Tag: protectionism

Trump Adviser Peter Navarro: Reagan Critic, Industrial Policy Fan

Donald Trump always sounded just like a Bernie Sanders Democrat when talking about international trade. “We have one issue that’s very similar,” he said, “and that’s trade.”  That Trump-Sanders hostility to trade liberalization, in turn, is identical to that of the AFL-CIO and the Economic Policy Institute, a leftist think tank created and largely financed by labor unions.

It should be no surprise that Donald Trump’s most influential adviser and spokesman on international trade, Peter Navarro, is a former unsuccessful Democrat politician who seems closer to an old-style Bernie Sanders leftist Democrat than to a Bill Clinton “New Democrat.”

The only academic among Trump 13 economic advisers, Navarro returned to being an economics professor at U.C. Irvine, after losing San Diego mayoral election to Republican Susan Golding. In 1993 Navarro wrote the book, Bill Clinton’s Agenda for America.

With one caveat, the book was full of glowing praise for everything Clinton promised to do – notably lots more federal spending (which, ironically, fell substantially).

Navarro’s doubts about Clinton concerned NAFTA, which Bush created but Clinton promised to change. “I thought the NAFTA agreement ought to have been more properly called ‘SHAFTA,’” says Navarro.  But he notes that “candidate Clinton later acknowledged the problems of the environment and lost jobs raised by NAFTA, and called for wage safeguards and stricter environmental regulations. It remains to be seen whether this was merely rhetoric, or a serious concern that will have policy follow-through.”

Bucking the Protectionist Trend

In September, the UK government gave the green light for the construction of the Hinkley Point power plant through a French-Chinese consortium. The project—which has received wide international attention after being very nearly relegated to the protectionist dustbin—has been agreed to after much hemming and hawing. It has been mired in controversy mainly over security concerns related to foreign ownership, viewed by some as smacking of protectionism.

It is no secret that there has been a worrying trend toward protectionism in the global markets. The appetite for international trade agreements and foreign investment has been consistently listless. In the United States, and globally, some politicians have been banking on this by flaunting protectionist rhetoric in an effort to garner support. But while protectionism may win votes in the short-term, domestic economic growth will lose out in the long-term. Ultimately, politicizing the global economic rut will only make matters worse.

Trump’s New Trade Proposals Borrowed from Democrats

Donald Trump’s campaign has undoubtedly given protectionist rhetoric a new energy in American politics.  China, he says, is “killing us on trade” and the Trans-Pacific Partnership is “a rape of our country.”  Early on, he got attention for calling for a 45% tariff on all goods from China and for saying we should impose tariffs of 35% on imports from companies that invest overseas. 

On Tuesday, he delivered a highly publicized trade policy speech where he doubled down on his belligerent, mercantilist rhetoric.  He also offered some more detailed and thought-out policy proposals.  Here are the seven proposals he laid out:

  1. “Withdraw the United States from the Trans-Pacific Partnership.”
  2. “Appoint the toughest and smartest trade negotiators.”
  3. “Identify every violation of trade agreements a foreign country is currently using to harm our workers … [and] use every tool under American and international law to end these abuses.
  4. Renegotiate or withdraw from NAFTA
  5. “Label China a currency manipulator.”
  6. “Bring trade cases against China, both in this country and at the WTO.”
  7. “Use every lawful presidential power to remedy trade disputes, including the application of tariffs consistent with Section 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962.”

Despite the outlandish nature of Trump’s rhetoric, there’s actually nothing new or radical about these proposals.  They are, in fact, just what trade-skeptic Democrats have been demanding consistently for over a decade.


America’s Economic Problem Is Regulation, not Trade

Even when Donald Trump seems to get something right, he’s mostly wrong. At least when it comes to economics.

Many Americans are suffering financially. Yet the problem is not trade: Americans have grown wealthy as a trading nation. In contrast, regulation has done much to harm U.S. competitiveness.

The Obama administration is busy writing new rules to turn America into its vision of a good society, irrespective of the impact on liberty or prosperity. Last year Uncle Sam spent $62 billion to run the rest of our lives.

Observed Patrick McLaughlin and Oliver Sherouse of the Mercatus Center: “Over the last 20 years the regulatory budget has more than doubled in real terms while the number of total restrictions has grown by about 220,000—a 25 percent increase.”

The problem is not only the expense of enforcement. Far greater is the cost of the impact on the economy.

Last year Clyde Wayne Crews of the Competitive Enterprise Institute assessed the impact of regulation in his working paper entitled “Tip of the Costberg.” He figured the total price of regulation to be $1.88 trillion.

However, these figures almost certainly are too low. Crews argued: “Too often, regulatory impacts don’t get measured. But further, the disruption of market processes and the derailment of wealth, safety and health creating processes themselves are for the most part wholly neglected.”

Regulatory costs play out in many ways. One aspect is what an individual or company spends to comply with government dictates. Far harder to measure is what does not occur as a result of arbitrary and expensive rules. What products are not launched, what enterprises are not started, what jobs are not created?

Of course, regulations theoretically are promulgated because they yield net benefits after costs. However, agencies have an incentive to inflate the value of what they are doing. That means exaggerating problems and “social costs,” overstating alleged benefits, and discounting compliance costs.

Overall how much have we lost from excessive, unnecessary regulation? A lot, according to economists John W. Dawson and John J. Seater.

