Trump’s tariffs: The dangerous pull of the status quo in trade debates

March 19th, 2018 at 9:57 am

Over at WaPo. I’m giving a talk on this later today and here are accompanying slides.

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35 comments in reply to "Trump’s tariffs: The dangerous pull of the status quo in trade debates"

  1. Fedup says:

    It is far too late for this kind of nuance. Trump’s tariffs are the only thing forcing the issue for the workers of America. Clearly nobody else gives a damn.

    • Pgl says:

      Nope. Trumps tariffs on Steel/Alum were pushed by Putin and Xi because they lift the price of the product. Notice that the Steel tariff is designed to be higher than the Alum for a reason.

      I have more below and I suggest you get the point.

  2. Changes says:

    Trump’s tariffs seem to be the only way for US workers to have a voice at this time. My honest hope is that this will lead to the beginning of the end of the WTO and IMF as they exist today. I don’t see anyone else in politics willing to get on the side of American workers. Nobody.

    It will be very tumultuous to say the least. There’s no other way to reform trade in such a way as to be compatible with democratic nations. Most companies that have large trade activity with China could be considered treasonous by many citizens at this time. We’re living in an age where we will choose between democracy and global totalitarianism. For Americans, the more immediate choice is between reasonable working conditions and compensation vs. having too much stuff they don’t need or value. Cheap foreign labor has degraded the value and purpose of human labor and the meaning of life.

    In general, most economists are cowards with their position on trade. Jared has guts, but my best guess is that he comes by it because he was not indoctrinated through a traditional economic career. Similarly, Robert Reich has been on the side of US labor, but he also doesn’t have a traditional economic background. As an academic field, economics is owned by multinationals, hedge funds, Wall Street and the like.

    Mainstream politicians and the press have no idea what they’re talking about.

    Which politician allowed China into the WTO? It wasn’t Trump.

    • Pinkybum says:

      Democrats have generally been on the side of labor but any bills they try and introduce, such as minimum wage and card-check, have been shot down by Republicans.

      • Changes says:

        “Democrats have generally been on the side of labor”

        Not so. Bill Clinton was not on the side of labor. Democratic politics of the last 25+ years are dominated by the Clintons and they favor free trade over labor. Bill deliberately did not raise the minimum wage by much to provide a future campaign platform. He cared about his career first just as most existing Democrats do.

        There’s a grand illusion going around in the party that creating union-friendly laws will magically result in a rise of the unions. It won’t. Ultimately all companies have to compete given the set of trade laws that exist, and currently the slave labor trade destroy unions much more efficiently than law. Cause and effect are being blurred for political advantage by the ‘free trade’ liberals.

        Economists, politicians, political scientists, multinationals, hedgies, wall street, and the press all favor free trade in labor with poor nations because it raises the standard of living of all of these people. They’ll never care about the population.

        Democrats were on the side of labor back in the 60s and 70s, but not since.

        The Clintons destroyed the Democratic party. There’s a reason Bernie is independent.

        • Changes says:

          Has anyone ever heard of a demand by Mexican auto workers for better treatment? I’m not asking if it has ever occurred, rather I’m asking if anyone reading this has ever heard of such an occurrence (without searching the internet for it). Does anyone think the Mexican government would tolerate such behavior by Mexicans working for US companies? Are mainstream liberals so dumb as to believe that labor rights can be enforced by the US government upon Mexico or any other foreign country?

          And so what does an agreement like NAFTA do to global politics? It magnifies the power of corrupt and/or totalitarian governments over workers.

          What does allowing China into the WTO do to global politics? It magnifies the power of China’s government over labor.

          What does do these trade arrangements do to American politics? They destroyed democracy.

        • Pinkybum says:

          I long for the days of Bill Clinton when we had Robert Reich as Labor Secretary, Clinton wasn’t trying to cut taxes on the rich and the economy was booming.

          • Smith says:

            Yes he was and did. He cut capital gains tax, significantly. Inequality increased dramatically during his two terms. The large growth in inequality occurred during the Reagan years and Clinton years. Check the Saez Piketty charts. Part of this had to to do with general economic growth, and the recessions that hit both Bush administrations, and part of it had to do with government policy.

          • Pgl says:

            The increase of inequality was because of the debt bubble, not because of a modest drop in capital gains. You still don’t get it do you?

