Archive for the ‘Trade’ Category

Trump’s War On The American Economy

June 27, 2018

Anyone with a basic understanding of economics could have predicted the consequences of President Trump’s trade war. From Reason.com

In a filing made Monday with the Securities and Exchange Commission, Wisconsin-based Harley-Davidson disclosed plans to move some of its manufacturing facilities from the Rust Belt to the Old World in the hopes of avoiding higher costs created by new European Union tariffs that target American-made motorcycles, along with other cultural products like whiskey and blue jeans. Those 25 percent tariffs were imposed last week by E.U. officials in response to the Trump administration’s decision to place tariffs on steel and aluminum imported from Europe.

The tariffs will increase the cost of a motorcycle exported from the U.S. to the E.U. by about $2,200 per bike, and would cost Harley-Davidson between $90 and $100 million per year, the company told the SEC.

Trump, just like the typical politician, refuses to accept the blame:

The same article mentions a Missouri company that has to lay off 200 employees due to increased costs imposed on them by Trump’s steel tariffs, and the potential closing of three plants of an Arkansas tire cord manufacturer, again because of the steel tariffs.

Does the Republican Party even give a damn that they’re becoming the party of central planning? When a president states “we’ll stop trading with” other countries, he’s taking a previously anti-American viewpoint that private businesses actually belong to a national collective “we”.

I’ll end with this:

An astonishing tweet: A Republican claiming a private company essentially belongs to a collective known as “America”, and by offending the collective’s strongman authority figure because they have the audacity to look out for their best interests, this private company “will be taxed like never before!”

Ideas like these used to be called fascism. Now we’re supposed to believe fascism-collectivism will make America great again.

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The Fair Trade Fraud by James Bovard

February 17, 2018

Of all people, left-wing filmmaker Michael Moore hit upon one of the main reasons a blusterous reality TV star won the 2016 presidential election, and it did not involve Russian political intrigue:

Well maybe it’s because he’s said (correctly) that the Clintons’ support of NAFTA helped to destroy the industrial states of the Upper Midwest. Trump is going to hammer Clinton on this and her support of TPP and other trade policies that have royally screwed the people of these four states. When Trump stood in the shadow of a Ford Motor factory during the Michigan primary, he threatened the corporation that if they did indeed go ahead with their planned closure of that factory and move it to Mexico, he would slap a 35% tariff on any Mexican-built cars shipped back to the United States. It was sweet, sweet music to the ears of the working class of Michigan, and when he tossed in his threat to Apple that he would force them to stop making their iPhones in China and build them here in America, well, hearts swooned and Trump walked away with a big victory that should have gone to the governor next-door, John Kasich.

I don’t agree with Moore’s perception of free trade. But in the world of electoral politics, perception is reality. The perception, now shared many Republicans, is that free trade agreements are hurting the United States. Nobody in the 2016 election thundered that sentiment louder than candidate Donald Trump.

Now President Trump is starting to act on his protectionist impulses, as he recently imposed “safeguard tariffs on imported large residential washing machines and imported solar cells and modules.”

President Trump’s actions do not “defend American workers, farmers, ranchers, and businesses” as he claims. He pits American against American.

To understand this fully, I highly recommend James Bovard’s 1991 book The Fair Trade Fraud: How Congress Pillages the Consumer and Decimates American Competitiveness.

Bovard’s book explains that free trade is just as much a moral issue as it is an empirical one. Trade affects the most basic proposition: how we live our lives. “Since practically no one can make all the things he wears, eats, and uses, a person’s living standard and opportunity in life depends largely on his opportunities for trading the product of his labor with others. Pervasive trade barriers effectively force people to use inferior building blocks for their life,” Bovard wrote.

The Fair Trade Fraud spells out in painstaking detail how protectionism punctures the building blocks of our lives. Examples of various studies cited provide the following estimates:

-Trade barriers cost an average family $1,200 a year, and erode 32% of the purchasing power of a family just living above poverty.
-The poor lose 8.8% of their income because of textile and apparel protection.
-US dairy protectionism makes consumer costs $800 higher per American family.
-Protectionism for the steel industry cost steel users $10 for every $1 of subsidy steel importers received from their governments (protection like this being the true cause of the hardships Moore cites).
-Sugar protection costing consumers a combined $3 billion per year.
-“Voluntary” auto export restraints from the 1980s raised the average price of a new car by $1,650.

None of these figures are of any concern to protectionists. They only care about one thing.

 

Here are some examples Bovard cites of protectionism’s track record on jobs-Jobs-JOBS:

-A Federal Reserve study cites a job is lost for every job saved in by textile protection.
-Between 1981 and the publication of The Fair Trade Fraud, sugar quotas destroyed 9,000 jobs in food manufacturing. Another 3,000 jobs were lost when a Chicago candy factory, citing the cost of US sugar, relocated to Canada. Another 7,000 refinery jobs were lost because of the cutback in sugar imports. The quotas were to assist 11,000 sugar farmers.
-Steel protection cost 13 jobs in steel-using industries for every steelworker’s saved job.
-The price increase in automobiles occurring in response to import quotas resulted in 1 million fewer sold cars, thus 50,000 fewer jobs.
-Peanut quotas forced a Maryland food processor to lay off 20% of its workforce.
-Duties on softwood lumber imports were estimated to cost 16,600 jobs in construction in order to save 5,000 lumber jobs.
-The Semiconductor Arrangement cost an estimated 11,000 jobs in chip-using companies.

When government makes the cost of doing business more expensive, there are ripple effects. There’s no reason to believe Trump’s latest actions will defy the laws of economics.

The Fair Trade Fraud is an older book, therefore specific laws/rules/policies cited may be out of date. But the mindset that created these examples is clearly still with us. It’s not the most exciting read, but a must-read if you want to understand the immorality and economic harm done in the name of “fair” trade.

Ron Paul On Trump, Jobs And Trade

January 14, 2017

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

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.