Donald Trump

Trump Keeps Spreading Terrible Ideas About Trade

Once a protectionist, always a protectionist.

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The United States has been plagued with uncertainty ever since President Donald Trump started his trade disputes with many of our trading partners. From steel and aluminum tariffs to renegotiating the North American Free Trade Agreement (NAFTA) and replacing it with the United States-Mexico-Canada Agreement (USMCA), trade rules have been in flux, with U.S. consumers caught in the crossfire—and with no end in sight.

This drama started in March 2018, when the Trump administration announced that it would impose 25 percent tariffs on steel and 10 percent tariffs on aluminum for imports from all countries that he deemed to be treating America unfairly. The duties were levied in the name of national security, even though they would actually punish many of our NATO allies. At the time, the administration made no secret about the fact that it planned to use the tariffs as leverage to renegotiate the 25-year-old NAFTA with Canada and Mexico.

Whether the strategy worked is still up for debate. Yes, NAFTA was renegotiated through the USMCA, but that agreement hasn't been approved by the U.S. Congress or ratified by Mexico or Canada, either. In other words, NAFTA is still the law of the land. Unfortunately, the uncertainty over whether (and when) the USMCA will replace NAFTA places a significant economic burden on companies trying to make investment decisions and predictions throughout North America.

What's not up for debate is the fact that in some important ways, the USMCA is more protectionist than NAFTA. It's true that the USMCA includes a few improvements over NAFTA, such as an update of the digital trade rules. The internet was barely a thing when NAFTA was adopted, so the agreement did need to be modernized on this front. The USMCA also includes the slight opening of a few markets, for example the Canadian dairy market. That said, several of these provisions were already agreed to in the Trans-Pacific Partnership (TPP) Agreement, which Trump withdrew from soon after he entered office.

On the negative side, the USMCA's new automotive "rules of origin" are much more restrictive than the ones in NAFTA, including a new minimum wage provision requiring that 40 percent of a car be made in plants where the workers are paid at least $16 an hour or tariffs will be imposed on those cars. No such requirement exists in NAFTA. These changes will make producing cars in North America, and in the United States specifically, more expensive. Considering that the automotive industry's future lies in large part with exporting, it's unwise to raise the cost of producing cars in the United States, as it makes it more difficult for U.S. car companies to export them.

That said, in spite of its problems, approving the USMCA would at least put an end to some uncertainty. In fact, according to a recent report by the U.S. International Trade Commission, some of the biggest economic gains from adopting the USMCA would come from ending the current uncertainty.

So how close are we to adopting the USMCA? It doesn't look too good.

For starters, the Democrats would like to see even more significant labor provisions imposed on Mexican workers. The House leadership said that it wasn't anywhere near putting it up for a vote.

On the Republican side, Senator Chuck Grassley of Iowa warned the president that he shouldn't expect his team to support the USMCA as long as the metal tariffs are still in place, writing in The Wall Street Journal, "If these tariffs aren't lifted, USMCA is dead. There is no appetite in Congress to debate USMCA with these tariffs in place." The metal tariffs have hurt American consumers of foreign metals. And once retaliatory tariffs from Canada and Mexico went up, everyone suffered even more.

What's more, Canadian and Mexican officials have shown very little interest in bringing the new deal to a vote in their own countries. The window for a vote is closing fast, as there are elections coming in Canada; observers predict that if the deal hasn't been approved by then, it will have to wait until 2020.

Ultimately, for all the talk about using these tariffs as leverage, it seems that Trump's true goal for the duties was to protect the steel industry. He is a protectionist, period. As such, he won't let those tariffs go easily.

So, get used to the uncertainty.

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  1. Another stupid article about Trump. With no real solutions for improving trade. At least he’s trying, and not being a huge pussy about it. Like his predecessors.

    1. +10000000

      1. Good to see LC1789 and LastoftheShitferbrains in first to agree with whatever Chump is doing.
        Reassuring to know the retards are sticking together.

    2. At least trying?

      That is so reassuring.

      1. It is. We have many shitty, one sided trade deals with most of the globe. He’s trying to improve that situation. Yet everyone acts like we already had free trade and Trump just wants to impose tariffs on everyone for kicks.