          • Smith says:

            The increase in inequality was not because of the debt bubble. It was because of greater income going to higher income earners. While Clinton’s very modest tax increase at the outset of his first term was helpful and bitterly fought against by Republicans, his policies didn’t help workers keep pace with the growing economy. They gained much due to good conditions, but the rich gained more. NAFTA and China’s entry into WTO didn’t help though the worst of it came starting at the very end of his tenure (around 1999). There was a change in tax law that encouraged the use of stock as compensation, and this was a direct and important contributor in creating a new aristocracy. The capital gains cut was not minor for the .1 percent and .01 percent. The unregulated growth in derivatives and expansion of the financial industry were not minor events. Robert Reich had limited influence. Starting in 1994 after HIllary’s heathcare fiasco and Republican takeover of the House, he doubled down on the new Democrat mode. Impeachment, very much a blunder of his own making, further insured nothing could be done to reverse inequality. But it’s unclear absent his constraints, he had any ideas to address the decline of the middle class.

      • Kevin Rica says:

        But if the Dems have to choose between higher wages or more immigrants – they now choose immigrants. This is a 540˚ for them if not a full 900˚.

        The Dems are no longer the “party of the working man.” Hillary thinks that workers (especially men) are deplorables.

        • Pgl says:

          No way. Democrats have historically supported more permanent status residents, which basically make the same wage as the citizen, while the Republicans temporary status residents and what do you know, Trump is doing the same thing. Less deportations, more temp visa “work slaves” and a bs marketing scam on how tough they are on immigration which is far from the truth.

          Saying Democrats don’t support higher wages is pure bs. They absolutely do, but the voters don’t support their policies that could lift wages.

          • Smith says:

            This is not true. The immigration bill the Democrats nearly passed dramatically increased the number of temporary status residents and pliable labor immigrants, while cutting family based immigration. Particularly targeted were higher income groups, as politicians confuse our country with smaller Canada and Australia.

          • Pgl says:

            Also not true. The immigration bill would have created more permanent status immigrants while reducing temporary status immigrants. Don’t like Smith, understand.

          • Smith says:

            Very wrong you are. I guess you didn’t take the time to read the immigration bill, or even an overview of it, or maybe perhaps the wikipedia article.
            The bill greatly increased the number of new (emphasize new) temporary workers, and employment sponsored (read exploited) workers, especially higher income workers (double and triple today’s numbers), while greatly reducing family based immigrants (who are not so temporary as blood relations are not at will, nor are familial relationships except marriage).
            If you want to twist the meaning to address the people here already, then yes the immediate effect is an increase in permanent status and decrease in temporary status, only due to the effects on people here for 20 or 30 years but facing deportation if caught. However, exploitation of their labor would continue, including the threat of deportation if under many conditions, some related to continued employment even. Neither would they gain full legal status as citizens or voters for an extended period of time. Without full legal rights, labor rights, and voting rights, they would not be enjoy the same rights that immigrants did a hundred years ago, and back into our past. Obviously, I’m talking about the overwhelming majority of immigrants and not slaves, or indentured servants in colonial era.
            Overall, the bill is a bad deal for America, Democrats are undercutting the economy by promising big business more employee sponsored (exploited underpaid) labor, in return for winning the gratitude (for now) of voters who feel affinity with those threatened by deportation. The allegiance of these voters in Florida, Texas, New Mexico, Arizona, Colorado, Nevada, is by no means assured. There is a conservative leaning that also enables Republicans to win a substantial portion of their votes. Hence Trump takes Florida.

  3. Pinkybum says:

    There’s a spelling error in the article:

    “Another widely accepted trade theory — the Stolper-Samuelson model — predicts unequivocally, and common sensibly, that the workers in sectors that complete with imports will face lower earnings.”

    I think that should be “compete” not “complete.”

  4. Kevin Rica says:

    In any case, Dani Rodrik’s book on globalization is a good read, a real page turner (or button presser on a Kindle).

    Overtime you turn the page there is a new definition of globalization: free trade, free movement of capital, free movement of labor (immigration), global governance, regulatory harmonization, regulatory arbitrage, etc, etc, etc.

    Any word with so many meanings, has no meanings. It’s a shell game, so it’s supporters can claim that David Ricardo price the advantage of the free movement of capital. Actually, Ricardo was only talking about balanced trade. I suppose that under imbalanced trade, the U.S. has a comparative advantage in borrowing.

    • Kevin Rica says:

      That’s every time you turn the page.. (without autocorrect).

    • Pgl says:

      Dude, it is more than borrowing, all debts are in dollars, which means we literally own the debts. Amazing you can’t see that, I mean,you just don’t get that. The problem is how capital if flowing, not why it is flowing. That is why capital controls existed and Republicans don’t want any including tariff loving Trump………….boy I wonder why?

