Protectionism

Assessing Trump's Experiment With Protectionist Trade Policies

The Trump years were more than infuriating on trade matters—they were destructive.

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With President Donald Trump soon departing Washington, now is a great time to assess his protectionist trade policies. From tariffs to his hectic bullying of other governments to renegotiate trade agreements to his support for American export subsidies, the Trump years were more than infuriating on trade matters; they were destructive.

This harsh conclusion is no surprise to those of us who understand international trade. We realized from the start that the president's trade philosophy is the mercantilist one that Adam Smith debunked nearly 250 years ago.

For instance, Trump believes that the success of U.S. trade policy is best gauged with a trade-balance scorecard—the notion that trade deficits are bad and trade surpluses are good. For this reason, he believes that the ultimate benefit of trading lies in the amounts that we export, while imports are to be feared and kept to a minimum. But Trump's understanding is backward. After all, exports are what we produce for foreigners, while imports are what foreigners produce for us.

Early on in his administration, Trump raised tariffs. The Cato Institute's Scott Lincicome describes the president's trade war as having "implemented five different tariff actions on almost $400 billion in annual U.S. imports (as of 2018) under three different laws with different rationales: 'safeguards,' 'national security,' and 'unfair trade.'" We were promised ever-more jobs thanks to the tariffs. But as numerous academic studies have shown, the people who shouldered nearly all of the burden of these import taxes were not foreigners but, rather, Americans.

Protectionism reduces the overall wealth of the nation. Aside from a few favored and protected producers, Americans, in general, are made poorer. Consumers have to spend a higher share of their incomes to buy goods that they could otherwise get for less. As a result, ordinary Americans save less and have less to spend—even on nontariffed goods and services. The American producers of goods that use tariffed foreign inputs also see their production costs driven up, which drives their ability to compete down.

Unsurprisingly, the administration's belligerent trade policies disturbed our trading partners. They retaliated with their own tariffs on American exports (to the detriment of their consumers). Adding insult to injury, the president's erratic behavior, threats, and contradictory tweets about his trade policy likely spooked investors. The overall uncertainty and negative effects of the trade disputes surely dampened the beneficial effects of the president's few good fiscal policies and regulatory reforms.

Take, for instance, the corporate income tax reduction as part of the Tax Cuts and Jobs Act of 2017. This reform should attract to the United States much foreign direct investment, or FDI. Yet, FDI flows into the United States were 10 percent lower in 2019 than during the two previous years. Simeon Djankov and Eva Zhang of the Peterson Institute for International Economics recently looked into the fall of FDI flows into the United States. "It is likely that the positive effect of the corporate tax cut in attracting FDI to the US," they concluded, "was outweighed by trade disputes and threats of withdrawal, as well as actual withdrawals, from international treaties and organisations, which may have scared investors away."

As for trade treaties, the Trump experiment is one that I hope we won't repeat. First, he impulsively withdrew the United States from the Trans-Pacific Partnership, a multilateral trade agreement designed to oblige China to behave better on trade while opening up a large free-market zone with other Asian nations.

Trump renegotiated the North American Free Trade Agreement with overall negative net impacts, thanks to an anti-growth minimum wage and increased domestic content requirements. And he moved to extend high tariffs on Korean trucks as part of the one-sided reform of the George W. Bush-era U.S.-Korea Free Trade Agreement, to the detriment of U.S. consumers.

Finally, the president inflicted serious damage to the World Trade Organization—the great arbitrator of all international trade disputes—on the specious claim that the organization wasn't sufficiently deferential to the United States. Here's how Lincicome sums it up: The administration chose "to shut down the organization's appellate body (basically the supreme court of trade dispute settlement) instead of negotiating new and necessary reforms in good faith (e.g., by teaming up with like-minded countries while offering actual concessions on longtime irritants like U.S. agricultural subsidies and 'trade remedy' rules)."

I, for one, will not miss Trump's trade policies. Neither should you.

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  1. China isn’t engaging us in free trade. They have their own protectionist policies, use slave labor, and stealing intellectual property appears to be their national pastime.

    The EU is better, but not great. No slaves and very little sanctioned IP theft, but they love their own protectionist tariffs and are prone to sue / sanction / tax-to-hell just about any US company that does business there.

    Until our partners are willing to behave in a more libertarian, free-market capacity, do we just lie back and think of England, or what?