        He’s trying to make it better. The last several presidents did nothing. Nothing isn’t better. We’re getting fucked.

    3. Specifically which parts of USMCA do you like?

      Veronique spells out specific reasons why it doesn’t move the needle towards freer trade for automotive companies.

      1. I like how it doesn’t have all of the globalist IP regulations that would have undermined US law and stripped Congress of its sovereignty. There were issues with almost every aspect of TPP (this shouldn’t surprise anyone considering it was negotiated in secrecy) but it was a very un-Libertarian agreement. The EFF has a decent article about it in more technical detail. This isn’t necessarily a “part” of the USMCA, but like many things, all Trump has had to do is not permit the insanity of Obama’s policies and return us to normalcy. It shouldn’t be an accomplishment, but in many ways, that’s exactly what USMCA is.

        https://www.eff.org/issues/tpp

        1. Yes, but TPP isn’t NAFTA. We could have simply kept NAFTA, which seems on the whole to be less protectionist than USMCA, independent of TPP.

  2. Jesus christ do you people at Reason even know how treaties work?

    The Senate, not “congress” ratifies or does not ratifie treaties. USMCA is a treaty.

    On a side note, Obama was planning on replacing most provisions of NAFTA with TPP. The media does not mention that much.

    1. It’s not clear that USMCA is a treaty despite the name of the former agreement it replaces. NAFTA was passed by Congress as a bill, not ratified as a treaty. More information here: link

  3. NAFTA is not free trade. Its managed trade.

    Reason staff would like for you to forget that.

    1. And the new treaty is even more managed trade but that’s good because the president is grabbing trade by the pussy, and that’s how Trumpistas like their porn.

      1. The conservatives here seem to think that central economic planning is bad, unless it’s their guy doing the planning.

    2. And on that note.

      White House economic advisor Larry Kudlow said, “His goal down the road is zero tariffs,” Kudlow, a former Wall Street adviser and self-described free trader, said at the winter meeting of the National Governors Association. Any levies that the president has put in place are temporary measures, he said. “Tariffs are a negotiating tool. They are part of his quiver. No president, past or present, has stayed on China’s case as we have and he has used tariffs to bring China to the table.”

      Reason needs to change the filter on the office water cooler. The TDS virus has contaminated the staff again. What?! They all work from home.

      There is a shot with which to immunize yourself. It’s mostly lead but no mercury.

  4. So y’all geniuses tell me why Nucor, US Steel, and Alcoa are way down since the tariffs are so awesome.

    1. Despite opposing those tariffs, I may be able to defend them better than some of the people here who support them.

      From an employment perspective, in the short run, forcing companies to hire more workers at even higher rates may hurt the profits of industrial concerns, but the purpose of trade barriers isn’t necessarily to maximize the profits of employers. It’s to maximize employment and wages–even if that happens at the expense of company profits.

      Hell, the whole purpose of private sector unions is force companies to sacrifice profits to pay higher wages.

      1. P.S. Because companies will hire more people in the short run and pay higher wages in the wake of tariffs does not mean that tariffs are good for employment or wages over the long run. Being the highest paid workforce in the world is not a good spot to be in the face of automation, technology, foreign competition, etc. over time.

        1. You can keep the circulation going in symptomatic bradycardia with injections of atropine or epinephrine but you have not solved the problem. You cannot do this for long.

          In this case it was the government itself that caused the problem in international trade as I see it.

          It is long term and needs that approach.

          1. I agree with you. Like I said, I was making the case for something with which I disagree.

            Someone who supports Trump’s trade moves here (I don’t) might counter that this is only temporary.

            “U.S.-China Trade Deal in Sight After Progress on Tariffs, Market Access”

            Negotiators make headway on market access, how to roll back tariffs; Chinese Vice Premier Liu He to return to Washington on May 8″

            https://www.wsj.com/articles/u-s-china-conclude-productive-trade-talks-but-sticking-points-remain-11556718515?

            We may have a new trade deal with China with a signing ceremony by early June.

