Donald Trump

Trump's Trade Snake Oil

How exactly will high import taxes help "make America great" again?

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elstro_88/Flickr

Donald Trump may think the media stenographers are out to get him, but if they were really doing their job, his head would be spinning. He doesn't know how good he has it. Or maybe he does.

One need only think about the questions Trump is not asked to see what I mean. Take Trump's position on trade. He's given a forum to spout the hoariest fallacies without even a raised eyebrow from Anderson Cooper, Chris Cuomo, et al. Maybe they don't know any better, or maybe they think that challenging Trump's crackpot economics is not their department. Either way, they do their audience a disservice.

How great would it be if some reporter asked, "Mr. Trump, didn't Adam Smith refute all this in 1776?"

Or: "Mr. Trump, show me where Henry George erred when he said, 'What protection teaches us is to do to ourselves in time of peace what enemies seek to do to us in time of war'"?

If that is too highbrow, they might ask: "Mr. Trump, if your import taxes force Americans to pay more for cars and other foreign-made products, won't they have less money to spend on other things or to invest? How would that help make America great?"

Trump says American presidents have been played for chumps by foreign countries in trade (and all other) matters. His proof? Americans send the Japanese corn and wheat, and the Japanese send Americans cars in return. To him this is—on its face—an outrage. Strangely, he adds that the Japanese don't want the corn or wheat. No one bothers to ask him why, then, they accept those commodities. I thought Americans were the ones being taken advantage of.

Before we get to the core of the matter, let's point out that Trump's story is rather oversimplified. No American pays for a foreign car with corn or wheat. Americans use dollars. Car dealers also use dollars. So do wholesalers, etc. True, at some point, Japanese handlers of cars are paid in yen, or if paid in dollars, they convert them to yen (if they do not invest the dollars in American stocks, bonds, or real estate). Eventually, someone in Japan buys American wheat or corn (or something else), but those commodities are not bartered for automobiles. At any rate, what would be wrong if they were? In fact, what would be wrong if the Japanese refused to accept the commodities and sent the cars to us for free? Would greatness lie in rejecting free cars? Would free cars free up resources and labor for things we can't afford today because we have to pay for cars? Trump needs to read Bastiat.

Let's ignore, at least for now, that "the vast majority of the cars and trucks made in North America are still produced in the U.S. for domestic consumption and export to other countries" and that many foreign cars have American parts. Let's also ignore the rather key fact that foreign automakers long ago built factories in the United States. From the way Trump talks, you'd think it was 1980, but you don't hear reporters mentioning that to him.

Those are relevant facts, but they are not critical to exposing Trump's protectionist snake oil. So let's assume that Americans import all their cars from Mexico, Japan, Germany, Sweden, and South Korea. So what?

As long as the government does not subsidize or penalize consumer choice either directly or indirectly, we have no reason for concern about Americans' auto-buying. (If the government were distorting the market—which of course it does—the proper response would be to eliminate the interventions, not to micromanage us, as Trump would do.)

The purpose of production is not job-creation; it's consumption. If Americans find foreign-made cars a better value than American cars, so be it. To the extent they save money, they have more discretionary income with which to buy other things or to save and invest. For those who (needlessly) worry about jobs, this new ability to buy and save ought to be comforting. If Americans' direct auto-making talents aren't valued in the marketplace, Americans will make other things that consumers (here and abroad) will want. That's the law of comparative advantage in action. (Again, this assumes no government distortions, such as those created by subsidies, taxes, occupational licensing, zoning, central banking, intellectual property, and other special-interest political mischief.)

Under these circumstances and contrary to Trump, it would be wrong to say, "Americans don't make cars." Of course they do. What does it mean to "make cars"? It surely does not mean to produce cars out of thin air, like magic. No one does that, not even Detroit in its heyday. Rather, it means to use labor and the forces of nature to transform raw and semi-finished materials into cars, converting a pile of matter from a less-useful form to a more-useful form from the consumers' perspective. 

