-read.

Clearly Obama prefers protectionism. While Romney might talk like he embraces free trade, his stance with one of our biggest trading partners tells a different story.

My question for the candidates, based on the Ikenson article: why do you look to impose regressive taxes on the middle class??