Free Trade

It's Time for a Course Correction in the Trade War

Trump's strategy was never going to be a winning one.

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President Donald Trump and his supporters often tell us that he is fundamentally a free trader. The current trade war with China, they say, is simply the small price we must pay now for a world of much freer trade tomorrow, when all governments lower their trade barriers in fear of Trump's hard-bargaining techniques.

Let's see what markets have to say about that. After the president tweeted a couple weeks ago that tariffs against China would go up within five days if Beijing didn't agree to his demands, markets dived. Stocks plunged once again on Friday morning, after the 25 percent tariff on $200 billion in Chinese exports to the United States became reality. Stock prices rose later that day after presidential tweets suggested that trade talks were going well. But the market took another hit on Monday after China announced retaliatory moves, including tariffs increased to as much as 25 percent on $60 billion of U.S. imports to China.

Markets aren't immune to being pulled and pushed by emotions, yet overall, they're smarter than any one politician or administration. Markets reflect expectations of the future health of the economy. And what they're telling us now, strongly and clearly, is that they're uncertain about the economy's ability to sustain a long trade war with China. That's true even if, by some measures, China is getting hit harder than we are. The great interconnectedness of our economies means that if China "loses," we do, too—and vice versa.

If the markets really believed that the Trump trade war would eventually make global trade freer, then with each U.S. move, the markets should go up. The fact that they go down upon news of a U.S. escalation in the trade war means that markets expect trade to, for a significant time, become and remain less free.

It's understandable. Investors don't know how long this belligerence will last. They don't know which goods will be targeted for retaliation or how high the new duties will go on either side. And markets don't know if or how this fight will spread to other countries.

Also, let's not forget that our fight with China isn't the only trade war Trump is waging. We have no idea if the United States-Mexico-Canada Agreement will ever be implemented. Will anything happen with Europe and Japan? Meanwhile, other countries are forming trade alliances among themselves, leaving the United States more and more isolated.

This drama could go on for a long time. It's one thing if Beijing agrees to change its trade policies as part of a multilateral agreement that it enters voluntarily. But it's a whole other political game when the United States demands unilaterally—much like a bully—that Beijing must change its behavior. The Chinese government is unlikely to cave on issues of sovereignty. And being an authoritarian government, China could hold on for quite a while, even if this trade war hurts the Chinese people more than it hurts Americans.

It's time for another route. There's no doubt that we would all, including the Chinese people, benefit from a change in the Chinese government's behavior on trade and state subsidies. But tariffs on top of other tariffs isn't the answer. The U.S. government should drop the duties on China and our other trading partners and rejoin the Trans-Pacific Partnership Agreement.

From there, a strong alliance could form to induce change in China with the aggressive use of the World Trade Organization. Those skeptical of the WTO's ability to help with China should check out a Cato Institute report from last year titled: "Disciplining China's Trade Practices at the WTO: How WTO Complaints Can Help Make China More Market-Oriented." The authors demonstrate that "China does a reasonably good job of complying with WTO complaints brought against it."

Trump's strategy was never going to be a winning one. If ever we needed a reminder that trade wars are neither good nor easy to win, this is it. If ever we needed evidence that the president might not know what he's doing and he's poorly advised on these matters, again, this is it. Unfortunately, we all suffer from these self-inflicted wounds. But, please, spare us the nonsense that this trade war is part of a grand scheme to make global trade much freer.

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  1. what Reason intellectual dilettantes believe our current situation is free trade, it is managed trade with winners and losers chosen by political processes and with liquidity form the Fed and treasury to feed the debt driven consumption of Chinese goods

    1. What we have is legalized theft by the Chinese. It is an untenabke situation

      1. Imagine all the extra money to American businesses if China would pay for American tech and license all the tech that they have stolen.

    2. what Reason intellectual dilettantes believe our current situation is free trade, it is managed trade with winners and losers chosen by political processes

      The Trump supporters pull out this trope with no realization that Trump is doing more of the same harder. Don’t let the perfect be the enemy of the good.

      1. I don’t think anybody is expecting perfect… We’re hoping to get to good though, because the current situation is shite.