In economics we have the fable of the mysterious factory that turned wheat into cars. Farmers would deliver the wheat to the door on the left, and a few days later cars would roll out from the door on the right. How could this be? It turned out that the factory was located at a harbor. Foreign ships docked at the factory, where they unloaded cars and loaded wheat. Voila! Cars from wheat. This is not a verbal trick. The process of production consists in a variety activities, and trade is one of them.

So an American who grows wheat and trades it to an automaker for a car (as if it happened that way) has indeed produced a car—indirectly to be sure, but he produced it nonetheless. From the consumer's perspective, it doesn't matter if the car seller made the car or acquired it through trade, as long as he sees a net benefit in the transaction.

But this is old news. It was spelled out centuries ago by David Hume, Adam Smith, David Ricardo, Frederic Bastiat, John Stuart Mill, and others. No doubt the late Spanish Scholastics had figured it out before them. Most economists today accept it, including Paul Krugman. I guess Trump never got the memo.

We don't need a deal-maker in the White House. We need the freedom to trade with anyone we please, anywhere in the world, on any terms we find agreeable. Government should butt out. Hear that, Mr. Trump?

Trump traffics in the stalest of stale trade fallacies, just as he traffics in the stalest of stale immigration fallacies. It's what demagogues do. When will a reporter call him on it?

NEXT: Rand Paul Can Run for President and Senate—If He Pays $250,000

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  1. You know who else wanted high import taxes in order to make his country great again?

    1. Mr. Hilter?

      1. Hail Hilter!

      2. You mean Vic Hitler? The Narcoleptic Comic?

    2. The founders of the US? They were real small government types who paid for that small government mostly with tariffs.

      1. How would that apply to Japanese and German companies making cars here? There is also GM and Ford making and importing parts from other countries and making cars in Canada.BTY,Chrysler is now italian company BTY,British interferance with trade with France was a ause of much tension at that time.

        1. Tariffs are applied to things imported whether parts or in whole no matter who owns them.

          British interference was not a tariff, it was taking the ship, cargo and/or crew.

        2. Almost everyone makes their cars here anymore. Hell Honda actually manufactures some of their Accords here and EXPORTS them to foreign markets.

    3. Herbert Hoover wanted the country to be dry, hence pushed a high sugar tariff. Henry Ford’s biographer, Crowther, and a crowd of tycoons and looter economists assured everyone that prohibition would force money once wasted on liquor to increase production and productivity. Again, prohibition, not the tariff, was the driving force behind Republican policy in 1930 just as it is today, only more quietly. Clark Warburton began explaining the real statistics of prohibition in 1929 and published the definitive result in 1932. Repealing prohibition and leaving the income tax standing only eliminated the tax loophole alcohol prohibition had provided before fanatical christian zealots gained power and ruined that by using the tax to nullify the Bill of Rights. Newspapers, not subsidized classrooms, produced the evidence you’ve not seen.

  2. Google pay 97$ per hour my last pay check was $8500 working 1o hours a week online. My younger brother friend has been averaging 12k for months now and he works about 22 hours a week. I cant believe how easy it was once I tried it out.
    This is wha- I do…… ?????? http://www.online-jobs9.com

    1. Trump voter or Sanders voter? ^

      1. As if it matters… Hillary is obviously the only electable candidate.

        1. From a Supermax prison no less.

  3. Our media is designed to focus on culture war and soundbites. Not ask tough policy questions of a demagogue.

    Besides, most of Trump’s economic ideas are ones the ‘populist’ left agrees with or at least has no major objection to. They are all about economic protectionism.

    1. Calling Trump’s statements “ideas” is questionable since he displays no evidence of thought behind his words.

      Trump and Sanders agree on immigration, tariffs and taxes. People should ask themselves why?

      1. Yeah, Trump is a moron who managed to accumulate over $ 10 billion dollars.

        1. He was born into a rich family with millions. His daddy left behind $250?$300 million dollars. I am not exactly impressed with his growing that through real estate deals. You would have to be a colossal idiot not to do that.

