What economic thinking went into the Trump tariffs announced last week? None at all. In fact, the economists (“economists”?) who currently have his ear seem to regard their job as being to confirm the wisdom of whatever he decides to do. Peter Navarro:
My function, really, as an economist is to try to provide the underlying analytics that confirm his intuition. And his intuition is always right in these matters.
.. Sometimes, however, rates were negative: if you put a tariff on parts but not on cars, you were actually discouraging auto assembly.
.. But still, the key point is that even while embracing protectionism, Trump is imposing negative protection on a lot of manufacturing. That’s hardly the story he wants people to hear – and he’s almost surely doing it by accident, out of sheer ignorance (because his “advisers” aren’t in the business of, you know, giving advice).
And this is how we risk a trade war?
Trump has been playing right into China’s hands
U.S. steel jobs have been mostly lost due to technological change (i.e., robots, not China). U.S. aluminum jobs have been mostly lost to places with cheaper electricity (i.e., Iceland, which is coincidentally also not China).
.. Right now China isn’t even among the top 10 producers of U.S. steel imports. The top country we import from is Canada ..
.. If hurting Canada is Trump’s best strategy for intimidating China, our next step should be maple-syrup taxes.
.. Every time, he has played right into Chinese hands.
Take, for instance, the Trans-Pacific Partnership. This 12-country pact deliberately excluded China; it was to make sure the United States rather than China got to “write the rules of the road for trade in the 21st century,” as then-President Barack Obama put it.
.. Their version stripped out some of the conditions won by U.S. negotiators, such as increased intellectual property protections for pharmaceuticals.
.. After it became clear the Chinese constitution would change to allow President Xi Jinping to hold power indefinitely, Trump didn’t criticize the authoritarian move. Instead, in comments secretly recorded at a fundraiser last weekend, he expressed admiration for Xi as “a great gentleman” who “treated us tremendously well when I went over there.” Xi, Trump cheered, had just made himself “president for life. . . . I think it’s great.”
.. Trump jokingly added that “maybe we will give that a shot someday,” the line that got the most attention. But the comments letting Xi off the hook, in fact praising Xi for consolidating power, were far more consequential. They signal to China that not only do we not care about the country’s increasing authoritarianism; we encourage it.
.. Xi has charmed the pants off Trump, who appears envious of the Chinese government’s military parades, press controls, disregard for human rights and other totalitarian perks.
China’s most dangerous possible export to the United States isn’t a metal. Increasingly, it’s a style of political leadership.
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.
Après Cohn, le Deluge?
Trump’s top economic adviser departs, and the administration’s grown-ups worry.
Mr. Trump’s washing-machine and solar-panel salvo was to be followed by a focus on China’s unfair trade practices, namely intellectual-property theft. The president would announce narrowly targeted trade actions against that country, while holding aluminum and steel tariffs in reserve. All this would be choreographed around renegotiation of the North American and Korea-U.S. free trade agreements.
.. Mr. Ross took advantage of the situation last week to get the president’s ear, and back we were to the days of Mr. Trump spinning out on the advice of the last person in the room.
.. few know that he spent this past weekend talking the president down from an even more Planet Mars idea from Team Ross —to set tariffs closer to 50%.
.. Mr. Ross (a former steel executive) and the nativist Peter Navarro have driven out their biggest free-market opponent, increasing their ability to wreak harm on the economy.
The voices of those who actually understand economic policy are greatly diminished, as evidenced this week by the administration’s endless loop of fact-free and near fantastical claims about the effects of the tariffs.
His shabby treatment has more than a few of the grown-ups now actively considering their own exit plans. It’s one thing to do battle daily; it’s another to watch months of work get flushed on a whim, and get publicly branded a “globalist” to boot. Mr. Cohn’s top deputy, Jeremy Katz, departed just as soon as the tax deal passed, and watch for other Cohn staffers—many of them important free-market voices—to follow.
.. Imagine a Trump presidency without Mr. Kelly, H.R. McMaster, Jim Mattis, Don McGahn, Mick Mulvaney, Kevin Hassett. Consider, too, that no one as good is likely to replace them—now having seen how the White House works.
And don’t forget congressional Republicans, whom Mr. Trump has potentially set up for a midterm rout.
Many are furious that he has forced them to call him out, splitting the party. But they are also legitimately fearful the tariffs will spark trade war and destroy tens or hundreds of thousands of jobs, neutralizing the benefits of the hard-won tax reform.
The economy is the best thing Republicans have going for them in November, and the Trump-Ross-Navarro trio just embraced the only policy that could kill it.
Just how bad it is will depend hugely on Mr. Cohn’s successor.
.. Besides, who in his right mind would even want the job?