    1. No no no! We do not lie back and think of England, we simply ignore then and have unilateral zero tariffs.

      Why is this so hard to understand? When foreign governments tax their citizens to subsidize our imports, we win, and they lose, not only because of the higher taxes which benefit us, but because we get more imports for the same price.

      When foreign governments enact tariffs against us, yes, it hurts our exporters, but it hurts their own citizens worse. Look at the US track record — the jobs “saved” cost several times what those jobs are worth. The same thing applies to foreign governments “saving” their own jobs. If trade really is a war, why should we not only try to stop the enemy when they are doing something stupid, but hurt ourselves by aping them?

      1. Is China hurting? We’ve turned them into a Superpower.

        Europe isn’t exactly hurting either

        The only loser has been the US and its people. Jobs going to other countries, floods of crappy products being sold to our poor which break and require constant replacements.

        1. Do you think America’s history of having uncontrollable greed and always wanting the very best at the cheapest price has anything to do with it?

          1. It’s not uncontrolled and it’s not greed. The control (better known as mercantilist meddling) has slowed it down, and the self-interest and ability to amass a fortune by providing what customers want has done what diktat never could.

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        2. We did not turn China into a superpower. Freed (somewhat) markets did that, and those same freed (somewhat) markets are giving Xi the shits.

          You really ought to learn some basic economics; I recommend Henry Hazlitt’s “Economics in One Lesson”, a freely available PDF. Failing that, at least stop and think a little. Basic economics is just simple common sense, applied objectively.

          1. Believing you can learn comes global economics in one lesson makes sense as to your child like belief in markets.

            1. Learn complex*

            2. Bet you’ve never even looked at his book.

              You and others don’t need to learn complex economics, you need to learn the basics first. Like arithmetic before algebra before calculus.

        3. Actually China is far from hurting. Following the COVID drop chinas GDP is bouncing back nicely. Exports the the US are at an all time high.

          Biden is in for a tough time as there is no reason for China to negotiate anything. Trumps trade war and protectionism is a total catastrophic failure.

      2. Ignoring and doing nothing sounds a lot like lying back and thinking of England, at least to me.

      3. You are still completely child like on economic theory it seems.

        When a trade partner is actively stealing your goods and selling it back to you at a discount, you aren’t making a profit. You are losing money on security costs and decreasing innovation and production for yourself.

        You have such a child like belief in markets.

        1. “When a trade partner is actively stealing your goods and selling it back to you at a discount”
          You seem to believe every American citizen has the same and equal economic status. Not everyone can afford that fancy iPhone or Mercedes like you do you self-absorbed inconsiderate prick. If someone can produce a better rolling wheel at a more affordable price then so be it.

      4. Honest question here, I promise. What do we do with trade cheating?
        I mean, say China dumps a gazillion widgets on us wiping out our domestic producers. We’ll eventually win at the WTO to be sure.
        But what happens to our domestic companies? They’re bankrupt now, so how are they compensated or protected? A government program? Just say tough shit? I’m pretty sure that’s not the right way to go.
        We are mostly individuals trading with a (corrupt) nation-state. While I am a serious free trader, I can see the protectionist side on this.

        1. Actually we are buying more widgets from them than ever.

          If I can buy cheaper widgets from somewhere else then I can go on to more productive enterprises than widget making. At the same time I get more stuff even if my wages stay the same.

          Not only that but as the Chinese widget industry employs more people who now have income it opens up a market for me to export stuff to.

          It is never a good idea to have central government control over industries. Look what happened in Venezuela.

  2. Well, yes and no. We have been reliably informed that tariffs are not taxes, by a gentleman who assures he happily pays all his taxes voluntarily. One assume this “all” and “happily” includes interpreting all tax laws in the government’s favor, and throwing something extra in just to be sure.

    1. It seems you believe all markets remain completely static and don’t change based on modifications to trade laws or actions. Do you even understand what market switching is?

      When will you admit markets don’t hold statically for single variable changes?

  3. You might not miss Trump’s trade policies. You will miss his cabinet, scotus picks, tax policy, lack of foreign wars, ending regulations, and general disdain for the bureaucratic swamp of DC. No it’s not all perfect but far better than anything we’re likely to see in a generation.

    Have fun ending the neo Marxist bullshit coming soon. I suspect this place is not up to the task.

    1. Biden has already stated he won’t modify the tariffs for at least a year.

      1. ^^ This.

        Tariffs are broadly popular in this country. It’s stupid, but people also believe that building stadiums and raising the minimum wage will improve their economy.