          1. He was born into a rich family with millions.

            Yeah, and he turned that into billions.

            I am not exactly impressed with his growing that through real estate deals

            “He built wealth through real estate?! Shit, anyone can do that! I know because I saw it on HGTV.”

            You would have to be a colossal idiot not to do that.

            Taking $300-400 million and turning it into $10 billion is the easiest thing in the world guys!

            Seriously, there’s lots of stuff to criticize Trump for. When you say that him becoming a billionaire is as simple as climbing out of bed in the morning, you’re actually the one who looks like a colossal idiot.

            1. Yeah, ok. Here ya go:

              http://www.rollingstone.com/po…..p-20110511

              1. So out of the 90 or so companies Trump has run, RapeHoax Stone could only cite 4 bankruptcies, a licensing deal on a high-rise that he wasn’t even a developer for, and 3 vanity projects, and still ended up with a net worth of $10 billion. If that’s the definition of a business failure, where do I sign up?

                And I’m sure you’ve turned whatever meager prole inheritance you’ve acquired into millions in real estate, since you’re arguing that anybody above the mental level of a colossal idiot can do it.

          2. yeah? Tell that to the Kennedy offspring who took Papa Joe’s wealth and pissed it away…
            Starting out with a lot of money is NO guarantee that you or anyone else will have More Of It in the Future.

  4. And perhaps I’m wrong, but wouldn’t some of Trump’s ‘plans’ here violate various agreements we’ve signed like NAFTA?

    1. NAFTA is US law and can be changed by the US Congress at anytime.

      Its not a treaty. They passed it as a law since they could not get the Senate 2/3 vote.

    2. The US routinely violates NAFTA then pays fines, or tribute, to make up for it.

  5. Oh come now, Mr Richman, why pick on “the Donald”?

    Yes, he talks complete and utter bull$shit on trade, immigration, and just about everything else, but then again, so does each and everyone of the rest of these clowns, whether they be Republiscam, Demoscam, or Libertariscam!

    Just maybe :

    “In your dream, the constitution was not a scam”
    “In your dream, the Federal Reserve is not a scam”
    “In your dream, Social Security is not a scam”
    “In your dream welfare is not a scam”
    “In your dream, Obama is not a scam”
    “In your dream, all the rest were not a scam”
    …….” Hmmm?

    Original music and lyrics: “Dreams[ Anarchist Blues]”: http://www.youtube.com/watch?v=w0o-C1_LZzk

    Regards, onebornfree.
    Personal freedom therapist
    onebornfreeatyahoodotcom

  6. Instead of the usual Reason article bashing Trump’s character just for the heck of it here we get a discussion of one of his positions instead of character correctly pointing out trade protectionism has never worked and has typically backfired even to the extent of war. And the article even suggests Trump read Bastiat. What could be better? Well played Mr. Richmond.

    1. Bah! Trump is worse than Adam Lanza!

  7. Has anyone on Reason discussed O’Malley jumping-on the “expand Social Security” bandwagon?

    1. O who? You must be new here. The only three people running for president are Trump, Hillary, and Rand Paul.

    2. O’Malley is less relevant than Pataki. Even less than Mark W Everson who is running for the GOP POTUS nom despite the fact the only accomplishment he can claim is the appointment of Lois Lerner to head the exempt organizations division of the IRS.

      1. The only way for O’Malley to get media relevance is if he starts comparing himself to those other 40-something Gen Xers on the Republican side and making Brat Pack jokes in the vain hope that an Internet Meme forms.

  8. Doesn’t Sheldon Richman have anythingesleto doexcept to slander Trump ?

    Free trade isn’t anywhere near as important as free labor , which we do not have and which Richman apparently exhibits total ignorance.

  9. Hey, Richman, how’s that free trade in human beings working out for ya?
    Trump is against that, for evry good reasons.