  5. de Rugy is right on with her criticism. She’s an economist, and so it’s hardly surprising to see her criticism is from an economist’s standpoint. I wish more people appreciated that treaty negotiations are within the proper purview of democracy, meaning that sometimes we have to accept the legitimacy of things we don’t like–for reasons apart from being right on the economics.

    Trump was elected on the basis of promises he made to voters in the rust belt that he would renegotiate NAFTA and our trade relationship with China. Even if I don’t like that, it is what it is. I don’t think it’s better for presidents to ignore the voters who put them in office, but we’ve seen so many elitists in the media and elsewhere who seem so dismissive of that bedrock democratic principle. The excellent way to get our fellow Americans on board is not to undermine the legitimacy of these policies by arguing that our leaders should ignore the voters.

    When we don’t like the state of trade treaties that have been ratified by the Senate, wars that have been declared by Congress, or rules for naturalization that have been set by Congress, the appropriate thing to do is to criticize the policies and try to persuade our fellow Americans to want better ones. I think that’s what de Rugy is doing here.

    We’re grown so used to seeing elitists around here suggest that libertarianism should be inflicted on the American people over their objections and against their will–no matter the topic or who they voted for or why. That isn’t what de Rugy is saying here. Just because Trump is giving the people what they want doesn’t make the policy right–and within the proper purview of democracy, things should be wrong if the people want the wrong things.

    The purpose of libertarianism is to persuade other people to want something better.

    P.S. From what I can tell, the Democrats are far worse than Trump on trade. They may oppose both trade deals simply because Trump negotiated them but claim that they oppose both deals because they’re insufficiently anti-free trade.

    1. —“We’re grown so used to seeing elitists around here suggest that libertarianism should be inflicted on the American people over their objections”—

      Yeah, all that freedom, being inflicted upon you! How you must cower in fear under your bed at the thought!

      Fascist.

      1. I might support working with Pinochet within the context of American interests during the Cold War, but I’m much more reluctant to support being Pinochet. Aren’t you?

    2. de Rugy is right on with her criticism. She’s an economist, and so it’s hardly surprising to see her criticism is from an economist’s standpoint.

      I don’t think that is quite as much of a compliment as you think it is Ken. Micro economics still has a lot of truthful things to say. Macro economics, whether it be of the Keynsian variety or the high church of free trade variety seen here, is mostly a bunch of political hacks concocting rationalizations for whatever economic policy benefits them or their benefactors.

      1. I think there’s a big difference between normative economics and political hacks.

        I think that free trade is preferable for many of the same reasons that socialism and central planning are bad.

        I also think the case for free trade (and freer trade) can be made from a fairly objective standpoint, but it’s hard to make the case that the government should stay out of way without making any statements about politics. What the government should and shouldn’t do is what politics is all about.

    3. ” we’ve seen so many elitists in the media and elsewhere who seem so dismissive of that bedrock democratic principle.”

      Trump is President because of the Electoral College. If our election process was based on bedrock democratic principles Hillary would have won by 3 million votes.

      1. Actually, the idea that things within the proper purview of democracy should reflect the will of the voters is even more fundamental than how votes are counted.

        Meanwhile, just because you think one aspect of a democracy is unfair doesn’t mean democracy doesn’t have a legitimate purview–and trade treaties are well within that purview no matter whether you like the electoral college.

  6. “Once a protectionist, always a protectionist.”

    The US grew into a world superpower under protectionist trade policies since it’s inception.
    MAGA

    1. Wrong. The US grew into a superpower around the same time GATT was implemented and the WTO formed.

      1. Cancel the part about the WTO. my bad

  7. I would say Trump’s 2 worst policies are Trade and Spending. He mostly gets harped on about Immigration, but Congress is more responsible for that mess. Interesting that the new Democrat house doesn’t seem interested in fixing immigration.

    1. Completely agree, but I might add executive overreach to the list. If only the majority of opposition could focus on policy issues with this President instead of all of these red herrings like the Mueller Report.

      Unfortunately for us, protectionism is a leftist policy which is being embraced by the right now. USMCA is a giant handout to the UAW (the minimum wage requirement, especially). I can’t imagine any of the mainstream media outlets will call out Trump on this one.

