Paul Krugman Explains Trade and Tariffs

There’s no way to bring back all those steel plants and steel jobs, even if we stopped all imports. Partly that’s because a modern economy doesn’t use that much steel, partly because we can produce steel using many fewer workers, partly because old-fashioned open-hearth plants have been replaced by mini-mills that use scrap metal and aren’t in the same places. So this is all a fantasy.

.. You may remember Bernie Sanders using Denmark as an example. It’s a good one: much better wages, a much stronger social safety net, a mostly unionized work force. But Denmark is as open to world trade as we are. It’s domestic policies — from taxing and spending decisions to pro-labor policies in the service sector — that make the difference. Universal health care and the right to organize matter a lot more for workers than trade policy.

.. Why does the president of the United States have the authority to make decisions (such as imposing tariffs) that have significant impacts on the economy, trade, relationships with allies, etc. — with impunity, and with no input from Congress? What path should Congress be taking to restrict his powers.— Ricky, Saint Paul, Minn.

PK: Actually, Congress voluntarily limited its own role, to protect itself from special-interest politics: it votes big trade deals up or down on a single vote, then stays out of it.

.. However, these powers aren’t supposed to be used arbitrarily: there’s supposed to be an independent study of the issue, and the president acts on the basis of that study. What’s happening with Trump is an abuse of the process: the Commerce Department came up with an obviously bogus national security rationale for tariffs Trump wanted to impose for other reasons.

So we have a process that gives presidents some discretion, for pretty good reasons — but one that assumes that said presidents will act honestly and responsibly. It falls apart when you’re dealing with someone like Trump.

.. PK: President Oprah Winfrey, or whoever, can undo these tariffs with a stroke of the pen. However, we might get into a full-scale trade war before that happens, and in any case the U.S. has already lost its reputation as a reliable negotiating partner.

.. PK: Basically, we have persistent trade deficits because we have low savings and remain an attractive place for foreigners to invest. And as a result, the U.S., which was a creditor country before we began running persistent deficits since 1980, is now a net debtor.

But you want to keep some perspective. Our “net international investment position” — overseas assets less liabilities — is about -45 percent of G.D.P., which isn’t that big a number, all things considered. For example, it’s less than 10 percent of our national wealth.

And the idea that this gives foreigners a lot of power over America has it backward. On the contrary, in a way it makes them our hostages: China has a lot of money tied up in America. Suppose they tried to pull it out: the worst that could happen would be a fall in the dollar, which would be good for U.S. manufacturing and inflict a capital loss on our creditors.

Lot of things worry me; our foreign debt, not so much.

Oh, What a Trumpy Trade War!

After all, trade (like racism) is an issue on which Trump has been utterly consistent over the years.

.. his views are based on zero understanding of the issues or even of basic facts, well, Trumpism is all about belligerent ignorance, across the board.

.. The real goal, instead, is to protect us from ourselves: to limit the special-interest politics and outright corruption that used to reign in trade policy.

Trumpocrats, however, don’t see corruption and rule by special interests as problems. You could say that the world trading system is, in large part, specifically designed to prevent people like Trump from having too much influence. Of course he wants to wreck it.

.. a trade war against the European Union would make America as a whole poorer, even if the E.U. didn’t retaliate (which it would). It would, however, benefit some industries that happen to face stiff European competition.

.. The small groups that benefit from protectionism often have more political influence than the much larger groups that are hurt.

.. the infamous Smoot-Hawley Tariff Act of 1930: Enough members of Congress were bought off, one way or another, to enact legislation that almost everyone knew was bad for the nation as a whole.

.. Tariff policy, which used to be one of the dirtiest, most corrupt aspects of politics both in the U.S. and elsewhere, has become remarkably (though not perfectly) clean.

.. the steel and aluminum tariffs, justified with an obviously bogus appeal to national security, clearly don’t pass the test.

.. But that won’t bother Trump. After all, we now basically have an

  • Environmental Protection Agency run on behalf of polluters, an
  • Interior Department run by people who want to loot federal land, an
  • Education Department run by the for-profit schools industry, and so on.

Why should trade policy be different?

Comments:

Remember, when the Republicans blamed Obama for leading from behind. Is Trump’s leadership what they call leading from in front? Isolationism is leading from in front? Is that what Republicans call leadership?

.. I remember a time when republicans disliked Russia and loved free trade. That was so last election cycle. Now it is the opposite. What changed?

..  Until my late 20s
(in the 1970s) the United States had what is called a “regulated capitalism“. This resulted in a more or less balanced arrangement of economic outcomes for the majority of people. All quintiles rose when the GDP rose. They were two sides of the same coin: when the economy prospered, the American people prospered. This is no longer true.

You Cannot Be Too Cynical About the Republican Tax Bill

The rush to enact the tax bill was designed to mask — as a break for the middle class — what is in fact a $1.4 trillion package of benefits for key donors and lobbyists, the richest members of Congress, President Trump, his family and other families like his.

.. The speed from introduction to passage — seven weeks, with no substantive hearings — effectively precluded expert examination of the legislation’s regressive core, its special interest provisions and the long-term penalties it imposes on the working poor and middle class through the use of an alternative measure of inflation — the “chained CPI.”