  5. Realist says:

    Realistically, I think we have to admit that we’re not in charge of the balance of countries.

    Clearly our intelligence sucks! Is the rest of it luck? Maybe, according to Putin.

    This country is as dumb as dumb gets. We used to rely upon the CIA to keep it in check. That era was gone with WMD and torgure.

    We have Democracy and not much more. If we lost that, which seems likely, the future is unknown. It is most likely we all die. But we all die anyway. So the future is the Chinese.

    Oh well. Life is total shit no matter how it ends.

  6. Bob Palmer says:

    I’ve saved this article. It explains multiple dimensions of trade in simple terms that that a middle schooler should be able to grasp.

  7. Pgl says:

    Sorry Jared and Changes, your both dead wrong and living a intellectual fantasy. It is really really really simple. The Democrats have always been the party of low tariffs………..and guys, most of the modern era of tariff levels didn’t start in the 80’s but the 30’s. Both the 1934 and 1962 acts lowered tariffs noticeably to what the Democrats had been wanting since 1876. Since then, trade deals have just fined tuned(and not all the terms are good) what already became before them. It was also this period when the US manufacturer reached a level of prosperity not seen BEFORE, during the high tariff era or sense. Lets note, service sector workers did not fare nearly as well during that period, as they are now.

    My point? Free trade, aka low tariffs is good for workers. Trade “deals”(which are not about free trade) can suck depending how plutocrats twist the terms. That includes putting protections on their business in said trade deals, which is not free trade. Get that yet Changes? This is why Billary rejected TPP due to the copyright bs.

    The world is denominated in dollars. Period. The Chinese surplus? We actually own it. Period. The physical currency is just accounted there. It recycles back into the US via American business. When you guys talk about “tariffs protecting workers” you are talking about protected workers in some industries in the past. Many other workers were and not today, protected. Do either of you realize that? Stop thinking about manufacturing delusion. It has been fading since 1925 when the industrial revolution had ended and automation began its real surge. Get that? Manufacturing share of the workforce has been plopping downward since then. The bulk of job growth does not come from there and hasn’t since Coolidge. Its wages were artificially enhanced by the union system and the closed post-WWII system during the cold war. By the 90’s that advantage was gone. Bill Clinton sure in damn hell supported the workers. He raised taxes on the rich, brought in more transfers to poor white people and had bigger plans on investment and health care the American people didn’t want. He tried to move America into the future and they said no, they wanted tax cuts and more debt. That is why Trump won the electoral college. It sure wasn’t because of tariffs. Matter of fact, it was the surge of northern progressive republicans like you and Jared really are, that really killed the Democrats. The 1968 plank was the first ever DNC plank to flaunt tariffs.

    Raise all the tariffs you want, they will just inflate dollars into dollar baring countries like China and Russia while contract dollars in the US. Trump,Putin and Xi know what they are doing. Raising tariffs on the US will further that agenda along. Instead of taxing the wealth back into the US, you will tax the poor into famine. That sickens me with that kind of ignorance.

    Note: In 1980 Germany’s share of Manufacturing was 40%, the US 33%. Today it is 20% and 13% for both. Guess what, Germany puts more effort into it and always has. Industrial policy blows tariffs away.

    • Smith says:

      Tariffs and manufacturing were an issue since colonial times, and President Madison. They allowed US industry to grow.
      Bill Clinton did not support workers, he supported instead the Reagan Bush NAFTA.
      Germany has many laws including labor laws, that would block a lot of the dismantling of their business to other countries. They are however, struggling with China, full of U.S. dollars, $1.75 trillion and growing again, buying German companies, such as the largest producer of robots. But VW’s largest foreign market has become China, not the U.S. Wait until China no longer needs their technology before pronouncing German policy a success.

      • Pgl says:

        No, US industries grew because of the technological advancements much like any other country. The US was also a debt ridden, debtor nation that had large trade deficits.

        • Smith says:

          No reading of American history, or American economic history, would miss the importance of tariffs in establishing the growth of manufacturing.
          Try reading the Wikipedia article “Tariffs in United States history”
          Not only did the protect domestic industry, they also funded the government.
          “They were the greatest (approaching 95% at times) source of federal revenue until the Federal income tax began after 1913.”