        Biden was able to steal various union endorsements from Trump merely because he promised to continue Tariffs, thereby taking the issue off the table for the election.

    2. I will really miss his charming smile, his gentle sense of humor and the summer evenings we spent on the back porch listening to the baseball game on a old radio.

      That was my uncle Nate. Everyone called him “Trump” because of the sound he made clearing his throat from the pipe tobacco.

  4. No mention of rising wages. Elites don’t care about the best wage growth in decades for the bottom quintile. Elites only care about numbers on their spreadsheet models.

    1. Rising wages don’t matter if the price of goods is increasing faster. The value of a wage is relative to what it can buy, not what its face value is.

      This is the problem with all minimum wage hikes, too; either the market was already there and no regulation was necessary, or the consequence of arbitrarily compelling a higher minimum wage is inevitably pure inflation. Because you can’t increase goods produced by dictat, so higher wages means higher prices because the availability of goods didn’t change.

      (Tariffs, of course, decrease the availability of goods, so their price relative to wages must go up, which is why they’re pants-on-head stupid).

      1. Rising wages with prices going up beats stagnant wages with prices going up. The prices of necessities didn’t go up more than wages. The goods at the dollar store are still $1 and the shelves are still full.

        Rising wages actually happened. It’s not theory or a tendency or a model like you are talking about. Wages increased dramatically better than in the past.

        It doesn’t get mentioned because economists focus on numbers and theories and trying to impress each other and they don’t really care about wage earners. Better to have those people struggling so economists can point at them to sell their political agenda.

  5. Voting your morals over policies are viewed by the Trumpian Party as despicable and unforgivable, a quick glance through the comment section on this site will confirm that. So let’s look at policy during these last four years.
    1) Anti-immigration, legal or illegal, anti-immigration nonetheless.
    2) Anti-capitalism, whether fair or unfair trade, anti-capitalism nonetheless.
    3) Pro-taxes, tariffs or rising debt, pro-taxes nonetheless.
    4) Anti-First Amendment, whether it be the free press or a kneeling athlete, anti-First Amendment nonetheless.
    5) Anti-Second Amendment, quick trigger finger or bump stock, anti-Second Amendment nonetheless.
    6) Anti-legislative procedure, whether governing by the pen or at the golf course, anti-legislative nonetheless.
    7) Anti-law and order, Quid Pro Quo or “Stand back and stand by”, anti-law and order nonetheless.
    8) Anti-US Military, whether defending to build beautiful vanity wall or disliking soldiers that get caught, anti-military nonetheless.

    So much policy, I just can’t get enough!

    1. That is such an interestingly selective list of issues and anecdotes.

      Why bother hiding it?

    2. If your morals are to increase authoritarianism because the enemy of good is perfect, then your morals suck.

  6. Trump offered free trade with americans trading partners at the G7 summit. They refused.

    1. Well, the pre-incarnation of Trump offered horses, fire-water, and boom-sticks to the natives, and all he delivered was covid-blankets.

      /#Poe

    2. You don’t have to agree to free trade, you just do it. And if other countries are stupid enough not to reciprocate, you get to eat their lunch.

      1. And this is why idealists shouldn’t talk. Hampering your countries economics on ideals merely disadvantages you. Youre completely ignoring the game theory aspects of economics.

        If a snake oil salesman is lying to you and you jeep buying his goods, you aren’t benefitting from doubling down and continuing to buy the snake oil.

        1. “If a snake oil salesman is lying to you and you jeep buying his goods, you aren’t benefitting from doubling down and continuing to buy the snake oil.”

          Except of course, this is not what is happening. By and large the goods we buy from China work as expected. They are not snake oil.

          1. lmao!!! “By and large the goods we buy from China work as expected.” — That’s only because we’ve learned to EXPECT them to be trash!

  7. Look, all Trump wanted was for our trade balance with China to be more even. If the Chinese were smart, they should have offered to buy a fleet of F-15’s, maybe a spare aircraft carrier and a few destroyers, and an anti-missile defense system from us and Trump would have been happy to sell it to them.

    1. China has already purchased a superior, secondhand aircraft launching platform from Ukraine.

    2. And therein lies one of the problems. The trade balance is meaningless, and Trump made more people believe that it matters.

  8. Retaliatory actions are not protectionist. They are responses to bad acts by a market actor. It is completely rational to have these views. Game theory has been a valid part of libertarian economics for decades. We have seen many AI simulations regarding trade theory where tit for tat approaches produces the optimal outcomes on a market. It limits bad actors from actually acting badly.

