In an op-ed in the New York Times Josh Bivens does a pretty fair job of summarizing the tariffs on steel and aluminum that President Trump announced last week:
To be clear, there’s plenty to hate about the policy course charted by the Trump administration. His anti-trade stance is of a piece with an agenda rooted in xenophobia and bigotry that has favored the rich over low- and moderate-wage workers. But despite this record, and despite the near-dogma status of free trade among economic writers, the proposed tariffs won’t end the world, and may even do some good.
First, let’s take them for what they are: temporary relief for specific sectors (steel and aluminum) facing a specific problem (global excess production capacity, propped up by foreign governmental subsidies). America has taken steps like this before, and did not slide down any slippery slope to autarky. This means that big-picture principles — like, “Free trade is good,†or, “Globalization decimated the American working class†— aren’t very helpful in assessing them.
I’ve seen plenty of hand-wringing that it’s starting a trade war. By that logic during World War II the war in the Pacific was started by the U. S. responding to the attack on Pearl Harbor. Or the North started the American Civil War by not immediately surrendering Fort Sumter to the Confederates.
The United States continues to have the least restricted foreign trade of any major economy. Every EU country has trade restrictions and most have various forms of subsidies for domestic industries. Most have filed complaints with China about its steel and/or aluminum subsidies. Under the circumstances I think the agonistic reactions to the announcement are overblown.
Trade is an exchange of goods and/or services, but the free-traders cannot get it through their thick skulls that exchanging currency for goods is not free-trade whether done at the Walmart checkout or the port cargo transfer area.
I like the no foreign purchase or ownership of US government debt, but I would include additional restrictions on credit creation. I would also loosen bankruptcy laws to discourage free-wheeling credit creation.
An alternative to tariffs would be an import adjustment fee based upon the trade deficit with a specific country, and there could be a rebate for a country with a trade surplus.
Oh no, one you free-traders needs to alert Wall Street that they are supposed to be selling as fast as possible.
On the other hand, you could short the market and make a fortune. Yep, put those free-market principles to work.
Subsidy should not be tolerated.
But if your neighbor can do it better, let them, and trade on your own talents. Whether that neighbor is Iowa and their corn and pork, or Canada or Germany.
The problem we face is that the enormous subsidies that other countries afford to their own industries and the quotas with which they protect them, another form of subsidy, undermines our industries. Past capital investment here is destroyed and is less likely to return to those sectors than might otherwise be the case. The effect is to reduce the number of jobs here and push wages down, not just in the affected sectors but throughout the economy. Increasingly, the sectors that have prospered here are the ones we’ve subsidized in turn.
All of those subsidies don’t just destroy things here that they do better. They’ve destroyed things that we do better, too. Remedial action will take a long time.
IMO the real lesson is keep authoritarian countries with a population of a billion at arms length. They can’t be incorporated into the world economy without hurting us. He who sups with the devil must use a long spoon.
Ricardo only works with hard or sound money.
The trade deficit does not reset at the end of the year. Each year the total trade deficit increases by the amount from that year. According to free-traders, this can last forever. I assume that this applies to government debt. Of course, government debt, among others, facilitates the trade deficit.
In the case of the US Post Office, the US provides subsidies to the importers, as well, and there are no telling how many others exist. The ability to purchase government debt allows the trade deficit importers to avoid investing in the US economy.
Trade deficit importers, surplus dollars have limited uses, and without the ability to purchase US government debt, those dollars will be stuffed into a mattress.
The difference between Iowa and China is that the Iowa dollars remain in the US economy. The China dollars are exported as US government debt. There is no reciprocal trade with China to keep the money in the US economy.
What do you all (free-traders) think is the purpose for credit card debt, home equity debt, student loan debt, automobile debt, and government debt?
The portion of government debt passed through to the consumer as welfare subsidy is equivalent to private debt. As many free-traders dislike government debt and welfare subsidies, it is amusing that the trade deficit they support is facilitated by government debt and welfare subsidies.
And, it always comes back around to the monetary and financial systems because currency and debt are treated as money. Therefore, anything using any types of dollars is affected.
I am curious about the US-China trade war. Does China refuse to sell their surplus to the US? Does China stockpile the surplus for post-war trading, or does China remove/destroy their surplus production capacity?
For independence, a country needs to be able to clothe, to feed, to shelter itself, and to defend itself using domestic production. Importation should be to fill non-essential demands or temporary shortages. Compare Israel and its neighbors. One is prosperous, the others are not.
Importation is not the path to prosperity and security.
I’m not sure I understand the question. What does China do with their overcapacity? They build cities that no one will ever live in.
That brings up another point. China sells its surplus to the world, and the excess surplus is used for worthless domestic projects.
Since free-traders advocate the China model, they should advocate building as many ‘bridges to nowhere’ as possible.
Free-traders should unite and demand more worthless infrastructure, more government debt, and more welfare subsidies. Let the free-trade flow.