  10. I think Mr. Richman read the frequent (and sometimes slightly over-the-top) criticisms of the commentariat and took them somewhat to heart. He has penned a libertarian, non-leftist critique of a less often talked about but equally simple-minded aspect of Trumpism.

    My one quibble is that Bernie shares Trump’s protectionism. In fact, Bernie’s whole platform is different from Trump’s in style only, but in substance the two are largely the same. But that is perhaps fodder for a different article. The bottom line is that free trade leads to prosperity. It’s a shame that only a small minority of Americans have even a very basic understanding of macroeconomics, and an even smaller minority of American politicians do.

    1. Compared to some of his usual drivel, this was actually a pretty good article.

      1. I know I am in the minority here, but I enjoy Mr. Richman’s consistently libertarian articles. Y’all just don’t like him because he applies libertarian principles to foreign policy.

        1. A lot of his foreign policy stuff is just Raimondo-esque but not as well written. I don’t hate it as much as some here but he can be quite bad at times.

        2. Yes, nothing says ‘consistently applying libertarian principles’ like ‘how dare Ukraine attempt to pull itself out of Russia’s sphere of influence’. Or taking everything the Iranian government says at face value. That’s what libertarianism is about, right? Offering up apologia for invasions and blindly accepting the lies of governments if it fulfills your bias?

    2. But how free is trade in the real world? Look at China’s internal shenanigans, and the way other countries and international groups conduct themselves to game the system against us (OPEC comes to mind).

  11. As long as the government does not subsidize or penalize consumer choice either directly or indirectly, we have no reason for concern about Americans’ auto-buying. (If the government were distorting the market?which of course it does?the proper response would be to eliminate the interventions, not to micromanage us, as Trump would do.)

    Now how do “we” eliminate those interventions? They aren’t on the ballot. The bureaucrats who craft and enforce those distortions aren’t on the ballot. Candidates promising to abolish those interventions aren’t on the ballot. For the sake of argument let’s pretend citizens have some limited say in the type and extent of government distortions of the auto market, say by voting for a candidate who favors changing them. Micromanagement is the only choice we’re offered.

    I assume Trump has offered nothing concrete on his proposed auto market distortions and if he did it would be as bad or worse than the current ones.

  12. Okay, we get it, Reason doesn’t like Trump. I’m almost tempted to vote for the guy since it would piss the greatest number of people off !

  13. The one minute statement, 30 second reply format of the debates favors demagogues. Explaining how high tariffs hurt everybody cannot be done in a minute but it’s easy to make a statement containing three or four incorrect premises in 30 seconds.

    “Mexico is sending us their undesirables. We need to build a wall to keep them out and make Mexico pay for it”

    Want to refute the four major fallacies contained in that statement including an explanation of the effects of the Smoot-Hawley tariffs in 30 seconds?

    1. “We tried protectionism in the thirties, and it was one of the major causes of the Great Depression. Your policies would drive the world economy into a tailspin, and quite possibly start the next war. Also, you’re a fascist and a buffoon.”

      Easily under thirty seconds.

      1. Except this is wrong. The depression was caused by the fed 10x’ing the money supply in 10 years. The crash was the evaporation of all that fake money. The fed printed like mad and broke the gold link, but even that was not enough to counter 90% of the money supply evaporating overnight as debts (money) were marked to three true value.

        BTW, this is exactly what is happening in China right now

      2. Except this is wrong. The depression was caused by the fed 10x’ing the money supply in 10 years. The crash was the evaporation of all that fake money. The fed printed like mad and broke the gold link, but even that was not enough to counter 90% of the money supply evaporating overnight as debts (money) were marked to three true value.

        BTW, this is exactly what is happening in China right now

    2. “We tried protectionism in the thirties, and it was one of the major causes of the Great Depression. Your policies would drive the world economy into a tailspin, and quite possibly start the next war. Also, you’re a fascist and a buffoon.”

      Easily under thirty seconds.

