Tag: free trade

Trump, Trade and Foreign Policy

Donald Trump has been touting staunchly protectionist and isolationist rhetoric on trade policy throughout his campaign. Whether this was merely campaign-talk is still to be seen.

However, at his core, Trump is a businessman. In the business world, isolationism is synonymous with self-destruction.

So when Trump brandishes protectionist rhetoric and sullies the role of international trade, he’s ignoring the fact that, in international relations, trade also serves as an expression of diplomatic goodwill and a means for constructive connectivity. Trade could also promote and advance free market principles abroad.

Take China, for instance. Beijing is embarking on a new era of “economic diplomacy”: trade and foreign investment have become the preferred tools for engaging with the international community, as well as for boosting domestic economic growth. China’s relatively new $1 trillion New Silk Road trade and investment initiative spanning several countries and continents attests to just that.

Instead of taking the opportunity to forge beneficial economic and trade ties with Beijing, Trump is instead threatening to impose high tariffs on China and declaring it a currency manipulator. However, doing so would actually isolate the United States’ economic interests rather than “protect” them, especially in the long run.

Trump will now have to quickly transition from a businessman into a statesman. In the business world, there is something to be said for taking a tough, zero-sum approach to negotiations. But in international relations, flippant threats and tough-talk—especially when it comes to the world’s second largest economy, as well as a nuclear power—is tantamount to recklessness, and likely to cause more harm than good.

Lastly, there are reasons to doubt whether Congress will comply with Trump’s trade and foreign policy stance. Members may instead insist that trade within a mutually beneficial arrangement, and not economic isolationism, will lead to more U.S. jobs and overall economic growth.

Read Cato Trade’s Comprehensive Analysis of the Trans-Pacific Partnership

The Trans-Pacific Partnership trade agreement between the United States and 11 other countries was reached late last year, signed by the parties earlier this year, and now awaits ratification by the various governments. In terms of the value of trade and share of global output accounted for by the 12 member countries, the TPP is the largest U.S. trade agreement to date.

In the United States, the TPP has been controversial from the outset, drawing criticism from the usual suspects – labor unions, environmental groups, and sundry groups of anti-globalization crusaders – but also from free traders concerned that the deal may be laden with corporate welfare and other illiberal provisions that might lead to the circumvention or subversion of domestic sovereignty and democratic accountability.

As free traders who recognize that these kinds of agreements tend to deliver managed trade liberalization (which usually includes some baked-in protectionism), rather than free trade, my colleagues and I at the Herbert A. Stiefel Center for Trade Policy Studies set out to perform a comprehensive assessment of the TPP’s 30 chapters with the goal of answering this question: Should Free Traders Support the Trans-Pacific Partnership?

Yesterday, Cato released our findings in this paper, which presents a chapter-by-chapter analysis of the TPP, including summaries, assessments, scores on a scale of 0 (protectionist) to 10 (free trade), and scoring rationales. Of the 22 chapters analyzed, we found 15 to be liberalizing (scores above 5), 5 to be protectionist (scores below 5), and 2 to be neutral (scores of 5). Considered as a whole, the terms of the TPP are net liberalizing – it would, on par, increase our economic freedoms.

Accordingly, my trade colleagues and I hope it will be ratified and implemented as soon as possible.

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Little-Known Facts About U.S. Trade With China

Trade with China in ServicesWilliam Galston’s Wall Street Journal column, “Why Trade Critics Are Getting Traction,” asks why U.S. employment in manufacturing fell from 17.2 million in December 2000 to 12.3 million last year.    He suggests that “import penetration from China [not Mexico] has been responsible for up to 20% of U.S. job losses.” But “up to” 20% explains very little, and that figure is at the high end of a range of estimates about 1999-2011 from a working paper by David Autor, David Dorn and Gordon Hanson. They speculate that “had import competition not grown after 1999” then there would have been 10% more U.S. manufacturing jobs in 2011.  In that hypothetical sense, “direct import competition [would] amount to 10 percent of the realized job loss” from 1999 to 2011.  Since 2007, however, the study’s authors find “a marked slowdown in import expansion following the onset of the global financial crisis, which halted trade growth worldwide.”

Deep recession and weak recovery is what slashed manufacturing jobs since 2007, not imports. In reality, imports always fall in recessions.  Although Autor, Dorn and Hanson emphasize imports of consumer goods (clothing and furniture), nearly half of U.S. goods imports (47.7% last year) are industrial supplies and capital goods which are essential inputs into expanding U.S. production.  That is a big reason why imports rise when U.S. industry expands and fall in slumps.