They considered the cumulative impact of losing a couple percent of economic growth year in and year out from 1949 through 2005: “That reduction in the growth rate has led to an accumulated reduction in GDP of about $38.8 trillion as of the end of 2011. That is, GDP at the end of 2011 would have been $53.9 trillion instead of $15.1 trillion if regulation had remained at its 1949 level.”

Increased regulation also contributes to increased inequality. In January McLaughlin and Laura Stanley of Mercatus concluded that such rules “skew income toward politically connected producers and away from individual who lack the resources necessary to navigate the legal and regulatory framework.” 

Finally, there is the issue of lost liberty. Crews released a second study last year entitled “Mapping Washington’s Lawlessness 2016.” It reviewed what he termed “regulatory dark matter.”

The regulatory process is essentially lawless, beyond the normal accountability of a democratic system. As Crews explained: “Congress passes and the president signs a few dozen laws every year. Meanwhile, federal departments and agencies issue well over 3,000 rules and regulations of varying significance. A weekday never passes without new regulation. Beyond those rules, however, we lack a clear grasp on the amount and cost of the thousands of executive branch and federal agency proclamations and issuances, including memos, guidance documents, bulletins, circulars, and announcements with practical regulatory effect.”

Americans are suffering. But closing off the economy is no answer to them.

As I pointed out in American Spectator online: “Policymakers should address federal, state, and local governments which are doing so much to prevent American companies from out-competing foreign operations and rewarding Americans accordingly. These are the bad policies to blame for creating today’s economic problems and imposing widespread financial hardship, thereby fueling the populist Trump bandwagon.”

The Continuing Anti-Trade Adventures of Ted Cruz

Ted Cruz’s campaign has produced a new ad targeting Wisconsin voters in the lead up to that state’s primary election tomorrow. As images switch back and forth between farms and factories, Cruz lists off a number of generic demographics and blue collar occupations that his campaign “is for.” He also complains about international trade.

Here’s the substantive part of the ad:

We will repeal Obamacare, peel back the EPA and all the burdensome regulations that are killing small businesses and manufacturing. 

I’m going to stand up for fair trade and bring our jobs back from China. 

We will see wages going up. 

We’ll see opportunity again.

Senator Cruz doesn’t tell us what he means by “fair trade” or promote a specific trade policy. The term “fair trade” is usually used by politicians as a euphemism for “protectionism.” In the past, Cruz has noted that the value-added tax (VAT) he has proposed is “like a tariff” because it imposes a greater burden on imports. Perhaps this is what he means by “fair trade.”

In any event, some simple facts about trade might be helpful to explain the problems with Cruz’s approach. For example, nearly 60% of imports are materials and capital goods used by American companies. So, Cruz’s “fair trade” is a tax on the very same “small businesses and manufacturing” whose burdens he wants to lift. Oh, and reduced employment in America’s thriving manufacturing sector is not due primarily to trade with China.

The biggest difference between Donald Trump and Ted Cruz on trade is that Trump has been more specific. Trump has singled out specific trade deals he opposes and has promised to tax specific companies specific amounts. Also, Trump’s disdain for trade has been apparent from the beginning of his campaign, while Cruz’s rhetoric and positions have been getting gradually worse in response.

While Trump has been getting lots of attention for his anti-trade rhetoric, it’s worth remembering that other candidates are not offering better policy proposals. They are simply less sensational in how they present the same flawed message.


Former USTR Rob Portman Opposes TPP for the Worst Reasons

Yesterday, Senator Rob Portman (R-OH), a former U.S. Trade Representative during the George W. Bush administration, announced his opposition to the Trans-Pacific Partnership. 

According to Reuters:

Portman, from Ohio, said the Pacific trade deal fails to meet the needs of his state’s workers because it lacks an enforceable provision to fight currency manipulation and because of new, less-stringent country-of-origin rules for auto parts.

“I cannot support the TPP in its current form because it doesn’t provide that level playing field,” Portman said in a statement.

The announcement is significant because passage of the TPP will rely on broad Republican support and because Senator Portman’s credentials (as former USTR and member of the Senate Finance Committee who represents a traditionally trade-skeptic region of the country) have earned him a prominent voice on trade policy in Washington.


$1,500 Sandwich Illustrates How Exchange Raises Living Standards

What would life be like without exchange or trade? Recently, a man decided to make a sandwich from scratch. He grew the vegetables, gathered salt from seawater, milked a cow, turned the milk into cheese, pickled a cucumber in a jar, ground his own flour from wheat to make the bread, collected his own honey, and personally killed a chicken for its meat. This month, he published the results of his endeavor in an enlightening video: making a sandwich entirely by himself cost him 6 months of his life and set him back $1,500.

(It should be noted that he used air transportation to get to the ocean to gather salt. If he had taken it upon himself to learn to build and fly a plane, then his endeavor would have proved impossible).

The inefficiency of making even something as humble as a sandwich by oneself, without the benefits of market exchange, is simply mind-boggling. There was a time when everyone grew their own food and made their own clothes.  It was a time of unimaginable poverty and labor without rest.

The greater the number of people involved in exchange, the more beneficial the process becomes. This morning, thanks to international trade, I am drinking coffee grown in Latin America, viewing a computer screen with eyeglasses made in Europe, and typing this blog post on a keyboard made in Asia. Fortunately, freedom to trade internationally has improved, on average, around the world. Increased trade has helped raise living standards and decrease global poverty.