      1. SQUIRRELZ FOR PRESIDENT!!1!!eleventyone!!!

        1. Now that I think about it, maybe that’s a squirrel on Trump’s head… Maybe he’s being controlled by the squirrels and that’s why everything he says is… wait for it… NUTS!

      2. Wrong. I have the 1922 and 1930 tariff acts and they are quite similar except in one important particular: the one passed during prohibition in 1929–the first year after Volsteadism was added to the Republican platform–contains many new provisions for boarding ships and searching for drugs and alcohol even on the high seas–reinforced by treaties. Prohibition and the income tax, both of them quite new in 1920, were what caused the Great Depression. The Crash only marks the point in time when players with assets in the securities markets (mainly corporations) felt the jaws of asset forfeiture closing on their ankles and reacted by cashing in their chips. The same thing happened in 1987 and in 2007, to name just a couple of instances. Prohibition and the Crash were cause and effect, not coincidence at all. “We” enforced prohibition in the thirties, using looter tax laws to make it stick.

    3. Trump is old enough to recall the Mariel boatlift from Cuba, and is pressing that button. Al Pacino made a statement about prohibition in a movie exploiting that event, but I can’t remember what it was… I do recall something about the IRS though.

    4. Mexico IS encouraging their indigents to come here. They openly advertise instructions on how to do it.

    5. Want to refute the four major fallacies contained in that statement including an explanation of the effects of the Smoot-Hawley tariffs in 30 seconds?

      Maybe the candidates should take some of the money they’re getting from these deep-pocketed donors and actually lay out ton live TV what policies they’ll be pushing, rather than waste it fucking around with meet and greets at state fairs.

  14. This was definitely one of the better articles I have read from Richman in a while. Hell, it’s nice when Reason has articles about the economy and not just teh Kultur Warz.

  15. I agree with Richman. I think I see four horsemen.

    1. I’m still not reading his articles on general principle.

      Does he really not mention *anything* about Israel in this one? if so, i might have to actually give it a look.

    2. Trump, Christie, Sanders, and Hillary: The Four Horse’s Assess of the Apocalypse .

      1. Don’t worry, they are furiously working on the five-assed monkey to be unleashed before the first primaries.

  16. Maybe Trump has a card up his sleeve. Suppose someone briefed him and he now knows that William Jennings Bryan’s People’s Party advocated the “Manifesto income tax” as a replacement for the Republican protective tariff. Suppose Trump really does have a handle on the yahoo vote and the presence of mind to come out and offer to abolish the personal income tax and bring back the protective tariff to replace it. Could this be an opportunity to abolish the IRS, or at least make it leave individuals alone and focus on looting corporations… for the GOP to outflank the LP and beat us at our own game?

  17. How exactly will high import taxes help “make America great” again?

    By distorting the US market to favor goods manufactured in the USA, we’re bringing back the American dream. And, by American dream, we mean most people working as an easily replaceable factory drone with a union job in a large manufacturing sector.

    That’s what we did in the good old days, and that’s what we need to do to be great again! And, that is in no way cargo cult logic.

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    http://www.homejobs90.com

  19. Google pay 97$ per hour my last pay check was $8500 working 1o hours a week online. My younger brother friend has been averaging 12k for months now and he works about 22 hours a week. I cant believe how easy it was once I tried it out.
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  21. Trade deals such as the North American Free Trade Agreement (NAFTA) began to decimate the U.S. manufacturing base. NAFTA went into effect on Jan. 1, 1994. The “giant sucking sound” predicted by Ross Perot began. Plants closed, releasing workers who had earned $15 – $20 an hour. Operations went to Mexico, for labor that cost the owners perhaps $1 an hour (these figures aren’t exact, but you get the idea). NAFTA wasn’t the first. The original General Agreement on Tariffs and Trade (GATT) dates from the 1940s, during the wave of fascination with global governance which also gave us the UN, the IMF, the World Bank, and Bretton Woods. With GATT II put in place the year after NAFTA and the newly created World Trade Organization overseeing things, manufacturing went to China for still cheaper labor. Tech call-center jobs went to India. Companies that resisted the tidal wave of labor arbitrage couldn’t compete. Contrary to the language they used, these trade deals were never about free trade in the sense of Bastiat or Ricardo. They were about trade managed by governments for global corporations to increase the latter’s profits by ensuring them cheap labor forces and lax regulatory environments. We weren’t supposed to ask how we could have free trade with a country still controlled by its Communist Party.