Even if “up to” 20% of manufacturing jobs lost since 2007 could be blamed on imports from China, as Galston claims, that need not mean the overall numbers of U.S. jobs were reduced.  “There is no evidence,” writes Galston, “that increased competition from China has produced offsetting employment increases in other industries whose products are traded internationally [emphasis added].”  Confining overall employment effects to “traded goods,” as Autor, Dorn and Hanson do, arbitrarily excludes services – such as financial and legal services, accounting, advertising, travel, telecom and insurance.   Services account for 32% of U.S. exports, and the U.S. runs a large and growing trade surplus with China ($28 billion in 2014) and with the world ($233 billion). Dollars foreign firms earn by exporting goods to the U.S. are commonly used to import services from the U.S. or to invest in U.S. real and financial assets; both those activities create U.S. jobs. Hollywood, Madison Avenue and Wall Street are big, high-wage U.S. exporters.

Confining the job impact to traded goods also excludes U.S. jobs in transporting, wholesaling and retailing Chinese goods (Walmart, Amazon…), as well as shipping U.S. exports to China and Hong Kong.  Incidentally, the U.S. ran a $30.5 billion trade surplus with Hong Kong last year, which isn’t counted trade with China though it really is.

Galston acknowledges that “rising productivity” [output per worker] is “part of the story” about manufacturing jobs.  In fact, it is essentially the whole story from 1987 to 2007, when U.S. manufacturing output nearly doubled.  The deep recession and slow recovery explain what happened to manufacturing jobs over the past ten years, not foreign trade.  

Index of U.S. Manufacturing Output and Employment

Trade Is Not a Trade-Off: The Stronger Case for Free Trade

Too many advocates of trade liberalization don’t really understand the case for free trade. Consider this sympathetic interview by Steve Inskeep of NPR with U.S. Trade Representative Michael Froman, the chief negotiator of the Trans-Pacific Partnership:

INSKEEP: Froman argues the TPP, the Trans-Pacific Partnership, will give U.S. industries more access to foreign markets. Granted, there’s a trade-off. Other nations get more access to the U.S. for their products. Froman contends that, at least, happens slowly as tariffs or import taxes drop.

FROMAN: The tariff on imported trucks from Japan, as an example, won’t go away for 30 years. On apparel and textiles, we worked very closely with the textile manufacturers in the U.S. to come up with an outcome that they could be comfortable with, so that we’ll let in clothes coming that are made Vietnam or made in Malaysia, but they’ve got to use U.S. fabric.

Inskeep refers to the lowering of U.S. tariffs as “a trade-off,” and Froman accepts that characterization. Both operate from the premise that Americans want other countries to reduce their barriers to our exports, and that the “trade-off” for that benefit is that we must reduce our own trade barriers.

That’s backwards. The benefit of trade is that we get access to goods and services that we might not get otherwise, or we get to pay lower prices for the goods we want. More broadly, we want free – or at least freer – trade in order to remove the impediments that prevent people from finding the best ways to satisfy their wants. Free trade allows us to benefit from the division of labor, specialization, comparative advantage, and economies of scale.

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The Benefit of Free Trade Is Not Exports, It’s Lower Prices on Things We Want

In the news this morning, Sen. Orrin Hatch (R–UT), author of the Trade Promotion Authority bill, makes the usual case for trade agreements and TPA:

We need to get this bill passed. We need to pass it for the American workers who want good, high-paying jobs. We need to pass it for our farmers, ranchers, manufacturers, and entrepreneurs who need access to foreign markets in order to compete. We need to pass it to maintain our standing in the world.

It’s certainly good that the chairman of the Senate Finance Committee supports freer trade. But I fear he’s as confused as most Washingtonians about the actual case for free trade.

This whole “exports and jobs” framework is misguided. Thirty years ago in the Cato Journal, the economist Ronald Krieger explained the difference between the economist’s and the non-economist’s views of trade. The economist believes that “The purpose of economic activity is to enhance the wellbeing of individual consumers and households.” And, therefore, “Imports are the benefit for which exports are the cost.” Imports are the things we want—clothing, televisions, cars, software, ideas—and exports are what we have to trade in order to get them.