          One other aside, the remark about who owns China’s dollars is wrong. Some may argue that it’s good because the Chinese will be forced eventually to spend (or invest) the money here anyway. This ignores how they can use it to buy or invest anywhere else in the world, or how they could buy and control American companies, not even critical purchases that could be blocked, but ordinary companies where they control peoples lives anyway. The answer of who owns the Chinese dollars that China holds is China. Please go to China and work for a Chinese company under Chinese law controlled by Chinese rulers before you say there is no difference. Or talk to the dissidents in jail.

  8. Changes says:

    Comparative advantage is not a complex idea. It is just a little bit more complex than basic common sense. Why economists continue to talk about comparative advantage is beyond me. It seems like grade schools stuff.

    Trump just created $60 billion in tariffs which was met by $3 billion in tariffs by China.

    Ah, this doesn’t look like a war, it looks like a call on a bluff.

    No question in my mind, this was the right thing for America. I’m glad Trump did this.

    The economics profession is truly a bane on society. The lead bad: Dean Baker, Jared Bernstein.

    The most bad: Almost everyone else.

    • Pgl says:

      Uh, you again, do know those tariffs aren’t on China, but businesses that move dollars into the US don’t you? That 3 billion in China just shoved more dollars outside the US and is causing a little credit contraction right now.

    • Pgl says:

      Also, China is taking this to the WTO. If they don’t rescind the tariffs, they will put more on soybeans and other value added stocks. Changes, you sound like a typical northern republican. The 1933 Democratic Party is chuckling at you for your ignorance.

  9. Changes says:

    We don’t export anything important to China!

    They don’t buy our stuff. Companies like Apple need to suffer a little lowering of profits. Boo Hoo Apple! The country is dying and you’re worried about these profits to build spaceships or who knows what.

    • Pgl says:

      Yeah we do, it is called food. If you don’t think that is important, shame on you. China frankly doesn’t import anything to the US either. US businesses don’t count. Your still not getting it.

  10. George S says:

    Did I help create this situation, helping to elect Trump? After the election I felt that I played a primary role in it. I was proud of it, silently. I didn’t do anything illegal, but I did help spread a message of not voting for the Witch.

    As much as I talk poorly of him, it is possible I helped elect him.

    So why? Why create this havoc?

    The main reason is that both economists and some multinational companies such as Apple think they’re good people, when the reality is that they’re horrible people.

    I don’t regret helping to elect a man I wouldn’t vote for. I didn’t vote for him, but I think I helped elect him.

    • John Bender says:

      Look at the Bush election in 2004 or Clinton 1992 victory and you will understand how “Trump” got elected. It was a much more typical Republican Presidential victory inside a building Democratic wave.

      Clinton learned the hard way how much his Presidency mattered the next cycle.

  11. John Bender says:

    Jared, as much as I would like to agree, I don’t really think you understand how trade works. Trump and his beggar thy neighbor cabinet members seem(if they are not having dodgy money making schemes in reality) to think trade is nation v nation. No, it is market v market with the dollar as the reserve currency of these markets. The simple point? As it has been said before and said again: The US saves to little, spends to much and borrows from the global market(which others mistakenly think as “rest of the world”) place to pay for it.

    This is the function of the reserve currency. A world awash in dollars driving subsidies to US consumption. The trade deficit in Asia is not as loaded in China, or US companies making up dollars in China, but really all of east Asia. Many companies make parts in Japan and S.Korea which are then sent to China for assembly, but only the fraction of the cost is built in China. The trade deficit with China is really a trade deficit in dollars, with all of east asia recycling back into the US lowering real interest rates on consumer debt. Putting tariffs on China won’t cost a dime to them. This was a real real weak move by Trump. Now China can begin moving their own tariffs back up after a decade of lowering them. I wonder what Trump and China REALLY talked about in February. The anti-trade zealots were sure Trump was wagging his finger at China, but I am not sure. I see it more as a well executed plan. One that gives both Trump and Xi the self-appraise they seek via their narcissism.

    Simply put, if you want a higher share of industrial production in the US, Interest rates must rise, the dollar must rise to the point of making it difficult to pass dollars overseas forcing savings to rise. Consumers will be forced to save and yes, this is the opposite of what people think should happen. Consumption will drop permanently and businesses will no longer seek to offshore to boost debt ridden consumers. Total production will drop, but will be more concentrated in the US. Manufacturing will become more regional again. Yes, the short game will be painful. Unemployment will rise, a NBER recession is all but a sure thing. But it is necessary for the country to feel whole again. For neoclassicals and new Keynesians like yourself, this can be a very very hard thing to fathom and understand your own failings.