  8. The way to make US businesses more competitive is to eliminate corporate taxes and regulation burdens, not to force regulations like a minimum wage on other countries or to redistribute wealth from the US taxpayers to the corporations through subsidies or from US consumers to the government through tariffs.

  9. On the negative side, the USMCA’s new automotive “rules of origin” are much more restrictive than the ones in NAFTA, including a new minimum wage provision requiring that 40 percent of a car be made in plants where the workers are paid at least $16 an hour or tariffs will be imposed on those cars. No such requirement exists in NAFTA. These changes will make producing cars in North America, and in the United States specifically, more expensive. Considering that the automotive industry’s future lies in large part with exporting, it’s unwise to raise the cost of producing cars in the United States, as it makes it more difficult for U.S. car companies to export them.

    The “rules of origin” are to insure Canada doesn’t act as a “backdoor” for Chinese imports making their way through Canada into the USA. That was explicitly stated as the reason for that addition and it’s nowhere to be found in the article.

    1. I don’t even know how De Rugy got to the United States “specifically.” Tariffs are applied against everyone else, not us. They raise the cost of selling in the US if backdoor policies are pursued. We’re using the strength of our market and the necessity of net exporters to sell here to enforce compliance and stop dumping and other non-competitive practices.

      Free trade exists in a vacuum where trade hasn’t been weaponized. Trade has been a weapon since the end of WWII and it’s naive to simply pursue the most academically efficient methods of trade irrespective of the intent and practices of the nations in question.

      1. Tariffs are applied against everyone else, not us. They raise the cost of selling in the US if backdoor policies are pursued.

        Tariffs are applied to importers at the border. They raise the price of imported goods in the country they are sold. So they are applied to “us” in the sense that we are paying higher prices for imported goods.

        This seems to be Trump’s misunderstanding as well, that he’s hurting foreign exporters only through tariffs. Reason has linked to several comments from Trump that suggest that he also doesn’t understand how tariffs work.

        1. Tarriffs raise prices until the economy adjusts to them. The amount of price raised due to tarriffs can be zero over the long term, if the domestic producers can produce as cheaply as foreign producers or some amount up to the tarriff but nearly always less than the tarriff.

          Your case would be helped if you bothered to understand your own argument rather than just emoting talking points.

          1. if the domestic producers can produce as cheaply as foreign producers
            If domestic producers can produce as cheaply as foreign producers then they wouldn’t need to rent seek through protectionism.

            or some amount up to the tarriff but nearly always less than the tarriff.
            But in this case that’s not as cheap as the baseline price set by unfettered markets. We consumers still lose.

            Your case would be helped if you bothered to understand your own argument rather than just emoting talking points.
            Is there ever a conversation with you that doesn’t devolve into ad hominem?

    2. It’s not because it’s irrelevant. Only mercantilists and Fascists bring up “fairness” when it comes to the peaceful activities pursued by others –i.e. trade is something people do naturally, and the mercantilists and Fascists don’t like that.

      You bring it up for absolutely no valid or relevant reason.

      Fascist.

      1. Chinese trade is not inherently peaceful.

        1. Are they forcing you to buy their products at China?

          1. *at Walmart?

          2. No one forces you to do anything. But that doesn’t change the fact that our economy is funding the world’s largest police state, the last nation on earth that uses significant amounts of slave prison labor, and a military that it is using to terrorize and bully its neighbors.

            Maybe there are factors beyond just quenching your endless lust for cheap shit. Maybe there are second order effects of your buying that cheap shit that need to be considered?

            1. But that’s not what this is about, otherwise we should be calling for an economic embargo of China. This is payment to the people in the rust belt who elected Trump.

              And who better to consider the 2nd order impacts of my money than the man who doesn’t seem to understand how tariffs work.

    3. Explain how China is helped by selling the US auto parts at a loss. If this were such a great policy then why doesn’t Trump adopt it?

      This reminds me of the story about the bookstore in New York that sold books below cost and built up a huge clientele. The sales figures were amazing and banks kept lending the owner more and more money until he defaulted. Then the owner was dragged off, literally in a strait jacket, yelling “I can make it up in volume!”