        We literally signed off on one sided trade deals with the idea that we’d help lift these nations out of poverty by sending jobs there… With some end game perhaps in mind of ending the preferential treatment when they got on their feet? They’re there, they don’t need special treatment anymore.

        1. Sure, that’s the overly generous attribution.
          The reality, more likely, is that those in charge of crafting and signing those trade deals sold out the vast majority of Americans.
          These people don’t see themselves as Americans, they identify primarily as international elite.
          Loyalty is to class (global socialist), not country and/or constituents.
          They don’t even hide this fact: “we are all citizens of the world”

    3. Who really pulls the strings at Reason?

      They continually post articles that are anti-reason, anti-Libertarian, and straight Prog propaganda.

      We have had decades of appeasement with the Chinese. Who believes that is a good strategy going forward? If it weren’t for all of the articles talking about how Trump should or will cave we would already have an agreement finished.

      Trump has no reason to back down. The economy is strong despite the trade war, the current tariffs are basically a temporary VAT, and if the long term outcome is that businesses move away from China to Vietnam, India, Mexico, or the US we are big winners.

  2. Orange man bad.

    1. I never did like Syracuse.

  3. Orange man bad!

  4. It’s time for another route.

    Hell no! Crank up Radar Love and stomp that gas pedal down!

    Cliff? What cliff?

  5. In any war winning is the wrong word. There are only degrees of losing.

    I just do not see the upside here.

    China will still be what it is and so will the US. All of it is government fucking with our lives.

    Always focus on the individual.

    1. Yeah man, go Echospinner go!!!

      It is good to hear some sane voices now and then among all the TrumpfenFuhrer fellatio…

    2. That’s bullshit.

      I would say there are degrees of losing and degrees of winning. Nobody expects libertopia out of this… But if they start respecting our IP, and lower barriers on physical items coming in, end the Chinese partnership requirements, etc that could be worth hundreds of billions A YEAR to the US economy.

      Even if we only get a small fraction of that stuff it will have more than paid for itself almost instantly.

      1. +100

      2. So it’s true then what they say. Libertarians are just conservatives who want to smoke pot.

        1. Just what a non-Libertarian would say.

          1. LC

            The charge mocking libertarians, from the Reagan and Buckley days I said it incorrectly, was “Republicans who want to smoke pot”.

            There was some truth to that in that pot, still is a talking point here WF Buckley who was a true conservative free market republican, was early in that.

            Today the Republican Party is nothing like that. No more even pretending to advocate for small government capitalism. The democrats never did and are moving to even more socialism.

            So it is from someone who can remember some of that and realizes how far republicans have moved from any coherent ideals I write that comment.

            Why am I bothering? I have no idea.

            1. Look dude, I want true free trade. I want taxes slashed, almost all regulation eliminated, welfare state ended, most of the government eliminated… I could go on.

              The fact that I am okay with twisting a foreign nations arm to get better trade terms doesn’t magically make me a communist. I NEVER claim to be a purist libertarian, because I’m not… And I think purist libertarian thinking is outright wrong on some subjects, and very naive on others.

              But again none of that makes me a commie. I’m more libertarian than 99% of the population. Dogmatic retards never accomplish anything in the real world. I’m a realist. I’m okay with getting down and dirty, twisting arms, and not rigidly adhering to ideology if it ultimately moves the needle in the right direction. So sue me.

    3. “Surrender is victory!”
      -echospinner

      1. +100

    4. China will still be what it is and so will the US. All of it is government fucking with our lives.

      The problem in the US is spending. Every dollar spent by the US government is a violation of the NAP against someone because it results in a dollar taken by force from someone. The question is simply who is going to be forced at gunpoint to pay for it: productive labor, consumers, importers, investors, etc.

      I don’t see why anybody would consider tariffs any less legitimate or more harmful sources of revenue compared to income or sales taxes.

  6. So.. What is Trump trying to “win” here? What demands are we making of the Chinese (other than ‘change your behavior’)? What effect will those demands have, if met?

    This is the real crux of the argument, not “it won’t work, use the WTO”.

    The cost doesn’t seem to be massive thusfar, even $100 billion per year is less than we’ve been spending on the “war on terror” since 9/11. And we get some of the tariff money back in the form of additional jobs here.

