October 19, 2016

The Trump Doctrine on Trade

We haven't argued about this in a while. Largely, I believe, because Trump's positions were just populist slogans with little in the way of detail behind them. Two co-authors, Wilbur Ross and Peter Navarro, change that with an RCP piece called "The Trump Trade Doctrine: A Path to Growth & Budget Balance." You might have noticed that it doesn't say, "and more American jobs." But that's because the jobs are a consequence, not a protectionist windfall.

Some excerpts:

Budget-deficit hawks often insist that the only way to balance the Federal budget is to raise taxes or cut spending. The far smarter path to balance the budget is simply to grow our economy faster.

No argument here, right? This is supply-side 101 and, in my mind at least, is a fantastic open to the article. I think I'm gonna like these guys.

You will notice we have not mentioned tariffs. They will be used if necessary against mercantilist cheating, but only in a very precise and defensive way.

Ultimately, our view is that doing nothing about unfair trade practices is the most hazardous course of action - and the results of this hazard are lived out every day by millions of displaced American workers and deteriorating communities. We simply cannot trade on their one-sided terms; they are just too destructive to the U.S. growth process.

I encourage the wonks to read the whole thing, and I expect there are elements you will be critical of (i.e. sell commodities to foreign companies to offset the deficit of buying their value-added goods) but on the whole it does look a lot more like fair trade than no trade.

And then there's that whole GDP growth thingey.

2016 Economics and Markets Internecine Posted by JohnGalt at October 19, 2016 7:27 PM

Love the plan to grow out debt.

But you're correct that I found areas of disagreement. The authors (and I like Ross) suggest that the recent stagnation is CAUSED BY global trade.

Each Clinton bad trade deal-- NAFTA, the fiasco of China's entry into the WTO, the South Korea trade deficit eruption -- achieved just the opposite of what the Trump Trade Doctrine would do. Collectively, the Clintons' bad trade deals have helped shutter over 70,000 American factories, destroyed over 5 million manufacturing jobs, prevented any real growth in the average median household income, and cut our historic growth rate of 3.5 percent almost in half.

Posted by: Jk at October 19, 2016 11:40 PM

Can we meet in the middle with "HELPED cause?"

Posted by: johngalt at October 20, 2016 4:49 PM

Sweet holy merciful frozen Adam Smith on a stick, no!

Perhaps we could sequester some items in their own buckets, but (the bad trade deal) NAFTA and (the fiasco of) China's entry into the WTO are the cause of the ahistorically high growth rates in the late 90s. Plus they lifted a billion Chinese out of abject poverty and solidified a Mexican Middle Class crucial to Continental stability.

I must listen to Russ Roberts that these are not unalloyed goods. Some factories were shuttered and a few people were better off in the smaller economy, as were leech farmers in the Dark Ages. But the Pareto-net increase for everybody is substantial. This is the heart of the "Walmart effect" which puts $2000 in every American's pocket whether they shop among the blue smocks or not.

I know I am being argumentative. But Trump takes the exact cause of our innovation and prosperity and inverts it into a negative. Imagine if the GOP nominee made his/her central platform the elimination of fracking and immediate conversion away from fossil fuels.

That, brother, is exactly how I feel reading that paragraph I excerpted.

Posted by: jk at October 20, 2016 5:16 PM

But - I mean helped cause the things Ross and Navarro said it helped cause: close 70,000 American factories, destroy (probably displace, actually, not destroy) 5 million manufacturing jobs, prevent real growth in average median income, and cut the GDP growth rate in half.

They weren't considering Chinese or Mexican poverty rates, and neither was I. That is a separate conversation from "the U.S. growth process."

Ross and Navarro mention the lower costs to American consumers, but let's look at the unseen as well:

Trump’s proposals will reverse these trends, concentrate more wealth and purchasing power in the hands of domestic workers and result in substantially higher employment. This will more than offset any price increases. Moreover, as products develop a competitive advantage in America and increase their production and margins, prices per unit will go down.

Contemplating the Pareto-net increase for everybody is the job of world government, not U.S. government. Or is our government of the people and by the people no longer FOR the people?

Posted by: johngalt at October 20, 2016 5:45 PM

I poorly tried to accept that some very small part of their claims were true, meaning some factory closures and job loss.

And, no, my Pareto boundaries are US -- from the forthcoming terrific wall on the south to the land of Tim Horton's up north. The huge, positive effects on world poor are gravy.

Taking your paragraph as example, you're going to create how many jobs to offset $2,000 for every household? At least my winners and losers are lopsided toward winners. We're going to start making party favors and USB thumb-drive covers in Youngstown, Ohio and employ five million (fire up the improbability drive, Zaphod!). And 295 million are going to pay higher prices? And be less competitive selling to the world.

I join my lefty friends in asking, just what golden age is Trump dreaming of restoring? Pre Nafta? Was that paradise? I like skinny ties and all...

Posted by: jk at October 20, 2016 6:59 PM

The "exact cause of our innovation and prosperity" is international trade that pits our private corporations against state-subsidized competitors in communist China?

Posted by: johngalt at October 20, 2016 7:22 PM

We are clearly going to need beer.

The "exact cause of our innovation and prosperity" is our ability to use our comparative advantage and productivity, leveraging a worldwide supply chain and catering to a worldwide market, yes -- was that what you were trying to say?

The iPhone contains parts manufactured in 42 countries. You'd rather we all a black rotary dial from Ma Bell -- made right here in Patterson, New Jersey. I'd rather we had iPhones and a domestic ecosystem of developers and designers.

Posted by: jk at October 20, 2016 8:21 PM

Mmmm, beer.

No that is not what I was trying to say. I was trying to say, I love comparative advantage and free trade and I am not convinced that the global economic trade is free and fair.

Because, while Boeing and Exxon-Mobil and Apple and Google and WalMart are giant, powerful, multinational corporations they are paupers in comparison to the Chinese government, who can legitimately be claimed to be their direct competitors.

There are three options: Ramp up federal subsidies of US corporations to compete with Chinese subsidies, tell the Chinese that we will severely curtail trade unless they desist subsidization, or just keep the status quo.

Trump's is the second of these three options. It is also, as I see it, the best.

Posted by: johngalt at October 21, 2016 12:00 PM

Of course the game is rigged. Don't let that stop you--if you don't play, you can't win.

Robert A. Heinlein (of course)

Sorry JG, but I think your number 2 option is a very dangerous and unnecessary game of chicken.

But I'm just going to let JK handle this one.

Posted by: dagny at October 21, 2016 1:32 PM

All y'all did notice that I tagged this post "internecine" right? Even dagny is arguing with me!

By "unnecessary" am I to assume that you are in favor of the status quo? You don't see anything dangerous or harmful in that?

Posted by: johngalt at October 21, 2016 3:59 PM | What do you think? [10]