  10. I for one trust President Pantone 159 to do the Right Thing as he Makes America Great Again by repeatedly Publicizing his utter Ignorance of Economics, Ethics, American Government and the Rule of Law.
    #MAGGOT

  11. Our entire economy was built in the 19th Century around protectionism. The US went from a colonial backwater to the most powerful economy in history in less than a hundred years all the while protecting its native industries from foreign competition.

    What we make of that fact is debatable. But there is no denying that fact no matter how much the Church of Free Trade and its high priests like DeRugy pretend it isn’t so.

    1. Our entire economy was built in the 19th Century around protectionism.

      Slavery is chopped liver now?

      1. Yes it is. To the extent slavery built anything, it built the antebellum southern economy which was nearly entirely destroyed in the civil war. Slavery had nothing to do with the building of the industrial north which survived the civil war and exploded afterwards.

        If protectionism is the doom of economies, how does one explain the US economy of the late 19th Century? Or indeed the Japanese and Chinese economies of today that were also largely built with protectionism and international exports.

        1. Don’t forget the UK at the height of their power! Or Germany, or basically any other country in Europe, both back in the day and now.

          Protectionism is like any other market distortion, it creates effects by tweaking things.

          The fact that we choose to have an income tax instead of pay for all our government via property taxes has effects too. Alternatively, we could tax no more than we do now, but get it almost all from tariffs, and the result would be pretty predictable: US companies would have lower taxes, making them more competitive in some respects, but might also have higher input costs making them less competitive, but they would also have a captive market for many goods so we would have more manufacturing jobs, etc etc etc.

          Every government policy has cause and effect. The question is do some of them achieve ends that are desirable at costs that are acceptable? If we cut the income tax in half, and replaced that income with tariffs would that do something we want?

          Until we’re living in libertopia these are the kinds of things people who live in reality have to contend with.

          I’m not a big fan of tariffs, but I think he should be threatening (and following through on if there isn’t compliance) far higher ones on shit heels like China who abuse the system. There’s no reason we should bend over when we have the power to demand a fair deal. A huge jock kid shouldn’t acquiesce to the demands of a 120 pound pussy nerd… So long as the demands of the jock are reasonable he should be firm in his demands, and kick the nerds ass if needed to get a fair deal. We’re the jock, these other countries are the nerds… But we’re bending over for them as if they have any leverage over us, which none of them singularly do.

    2. The American economy grew in the 19th century despite protectionism largely due to an abundance of resources and technology gains centered around the industrial revolution.

      1. Trade back then was an entirely different beast too though…

        No fiat currency. If you didn’t balance trade, you literally ran out of cash. Which is the very reason many nations with weak industrial bases enacted protectionism to help their budding industrial base.

        You likewise didn’t have the massive amounts of international investment.

        Shipping costs were far higher in relative terms, and naturally advantaged local production of most goods a LOT more than now.

        I don’t think trade is bad… But I think there is a mathematical case that can be made that importing a product because it is 5% cheaper to make it in China DOES NOT actually make the US economy better off.

        It is impossible for the 5% savings to offset the loss of the 95% of the funds now being owned by Chinese foreign nationals, who will use it to purchase US based assets to further remove net worth from the hands of US citizens. This is fine and well at a small scale, but at a large enough scale and sustained for long enough, it can become problematic. We’re close to that point.

        US citizens used to own more foreign assets than foreigners owned in the USA, meaning US citizens earned income created on the backs of foreigners and owning assets in their nation. This has reversed. Even without a single import, foreigners now own trillions in US based assets which nets them hundreds of billions a year more in US dollars. Money that had we not run these massive deficits would be in the hands of US citizens.

  12. Another rousing convention of “Libertarians For Tariffs And Protectionism (So Long As They Make Disaffected Rural White Men Feel Better)!”

    Authoritarian right-wing hypocrites are still among my favorite faux libertarians.

  13. “There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods. To judge whether such retaliations are likely to produce such an effect, does not, perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general principles, which are always the same, as to the skill of that insidious and crafty animal vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs.”