    And how is a couple of months so onerous that “it is time for another route”? The prescription is “rejoin the TPP and use the WTO”… uh, isn’t that exactly what we were doing when Trump started using tariffs because it wasn’t having the desired effect?

    From reading this opinion piece, I don’t know if this “trade war” is worth it… because the benefits of “winning” are not clear, nor are the costs of “losing”, and for that matter, neither is the cost of the trade war itself. The market is cited as proof of the cost, but it only went down by a couple of percent, which I assume means that the market isn’t really that worried, despite all the uncertainty. If the market was actually worried, it would have dropped 20%, 40%…. something “worrying”…

    I dunno what to make of it… Trump is probably an idiot here, because that is my overall impression of Trump. But if you are going to argue beyond “tariffs are bad, m’kay”, I think you need a little more information. We already know tariffs are bad, and Trump’s position seems to acknowledge this and views a no-tariff world as the goal – as long as other forms of government distortion of trade are addressed. Trump seems to be operating in a very simple game of carrot and stick. Tariffs are the stick. You want the WTO to be the stick. Either way there is a stick.

    And what does the WTO do? After years of complaints and negotiations, they might “authorize” a country or group of countries to take an action… like imposing tariffs. So exactly how much better off are we with a piece of paper from the WTO? We are already the big dog in any trade tit-for-tat with China anyway…. do you really think China says “oh, well they have a warrant from the WTO, so now we are really in trouble….”?

    1. So.. What is Trump trying to “win” here? What demands are we making of the Chinese (other than ‘change your behavior’)? What effect will those demands have, if met?… Trump seems to be operating in a very simple game of carrot and stick. Tariffs are the stick.

      Much like the quagmire of real war, there seems to be no end game on the trade war. He renegotiated NAFTA and still no good faith dropping of the metal tariffs against our partners.

      Tariffs are the stick, but then when you get the behavior you want you’re supposed to give them the carrot.

      1. Another way to look at the problem here is, China bad m’kay… Yes, they have offended badly with IP theft, currency manipulations, etc. They have been trade-pigs. Pick on China and China alone, for their offenses, in a ONE-sided trade war, in alliance with other nations that will get on board with us. That would have been smart (or at least, MUCH smarter than what Orange-Turd is getting us into now).

        But Orange Hitler is a protectionist, and is fighting a trade on EVERYONE!!! Trade wars on Mexico, Canada, Europe, Japan, etc., as well as China. Real Hitler fought on all fronts at once… Could NOT keep his dick in his pants! Orange Hitler is doing the EXACT same thing here, on the economic fronts… I am hoping and praying that Orange Hitler won’t do it on the military fronts as well!

        1. Dude, he tried to get other countries on board to hammer China, and IIRC a couple have at least said positive things but taken no action.

          The truth is the “establishment” basically all around the world likes the status quo. IMO western leftist elites like this kind of stuff because it is equaling out wages across the world… They seem to care more about the global poor now than their own working class, so this makes them happy. Right leaning businessman types like the cheap labor.

          Outside of “populists” there is no desire to address any of the myriad of issues real people are actually concerned with, like jobs, immigration, etc. If the so called adults had actually addressed things we never would have got Trump, but since they didn’t…

    2. Trump is on his way to Asia to talk with China about trade and North Korea.

      The propagandists in the MSM and reason dont cover actual news events unless it fits the Narrative. Trump going to try and get a good resolution about NK and trade do not fit that Narrative.

    3. The cost doesn’t seem to be massive thusfar, even $100 billion per year is less than we’ve been spending on the “war on terror” since 9/11.

      This isn’t even spending, it’s revenue to the government. It’s effectively a tax on consumption, and a tax that isn’t even necessarily paid for completely by Americans.

      We already know tariffs are bad,

      Bad compared to what? Given that we need to raise taxes anyway to reduce the deficit and pay down the debt, tariffs seem like one of the least objectionable ways of doing that. They are certainly preferable to income taxes and sales taxes.

      The worst situation (and the worst violation of the NAP) is for the US government to continue to accrue debt on behalf of taxpayers and/or future generations. At the very least, we should insist that taxpayers pay for what they vote for.