    S. Yates

    1. This. NAFTA and deals like it have utterly decimated the American industrial base and greatly helped the third world overtake us. There is no benefit to us from such arrangements.

  22. Thus despite the booming-economy happy talk of the 1990s, it was the beginning of the end of the financially independent middle class in the U.S.
    Chile is a partner to the latest potentially disastrous trade deal: the Trans-Pacific Partnership (TPP). No one knows for sure what is in the TPP outside its corporate-sponsored authors and a few in Congress who have been allowed read it without being allowed to copy or even take notes on it. The latter were threatened with criminal prosecution if they revealed its contents to the public! These are members of the U.S. Congress we are talking about, not journalists!
    S. Yates

  23. Canada Claims It Will Back Out of TPP to Protect Its Sovereignty..
    The participation of the United States in the sovereignty surrender wrapped in a trade blanket is all but guaranteed after Congress gave the president “fast track” trade promotion authority.
    All the confusion over the scope of the pact’s mandates could be cleared up very easily: Just produce the text of the TPP agreement and we’ll be able to sort out who’s right and who’s wrong.
    The fact is that no one in Canada or the United States knows what their respective governments are giving away inside the secret TPP confabs.
    http://www.thenewamerican.com/…..overeignty

  24. It does bother me that extremely high profits are most important and decent pay for workers, secondary. Love the big CEO differential, as well! We pay those guys more than we do our doctors! Then we complain about what doctors charge! At least the doctors are doing life extending, and saving, treatments! (Losing trust in that statement, too!) How do insurance CEOs justify their extortion?! Money is power, in any country! So, it is the human problem that we need to solve!

  25. If you think Adam Smith would approve of free trade that includes outsourcing of jobs I suggest you learned about Adam Smith from reading a synopsis of his theories rather than reading his own words.

    First, Smith wrote two classic books. The first sentences of his first book The Theory of Moral Sentiments

    “No matter how selfish you think man is, it’s obvious that there are some principles in his nature that give him an interest in the welfare of others, and make their happiness necessary to him, even if he gets nothing from it but the pleasure of seeing it.”

    These are not the words of a man willing to inflict the suffering of outsourcing on his fellowman. Outsourcing is not creative destruction of jobs but pure destruction with no gain.

    Second, Adam Smith was an outspoken supporter of a set of law called the Navigation Acts. The purpose of these laws was to allow England to monopolize international trade thereby keeping all the benefits of trade inside the Empire, and minimizing the benefits going to foreigners. Outsourcing is antithetical to that goal.

    Third and most important, something easily missed in reading a synopsis of “An Inquiry into the Nature and Causes of the Wealth of Nations” rather than the real thing. When Smith uses the word “Wealth” he is not referring to money. He is referring to the well being of the people. The outsourcing of jobs hurts the well being of our citizens and therefore would not meet with the approval of Adam Smith.

  26. The only problem with this argument is that thousands of unemployed American auto workers are not going to move to the Midwest and become wheat farmers. The absence of a manufacturing base in this country is a serious problem. Trump just doesn’t have workable solutions. We need lower taxes and much less powerful unions in order to be able to compete with China and Japan. But it also isn’t unreasonable to think that companies should be given incentives for keeping jobs here, and penalties for shipping them overseas. That is just part of using our trade advantages in our favor.

  27. Little late, but good job Richman. This article is a sufficient improvement from your usual hackery. Decently argued, and you didn’t try to dishonestly frame the issue. Keep up the good work.

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