    –Adam Smith

    “It will generally be advantageous to lay some burden upon foreign industry for the encouragement of domestic industry, when some tax is imposed at home upon the produce of the latter. In this case, it seems reasonable that an equal tax should be imposed upon the like produce of the former. This would not give the monopoly of the borne market to domestic industry, nor turn towards a particular employment a greater share of the stock and labour of the country, than what would naturally go to it. It would only hinder any part of what would naturally go to it from being turned away by the tax into a less natural direction, and would leave the competition between foreign and domestic industry, after the tax, as nearly as possible upon the same footing as before it.”

    –Adam Smith

  14. “The Act of Navigation very properly endeavours to give the sailors and shipping of Great Britain the monopoly of the trade of their own country, in some cases, by absolute prohibitions, and in others, by heavy burdens upon the shipping of foreign countries. The Act of Navigation is, perhaps, the wisest of all the commercial regulations of England.”

    –Adam Smith

    “It will generally be advantageous to lay some burden upon foreign industry, for the encouragement of domestic industry, when some particular sort of industry is necessary for the defence of the country. The defense of Great Britain, for example, depends very much upon the number of its sailors and shipping. Defense is of much more importance than opulence.”

    –Adam Smith

    “High taxes, sometimes by diminishing the consumption of the taxed commodities, and sometimes by encouraging smuggling frequently afford a smaller revenue to government than what might be drawn from more moderate taxes. By removing all prohibitions, and by subjecting all foreign manufactures to such moderate taxes as it was found from experience, afforded upon each article the greatest revenue to the public, our own workmen might still have a considerable advantage in the home market; and many articles, some of which at present afford no revenue to government, and others a very inconsiderable one, might afford a very great one.”

    –Adam Smith

    1. Adam Smith’s ideas are as dead as Adam Smith as far as politicians are concerned. Can’t slake the thirst for power with free markets.

      On the other hand, Malthus was reincarnated as J M Keynes who spread Malthus’ lame version of economics. Keynes “justified” subordinating the economy to politics and completely seduced every power hungry politician on the planet.

  15. Veronique: Now that America is beginning to look more like France, do you ever wonder if becoming an American citizen was the right move?

  16. Remember, the purpose of trade is to win!

  17. Trumponomics 101: Trade deficits are bad! Except when furiners have them with us. Then they’re Dy-No-Mite!

    USA! USA! USA!

  18. As I said above, people act like tariffs are some magically extra horrible set of laws/taxes… They’re not.

    Income tax, property tax, payroll taxes, employee head taxes, etc etc etc ALL have cause and effect on their side. We try to structure stuff in ways that incentivize things we want, and discourage things we don’t.

    As a libertarian leaner, but not an anarchist, I think most of the incentives and the way they’re structured are retarded. But so long as we have ANY taxes, it’s just debating the pros and cons of different types. Trading income taxes for tariffs would probably mean more jobs in certain sectors, and fewer in others, perhaps with little net change in economic activity. Or perhaps tariffs are actually more economically efficient than income taxes, which everybody knows suck balls.

    Who fucking knows. But tariffs are no more or less magical than any other form of taxes. They distort the market in certain directions just like every other type of tax.

  19. Judging by the comments, it seems as if Reason has a huge fascist readership. Maybe if they keep reading, some logic will finally penetrate their thick skulls.

    1. Fascist, or simply living in reality? As long as we’re not a pure libertarian society, and all others are even farther from that goal, there will be messy aspects to how we must conduct ourselves IRL. This is the real world, not a fantasy land of anarchy.

  20. […] are no tariffs at all, his actions (and his general “trade is bad” worldview) make it difficult to take that […]

  21. […] there are no tariffs at all, his actions (and his general “trade is bad” worldview) make it difficult to take that […]

  22. […] there are no tariffs at all, his actions (and his general “trade is bad” worldview) make it difficult to take that […]

  23. […] where there are no tariffs at all, his actions (and his general “trade is bad” worldview) make it difficult to take that […]

  24. […] are no tariffs at all, his actions (and his general “trade is bad” worldview) make it difficult to take that […]

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