    Why reason refuses to acknowledge other actors in international trade as bad actors is astoundingly ignorant.

    Yes. The ideal is everyone trades freely. That is not really. Striking actions on the US under ideal assumptions is actually a negative market force as it provides a market imbalance.

    Reason on trade is like a HS sophomore pretending he understands string theory because he can estimate position provided ideal and frictionless system assumptions.

    1. Reason on trade is like a HS sophomore pretending he understands string theory because he can estimate position provided ideal and frictionless system assumptions.

      Now do Trump on trade. He thinks he understands string theory because he can tie his shoes. You’re nuts if you think Trump is dealing with the finer points of trade theory, all he knows is if we’re importing more than we’re exporting, we’re getting fucked because money is far more valuable than the things money can buy.

      1. Right. My brother’s business paid $30,000 to a japanese manufacturer for some tools. He was out $30,000 in cash, but he still had $30,000 worth of tools that he is using to generate more wealth. If this were a balance sheet, there wouldn’t be a trade imbalance- the reduction in cash would be offset by an asset.

        JesseAz and Trump would have us believe that the country would be better off if he instead paid $40,000 to some firm in Michigan to get the same tools. Sure, some firm in Michigan would be better off. But that has merely transferred $40,000 from my brother to some other favored crony. He had to lock up an additional $10,000 to generate his wealth- money that could have been spent on other tools or salaries for his staff. But somehow this is better for the country?

      2. The economy expanded over 33% last quarter, despite the pandemic. Prior to the pandemic, the stock market was hitting record highs, and unemployment was hitting record lows, so what the you think the problem is with Trump’s management is not exactly clear.

        Let me point out, contra our self-appointed libertarian economic geniuses, Trump actually has a degree in economics, and I submit he’s demonstrated considerably more competence in managing one than any libertarian that’s ever been born, Henry Hazlit and mises.org notwithstanding.

        1. This wasn’t about the economy. Trump ran as a businessman and that is what he is.

          He has had it out for China for years. This was about power. He thought he could show those Chinese a thing or two and get them to cave in.

          He used strong arm tactics. The worst thing he could have chosen. The Chinese did not even blink. Why should they?

          In a couple of decades they could be the largest economy in the world. We are upstart barbarians to them. Now Trump is out and Xi is still there. They must be having a big party and raising toasts.

          It didn’t work.

          1. If we are upstart barbarians to China, why are you stating they could become in a couple of decades what the US has been for over a century? Is it possible their centralized planning will collapse their economy (due in part to actions like their authoritarian engagement with Hong Kong)? Economics do not happen in a vacuum…

            1. From a cultural standpoint that is how many see us. They have an ancient civilization. We just got here.

              Since the dark days of Mao Chinese technology and economy has done remarkably well.

              It is the worlds largest population. Only a matter of time before they catch up.

  9. Theory and rationalizations for these policies are irrelevant. They ain’t workin.

    The only question now is how to fix them. That is going to be a tough job. Dems anyway tend to be protectionist so I doubt there will be much motivation in the new administration. Just shuffling of deck chairs.

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  11. Trade with China is really easy. If you are for human rights you want to stop trading with them until they clean up their act. If you want cheaper goods and wish to continue trading with them, then you aren’t allowed to have an opinion on human rights. You are supporting slave wages for your own gain making you a giant hypocrite.

    It’s actually super simple.

    1. Truer words have never been spoken…

    2. You are not going to change human rights with tariffs. It was never the goal to begin with and hasn’t changed a thing. It is counter productive. Putting Chinese factory workers out of a job is not promoting human rights.

      The way to do that is through international pressure and diplomacy.

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  13. So if you buy from China there should be a 0% tax attached.
    But if you buy from the USA there should be a 50% tax attached.

    Check. Seems there’s no arguing fairness with the entitlement crowd. (i.e. How dare Trump put a 10% tax on our goods! Let’s go lobby for a 60% tax on ‘their’ goods.)

    1. ….and in other news; only 10% of USA is making any goods because after their 60% Gov-Tax it’s hard to be 2x better than China but let’s throw out some new minimum wage and just kill the USA goods producers all together?

  14. Free trade is desirable if the traders are playing by the same rules. China is not through currency manipulation. Its like amazon.com when it was climbing to become a monopoly. And guess what happened when Amazon won, they took over the industries. USA should not be owned by the Chinese who won’t obey USA rules. They will use their USD surplus to buy up all our land and capital and own us.

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