Saturday, September 7, 2019

President Trump's Assault on Free Trade

I'd argue some of the recent developments in the trade with China haven't been so great.

The cycle of increasing retaliation, with ever more punitive tariffs, will bring steep costs to both sides, and in the case of the U.S., employment sectors will be harmed and consumers will pay more for crucial goods and services affected by the dispute. Some businesses and agricultural interests are already screaming in pain as it is.

That said, China is an egregiously unfair competitor seeking to dislodge the U.S. as the world's leading economy. It will do anything to achieve its goals, including lying, cheating, and stealing. And so far no president has gone as far as President Trump to push back against China's unfair trade (and currency) practices.

I applaud the administration. And frankly, criticism against the new regime is of the "sky is falling" variety. The American economy is massive and diverse. Some sectors, in manufacturing, for example, are past their prime, and no amount of get-tough approaches will revive their glory. Still, it's about more than jobs and income. It's about who sets the rules of the game, and which side gets to keep its dignity and pride. If you watch the Netflix documentary "American Factory" you'll see that Chinese businesses are ruthless capitalists (ironically) who will to squeeze their labor force and supply chains to maximize the bottom line. Forget about organizing a union; you'll drive yourself right to the unemployment line.

In any case, FWIW, at Foreign Affairs, "Trump’s Assault on the Global Trading System: And Why Decoupling From China Will Change Everything":

Donald Trump has been true to his word. After excoriating free trade while campaigning for the U.S. presidency, he has made economic nationalism a centerpiece of his agenda in office. His administration has pulled out of some trade deals, including the Trans-Pacific Partnership (TPP), and renegotiated others, including the North American Free Trade Agreement (NAFTA) and the U.S.-Korea Free Trade Agreement. Many of Trump’s actions, such as the tariffs he has imposed on steel and aluminum, amount to overt protectionism and have hurt the U.S. economy. Others have had less obvious, but no less damaging, effects. By flouting international trade rules, the administration has diminished the country’s standing in the world and led other governments to consider using the same tools to limit trade arbitrarily. It has taken deliberate steps to weaken the World Trade Organization (WTO)—some of which will permanently damage the multilateral trading system. And in its boldest move, it is trying to use trade policy to decouple the U.S. and Chinese economies.

A future U.S. administration that wants to chart a more traditional course on trade will be able to undo some of the damage and start repairing the United States’ tattered reputation as a reliable trading partner. In some respects, however, there will be no going back. The Trump administration’s attacks on the WTO and the expansive legal rationalizations it has given for many of its protectionist actions threaten to pull apart the unified global trading system. And on China, it has become clear that the administration is bent on severing, not fixing, the relationship. The separation of the world’s two largest economies would trigger a global realignment. Other countries would be forced to choose between rival trade blocs. Even if Trump loses reelection in 2020, global trade will never be the same.


The first two years of the Trump administration featured pitched battles between the so-called globalists (represented by Gary Cohn, then the director of the National Economic Council) and the nationalists (represented by the Trump advisers Steve Bannon and Peter Navarro). The president was instinctively a nationalist, but the globalists hoped to contain his impulses and encourage his attention-seeking need to strike flashy deals. They managed to slow the rollout of some new tariffs and prevent Trump from precipitously withdrawing from trade agreements.

But by mid-2018, the leading globalists had left the administration, and the nationalists—the president among them—were in command. Trump has a highly distorted view of international trade and international negotiations. Viewing trade as a zero-sum, win-lose game, he stresses one-time deals over ongoing relationships, enjoys the leverage created by tariffs, and relies on brinkmanship, escalation, and public threats over diplomacy. The president has made clear that he likes tariffs (“trade wars are good, and easy to win”) and that he wants more of them (“I am a Tariff Man”).

Although the thrust of U.S. policy over the past 70 years has been to pursue agreements to open up trade and reduce barriers, every president has for political purposes used protectionist measures to help certain industries. President Ronald Reagan, for example, capped imports to protect the automotive and steel industries during what was then the worst U.S. recession since the Great Depression. Trump, however, has enjoyed a period of strong economic growth, low unemployment, and a virtual absence of protectionist pressure from industry or labor. And yet his administration has imposed more tariffs than most of its predecessors.

Take steel. Although there is nothing unusual about steel (along with aluminum) receiving government protection—the industry maintains a permanent presence in Washington and has been an on-again, off-again beneficiary of trade restrictions since the Johnson administration—the scope of the protection provided and the manner in which the Trump administration gave it last year were unusual. In order to avoid administrative review by independent agencies such as the nonpartisan, quasi-judicial U.S. International Trade Commission, the White House dusted off Section 232 of the Trade Expansion Act of 1962. This Cold War statute gives the president the authority to impose restrictions on imports if the Commerce Department finds that they threaten to harm a domestic industry the government deems vital to national security.

The Trump administration’s national security case was weak. More than 70 percent of the steel consumed in the United States was produced domestically, the imported share was stable, and there was no threat of a surge. Most imports came from Canada, Germany, Japan, Mexico, and other allies, with only a small fraction coming from China and Russia, thanks to antidumping duties already in place on those countries. The number of jobs in the U.S. steel industry had been shrinking, but this was due more to advances in technology than falling production or imports. In the 1980s, for example, it took ten man-hours to produce a ton of steel; today, it takes just over one man-hour. Even the Defense Department was skeptical about the national security motivation.

Prior administrations refrained from invoking the national security rationale for fear that it could become an unchecked protectionist loophole and that other countries would abuse it. In a sign that those fears may come true, the Trump administration recently stood alongside Russia to argue that merely invoking national security is enough to defeat any WTO challenge to a trade barrier. This runs counter to 75 years of practice, as well as to what U.S. negotiators argued when they created the global trading system in the 1940s.

The Trump administration dismissed all those concerns...