.. The primary authors of the report — Ari Glogower, David Kamin, Rebecca Kysar, and Darien Shanske — describe the legislation as “a substantial blow to the basic integrity of the income tax” that will “advantage the well-advised in ways that are both deliberate and inadvertent.”

.. The most serious structural problems with the bill are unavoidable outcomes of Congress’s choice to preference certain taxpayers and activities while disfavoring others — and for no discernible policy rationale.

These haphazard lines are fundamentally unfair and inefficient, and invite tax planning by sophisticated taxpayers to get within the preferred categories.

..  The game is clear: Don’t be an employee, instead be an independent contractor or partner in a firm.” The ability to make this shift is available primarily to the well-paid.

.. It means that old property can still get the benefit of expensing, but only if it is sold to another party. If the original owner holds it, they have to depreciate according to the old rules; if they sell it to another party, then suddenly the full cost is eligible for expensing

.. It appears that the buyer of the asset could even lease it back to the existing owner, so that the property doesn’t even have to go anywhere.

.. create new incentives to shift tangible assets (and jobs) abroad. Given President Trump’s relentless message about U.S. jobs, it is incomprehensible to me that we are about to pass something that has this effect without any kind of meaningful discussion of the issue.

.. lower and middle-income families, who are especially dependent upon inflation-indexed deductions, credits, and bracket thresholds, will feel the impact increasingly as time goes on.

.. In the long term, Hemel argued,

this is a very subtle way to increase taxes on the lower and middle classes and then use those revenues to pay for a massive tax cut for corporations.

.. the shift to chained CPI — a less generous, slower-growing measure of inflation than the one currently in use — would not only result in a tax increase over time, it would set a precedent for Republicans who would like to use the same method to pare back so-called entitlement programs like Social Security and Medicare. It is, in effect, a backdoor method of reducing benefits for the elderly and the disadvantaged without public scrutiny or debate.

.. offers little redress to workers who have grown to believe that the country’s tax law thicket advantages those with power, political connections and lawyers on retainer.

.. (2) Carried interest provision. When Trump was careening around in his populist candidate mode, he promised to end it. Here is one campaign promise that he “somehow” failed to redeem when the clear and available chance presented itself.

(3) Restriction on state and C local tax deduction — consciously vindictive imposition of double taxation on citizens of certain Democratic states

.. (4) Expanding the standard deduction but financing the cost of so doing by repealing the personal exemptions is a bit of a bait and switch maneuver. Some people might be worse off.

(5) In a bill in which 100s of billions of dollars were sloshing around to provide steep tax cuts for already wealthy and highly prosperous corporations and pass through businesses, the Republicans could only find the will to raise the refundable portion of the child care tax credit from $1000 to $1400. Rubio wanted it to be raised to $2000 and his Republican brethren refused to even meet him halfway. Pitiful.

.. (6) Deduction for extraordinary medical expenses — retention of this deduction did not even get the five-year sunset window applied to all the other individual tax provisions, two years only. Vicious.

.. How well does this procedure stand up to the requirements Senator Ben Sasse specified in his maiden Senate speech on Nov. 3, 2015? In it, Sasse argued that the Senate was failing in its responsibility to fully air and debate the important issues before the county, calling for what he called “a cultural recovery inside the Senate”:

.. Good teachers don’t shut down debate; they try to model Socratic seriousness by putting the best possible construction on arguments, even — and especially — if one doesn’t hold those positions.

.. How could nearly every Republican representative — and all 52 Republican senators — support the tax bill? The best answer may be the most cynical: because it benefits key leaders, their friends, their heirs and their donors.

.. it is difficult to conclude that the motivations of its sponsors are either benevolent or somehow in the best interests of the country. More likely it is hypocrisy and venality mixed up into one awful bill.

The Real Reason for Republicans’ Silence on Donald Trump

Their fellow legislators have silently accepted his outrages in exchange for policies they’ve always wanted.

At his inauguration Mr. Trump said his presidency was about “transferring power from Washington, D.C., and giving it back to you, the American people.” But he and his allies in Congress are transferring power to Wall Street, fossil fuel companies, the chemical industry and other special interests, and are stoking an anti-populist bonfire to incinerate protections for consumers and workers.

.. On Tuesday night the Senate, with a tiebreaking vote from Vice President Mike Pence, followed the House in voting to overturn a rule that would have allowed consumers to file class-action lawsuits against banks and other financial institutions, rather than be forced to take their disputes to arbitration.

.. Mr. Trump signed an executive order allowing insurers to sell skimpy health insurance plans that do not protect people with pre-existing conditions and that will destabilize the Affordable Care Act’s marketplaces.

.. His administration shortened the open enrollment period when people can buy insurance policies for next year, and slashed spending on advertising and outreach efforts.

.. Congress overturned a rule restricting the ability of coal companies to dump their mining debris into streams and other waterways, threatening rural communities, forests and wildlife.

.. The head of the Environmental Protection Agency, Scott Pruitt, rejected a staff recommendation to ban the pesticide chlorpyrifos, which has been linked to developmental problems in children, and started the process to overturn the Clean Power Plan, the Obama-era proposal to reduce planet-warming emissions from power plants.

.. Congress repealed a Securities and Exchange Commission rule that sought to expose and limit corruption by requiring oil and mining companies to disclose payments to foreign governments.