Lawrence Summers on the Wrong Way to Think About Trade
They’re wrong because each of those were good deals. If you looked at how much trade barriers in the U.S. were reduced, and at how much trade barriers in the other countries were reduced, in every case they were reduced two, three, four, five times as much in the other countries as in the U.S.
.. The main thing these trade agreements have done is to open other markets to our businesses and to our exports. You don’t have to get into abstractions of free trade. If you just look at it as mercantilism, we’re tearing down their barriers lots more than we’re reducing any of our barriers, mostly because we didn’t have any barriers to start with.
.. if we repeal them, other countries’ trade barriers are going to go up much more than any kind of protection we’re going to be in a position to impose, and so it’s going to hurt our economy.
.. Bilateral trade deficits as a concept don’t make any sense. I run a huge bilateral trade surplus with Harvard [where he is president emeritus and a professor]. I run a huge bilateral trade deficit with my golf club. It makes sense to think about whether I’m selling more to the rest of the economy than I’m buying from the rest of the economy. It makes no sense to think about that entity by entity.
.. The clearest example is China. In the agreement that let China into the WTO, we did not reduce a single tariff in the U.S. We kept them at the same level that they had been for the previous 10 years. The reason there was a trade surge was changes that were taking place in China, not changes in our trade policies.
.. MR. IP: What happens to our growth and our trade balances if we exit these agreements?
MR. SUMMERS: Probably our trade deficits go up a little bit because of the reduced capacity to export to those countries.
.. MR. IP: What happens to our growth and our trade balances if we exit these agreements?
MR. SUMMERS: Probably our trade deficits go up a little bit because of the reduced capacity to export to those countries.
.. MR. IP: Treasury Secretary Steven Mnuchin said the tax cut being planned in the House and the Senate will pay for itself. He said even if we only get 30 or 40 basis points more of economic growth, this will pay for itself. Is he right?
MR. SUMMERS: Could it turn out that growth accelerated? Yes. If you were about [to roll] a die and I predicted that it was going to come up 12, I could turn out to be right, but it would be a crazy prediction.
I don’t think there is any rational basis for the judgment that the tax cut will pay for itself. There is nothing in the experience of past tax cuts, nor in the experience of a large number of modeling exercises that suggest that this tax cut would pay for itself.
I read carefully what the secretary said here last night and he said the Treasury had published a study that demonstrated this. We have sought to receive that publication, and there is no publication.
And I would make this judgment: I am still familiar with the kind of models and analysis that the career professionals at the Treasury do, and their career professional analysis, I am 99% certain, will not support the judgment that this tax cut will raise revenue.
But there’s a profound responsibility for people in positions of responsibility who are making factual claims about the economy to have a basis for those factual claims, when they indicate that they’re based on publications, to be prepared to come forward with those publications. And I’m afraid I haven’t seen that from the Treasury Department.