Saturday, July 07, 2018

Stay Out Of That Car

As the US Senate debated restricting the right of President Trump to impose tariffs on the basis of "national security," one of the Democratic Party's best senators, running for re-election in a major steel-producing state, argued "Why would any colleagues vote to let China off the hook?"

If only China were the sole target of the President's actions, the President's trade policies might be beneficial. But as David Frum tweeted prior to the Trump-Kim summit, "even if he's offering to take you to church, you don't get in a car with a drunken driver."

While conceding "of course, it could all change quickly with a Trump tweet or remark," the Washington Post's Heather Long on May 31 noted

The president has threatened tariffs on an additional $50 billion in Chinese goods later this month, but he has often changed his mind, putting tariffs on hold or scaling them back before they go into effect. Right now, Canada and the E.U. are taking a bigger blow. (The E.U. and other allies would also bear the brunt of Trump's proposed tariffs on autos).

One suspects- as Trump himself would put it- "people are saying that the President is imposing tariffs specifically because it would harm other countries."  Everything to him is a zero-sum game; to the extent another nation is harmed, the USA will be helped. However, Paul Krugman explains

Trump’s tariffs are badly designed even from the point of view of someone who shares his crude mercantilist view of trade. In fact, the structure of his tariffs so far is designed to inflict maximum damage on the U.S. economy, for minimal gain. Foreign retaliation, by contrast, is far more sophisticated: unlike Trump, the Chinese and other targets of his trade wrath seem to have a clear idea of what they’re trying to accomplish.

The key point is that the Navarro/Trump view, aside from its fixation on trade balances, also seems to imagine that the world still looks the way it did in the 1960s, when trade was overwhelmingly in final goods like wheat and cars. In that world, putting a tariff on imported cars would cause consumers to switch to domestic cars, adding auto industry jobs, end of story (except for the foreign retaliation.)

Noting "almost none of the Trump tariffs are on intermediate goods," Krugman adds

In the modern world economy, however, a large part of trade is in intermediate goods – not cars but car parts. Put a tariff on car parts, and even the first-round effect on jobs is uncertain: maybe domestic parts producers will add workers, but you’ve raised costs and reduced competitiveness for downstream producers, who will shrink their operations.

So in today’s world, smart trade warriors – if such people exist – would focus their tariffs on final goods, so as to avoid raising costs for downstream producers of domestic goods.

"As a lifelong salesman, he (Trump) has a huckster's knack for selling a feeling," in this case the notion that America the Great is being taken advantage of.   Dean Baker suggests a more practical and pecuniary motive:

When countries impose tariffs or other import restrictions they usually allow for some exemptions in special cases. One of the reasons that economists generally are opposed to tariffs is that these exemptions create enormous opportunities for corruption.

Imagine that someone importing $50 million in steel faced a 25 percent tariff. She would save $12.5 million if she could get an exemption. Many business people would be happy to share a portion, perhaps a very substantial proportion, of this $12.5 million in savings with the politician(s) who made it possible. This could mean campaign contributions, sweetheart contracts with their businesses, or even outright cash payments.

It is very plausible that the Trump family and/or others in his administration, who have shown an open contempt for ethics norms, plan to profit personally from granting these tariff exemptions. It would have been worth mentioning this possibility in this piece.

Personal or family business is often at the bottom of Trump's decisions.  And so the tariffs are not being placed across-the-board on imports from mainland China. Excluded are toys and..... apparel, including Ivanka Trump's clothing line.

The nation's economy might have benefited had the USA collaborated with the European Union and Canada and thereby isolated the Chinese. However, that was unlikely as long as Trump was denouncing NATO and Canada in his quest to break up the trans-Atlantic alliance.  If you believe (as I do) that fair trade is a more worthy goal than fair trade, recall the second part of Frum's admonition,to exercise caution "when President Trump appears to act in ways you believe you approve."

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