  7. And he saith unto them, Why are ye fearful, O ye of little faith? Then Trump arose, and rebuked the winds and the sea; and there was a great calm.

    1. Yes, so was it written; so must it have been done.

      I just hope that Trump doesn’t send me to Hell for having blown on a cheap plastic flute w/o proper authorization!!!

      To find precise details on what NOT to do, to avoid the flute police, please see http://www.churchofsqrls.com/DONT_DO_THIS/ … This has been a pubic service, courtesy of the Church of SQRLS!

  8. President Donald Trump and his supporters often tell us that he is fundamentally a free trader.

    “No tariffs, no barriers, that’s the way it should be — and no subsidies,” the president said at a press conference.
    […]
    “We don’t want to pay anything — why should we pay?” Trump said. “Ultimately, that’s what you want. You want a tariff free, no barriers and you want no subsidies.”

    1. If the markets really believed that the Trump trade war would eventually make global trade freer, then with each U.S. move, the markets should go up. The fact that they go down upon news of a U.S. escalation in the trade war means that markets expect trade to, for a significant time, become and remain less free.

      Your citation fell off that the Stock Market is a good indicator of the market’s reaction to managed trade changes.

    2. Yes, and President Bush often said he was a capitalist until he bailed out everyone.

      President Obama promised us that if we liked our doctor we could keep our doctor.

      Why should we believe Trump’s words when his actions suggest otherwise? He got the trade deal that he wanted from Canada and Mexico, and yet he’s risking that deal blowing up because he wants his stupid aluminum and steel tariffs too.

      1. W. Bush was NEVER a capitalist. Everyone knew that he was a RINO.

        Clinton’s VP was far worse.

        Think about that…. W. Bush was one of the worse Presidents ever with Iraq, TARP, Medicare expansion, etc

        ManBearPig would have been worse.

      2. If you believed Obama would help Americans, your head is not screwed on tight.

        Why wouldn’t Trump get an even better managed trade deal with Mexico and Canada? They caved. He’s got them by the short hairs.

      3. Well, for one that deal isn’t sealed yet… So until it is, he wants to keep their feet on the fire?

    3. Hey loveconstitution1789,

      In preparation for my next comment below… Reason.com will allow me to only place ONE link per comment… Please note that my source is middle-of-the-road, not left-liberal… “The Hill” conservative or liberal? https://www.conservapedia.com/The_Hill says it is pretty much middle-of-the-road, NOT liberal as is most media…

      1. https://thehill.com/opinion/international/443511-why-xi-jinping-reneged-on-the-trade-deal-with-trump Why Xi Jinping reneged on the trade deal with Trump … From there, “Both Liu He and the official voice of the Chinese Communist Party (CCP), People’s Daily, cited three issues to explain Xi’s rejection of the deal: first, the U.S. wanted to keep some tariffs in place, and refused to abolish all of them…”

        So the Donald is FIBBING when he claims he wants zero tariffs, and all! Also as Leo keeps on pointing out here, The Donald’s record on wanting to keep steel and aluminum tariffs in place, NAFTA-wise, contra the spirit of the agreement awaiting Congressional approval… This and his profligate trade wars against all and sundry, not China… All this clearly shows that The Donald is flat-out, a protectionist. He SAYS he wants free trade, but doesn’t really.

        You are wrong to be constantly repeating The Donald’s lies about His ultimate goals be all free-trade, when His actual track record shows him to be a protectionist.

        1. “…profligate trade wars against all and sundry, not JUST China…”

          I meant to say… Not enough coffee this fine morning…

  9. Oh, Ye of Little Faith.
    Remember, it ain’t over ’till it’s over.

    1. The same Yogi said.

      If you don’t know where you are going, you’ll end up someplace else.

  10. I have yet to hear a principled libertarian argument why tariffs are supposed to be any worse than income taxes or sales taxes.

    Yet, the self-proclaimed “libertarians” here seem to have no trouble ignoring income and sales taxes, or all sorts of other policy decisions that cost Americans thousands of dollars each year, yet hyperventilate about tariffs that may cost a few hundred dollars a year for a couple of years before the market adjusts.

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