[CTC] NYT: On Trade, Donald Trump Breaks With 200 Years of Economic Orthodoxy

[Arthur Stamoulis]

http://nyti.ms/1SCFhir 


On Trade, Donald Trump Breaks With 200 Years of Economic Orthodoxy
By BINYAMIN APPELBAUM <http://topics.nytimes.com/top/reference/timestopics/people/a/binyamin_appelbaum/index.html>MARCH 10, 2016


WASHINGTON — Donald J. Trump’s blistering critique of American trade policy boils down to a simple equation: Foreigners are “killing us on trade” because Americans spend much more on imports than the rest of the world spends on American exports. China’s unbalanced trade with the United States, he said Tuesday night, is “the greatest theft in the history of the world.”

Add a few “whereins” and “whences” and that sentiment would conform nicely to the worldview of the first Queen Elizabeth of 16th-century England, to the 17th- century court of Louis XIV, or to Prussia’s Iron Chancellor, Otto von Bismarck, in the 19th century. The great powers of bygone centuries subscribed to the economic theory of mercantilism, “Wherein we must ever observe this rule: to sell more to strangers yearly than we consume of theirs in value,” as its apostle, the East India Company director Thomas Mun, wrote in the 1600s.

Now Mr. Trump is bringing mercantilism back. The New York billionaire is challenging the last 200 years of economic orthodoxy that trade among nations is good, and that more is better.

He is well on his way to becoming the first Republican nominee in nearly a century who has called for higher tariffs, or import taxes, as a broad defense against low-cost imports. And there is a good chance he would face a Democratic

opponent, Hillary Clinton, who has expressed fewer reservations about trade, inverting a longstanding political dynamic.

Among Republican standard-bearers, “There’s nobody since Hoover who talked this way about trade,” said I.M. Destler, a public policy professor at the University of Maryland and the author of “American Trade Politics,” a history. For most of the last century, Mr. Destler said, such skepticism about trade had been relegated to the fringes of the Republican Party.

Mr. Trump’s mercantilism is among his oldest and steadiest public positions. Since at least the 1980s, he has described trade as a zero-sum game in which countries lose by paying for imports. The trade deficit with China, which reached $366 billion last year, makes America the biggest loser. “Our trade deficit with China is like having a business that continues to lose money every single year,” Mr. Trump told The New York Daily News in August. “Who would do business like that?”

During the current campaign he has regularly advocated tariffs as the best solution.

He has promised to penalize American companies that build foreign factories. For months his favored example was Ford, which announced plans last summer to expand in Mexico. More recently he has called out Carrier, which is shifting air- conditioner production from Indiana to Mexico.

“I will call the head of Carrier and I will say, ‘I hope you enjoy your new building,’” Mr. Trump said last month. “‘I hope you enjoy Mexico. Here’s the story, folks: Every single air-conditioning unit that you build and send across our border — you’re going to pay a 35 percent tax on that unit.’”

In January, Mr. Trump proposed a 45 percent tariff on Chinese imports during a meeting with The New York Times editorial board. “I would tax China on products coming in,” he said. “I would do a tariff, yes.”

Economists have long struggled against the popular view that exports are a measure of economic vitality while imports are evidence of regrettable dependence.

They argue that the opposite is true.

“Economists have spoken with almost one voice for some 200 years,” the famous economist Milton Friedman said in a 1978 speech. “The gain from foreign trade is what we import. What we export is the cost of getting those imports. And the proper objective for a nation, as Adam Smith put it, is to arrange things so we get as large a volume of imports as possible for as small a volume of exports as possible.”

But critiques like Mr. Trump’s resonate in part because economists have oversold their case. Trade has a downside and, while the benefits of trade are broadly distributed, the costs are often concentrated. Everyone can buy a cheaper air-conditioner when Carrier disembarks for a lower-cost country, but a few hundred people will lose their livelihoods.

Pietra Rivoli, a finance professor at Georgetown University who explored the impact of increased globalization in her 2005 book, “The Travels of a T-Shirt in the Global Economy,” said Mr. Trump may be finding a receptive audience in part because the United States has provided relatively little help to workers harmed by trade.

“You have much more negative sentiment about trade in the U.S. than you do in pretty much any other wealthy country, and they’ve lost their T-shirt jobs, too,” Ms. Rivoli said. “What’s going on there is that in those countries — which are even more exposed to trade than we are — those countries have a bigger safety net.”

Mr. Trump has also accused other nations, notably Japan and China, of cheating by suppressing the value of their currencies to make their exports cheaper.

“I am all for free trade, but it’s got to be fair,” Mr. Trump has said repeatedly.

Economists persuaded governments to abandon mercantilism by demonstrating that trade barriers impose higher prices on the masses while narrowly benefiting those sheltered from competition. The United States largely dismantled its broad tariffs in the mid-20th century, opening the modern era of globalization. But some tariffs remain, providing a reminder of the costs and benefits.

Annual imports of Chinese tires increased to 46 million in 2008 from 15 million in 2004, and American tire makers shed several thousands of jobs. So the Obama administration, at the urging of workers’ unions, in 2009 imposed a Trump-like tariff beginning at 35 percent and expiring after three years.

“Over a thousand Americans are working today because we stopped a surge in Chinese tires,” President Obama said in his 2012 State of the Union address.

The measure, however, also increased the amount that Americans spent on tires by about $1.1 billion, according to calculations by Gary Clyde Hufbauer of the Peterson Institute for International Economics. That money, had it been spent on other things, would have supported jobs in other parts of the economy.

China, moreover, retaliated by slapping a punitive tariff on American chicken parts — China is a particularly lucrative market for chicken feet — which cost American poultry exporters about $1 billion in lost sales over the same period.

Eswar Prasad, a Cornell University economist, said Mr. Trump is raising legitimate concerns. Other nations do impose disproportionate restrictions on American goods, he said. The problem, Mr. Prasad said, is the proposed solution.

“It might be that the threat of tariffs or other trade sanctions could cause American trading partners to open up their markets or drop their barriers to trade,” Mr. Prasad said. “Perhaps as a bargaining chip it’s not necessarily so bad. But there is a risk that rather than having that positive effect it leads to retaliation on both sides.”

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