And thus, Krieger continues, point by point:

Cheap foreign goods are thus an unambiguous benefit to the importing country.

The objective of foreign trade is therefore to get goods on advantageous terms.

That is why we want free—or at least freer—trade: to remove the impediments that prevent people from finding the best ways to satisfy their wants. Free trade allows us to benefit from the division of labor, specialization, comparative advantage, and economies of scale.

I write about this in The Libertarian Mind (buy it now!):

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Roger Milliken’s Company Joins the Global Economy

Roger Milliken, head of the South Carolina textile firm Milliken & Co. for more than 50 years, was one of the most important benefactors of modern conservatism. He was active in the Goldwater campaign, and was a founder and funder of National Review and the Heritage Foundation. He dabbled in libertarianism, too. He was a board member of the Foundation for Economic Education and supported the legendary anarchist-libertarian speaker Robert LeFevre, sending his executives to LeFevre’s classes.

But he parted company with his free-market friends on one issue: free trade. Starting in the 1980s, when Americans started buying a lot of textile imports, he hated it. As the Wall Street Journal reports today,

Milliken & Co., one of the largest U.S. textile makers, has been on the front lines of nearly every recent battle to defeat free-trade legislation. It has financed activists, backed like-minded lawmakers and helped build a coalition of right and left-wing opponents of free trade….

“Roger Milliken was likely the largest single investor in the anti-trade movement for many years—as though no amount of money was too much,” said former Clinton administration U.S. Trade Representative Charlene Barshefsky, who battled with him and his allies….

Mr. Milliken, a Republican, invited anti-free-trade activists of all stripes to dinners on Capitol Hill. The coalition was secretive about their meetings, dubbing themselves the No-Name Coalition.

Several people who attended the dinners, which continued through the mid-2000s, recall how International Ladies’ Garment Workers Union lobbyist Evelyn Dubrow, a firebrand four years younger than the elderly Mr. Milliken, would greet the textile boss, who fought to keep unions out of his factories, with a kiss on the cheek.

“He had this uncanny convening power,” says Lori Wallach, an anti-free-trade activist who works for Public Citizen, a group that lobbies on consumer issues. “He could assemble people who would otherwise turn into salt if they were in the same room.”…

“He was just about the only genuinely big money that was active in funding trade-policy critics,” says Alan Tonelson, a former senior researcher at the educational arm of the U.S. Business and Industry Council, a group that opposed trade pacts.

But the world has changed, and so has Milliken & Co. Roger Milliken died in 2010, at age 95 still the chairman of the company his grandfather founded. His chosen successor, Joseph Salley, wants Milliken to be part of the global economy. He has ended the company’s support for protectionism and slashed its lobbying budget. And as the Journal reports, Milliken’s executives are urging Congress to support fast-track authority for President Obama.

Peace, Love, & Liberty: A Brilliant New Book

Peace Love & Liberty

Hundreds of thousands of protesters are marching in Hong Kong under the banner of “Occupy Central for Love and Peace.” Have I got a book for them!

Cato Senior Fellow Tom G. Palmer has just edited Peace, Love, & Liberty, a collection of writings on peace. This is the fifth book edited by Palmer and published in collaboration with the Atlas Network, where he is executive vice president for international programs, and Students for Liberty, which plans to distribute some 300,000 copies on college campuses.

But don’t write this book off as a student handout. There’s really impressive material in here. Palmer wrote three long original essays: “Peace Is a Choice,” “The Political Economy of Empire and War,” and “The Philosophy of Peace or the Philosophy of Conflict.” These are important and substantial articles. 

But his aren’t the only impressive articles. The book also includes:

  • Steven Pinker on why we’ve seen a decline in war
  • Eric Gartzke on how free trade leads to peace
  • Rob McDonald on early Americans’ wariness of war
  • Justin Logan on the declining usefulness of war
  • Radley Balko on the militarization of police
  • Emmanuel Martin on how we all benefit if other countries prosper
  • Chris Rufer on a businessman’s view of peace
  • Sarah Skwire on war in literature
  • Cathy Reisenwitz on what individuals can do to advance peace

Plus classic pieces of literature including Mark Twain’s “War Prayer” and Wilfred Owen’s “Dulce et Decorum Est.”

And all this for only $9.95 at Amazon! Or even less from Amazon’s affiliates. If you want to buy them in bulk – and really, you should, especially for your peace-loving friends who aren’t yet libertarians – contact Students for Liberty.

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