Global Trade War, Trump Edition

http://www.nytimes.com/2016/10/06/opinion/campaign-stops/global-trade-war-trump-edition.html

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Let’s take Donald Trump’s trade policies at face value.

If he is elected, “The era of economic surrender will finally be over,” Trump declared, repeating a favorite theme in a July speech in Monessen, Pa., once the heart of the state’s steel industry. “I want you to imagine how much better your life can be if we start believing in America again.”

As the world knows, Trump’s rhetoric has found a receptive audience among angry white working-class voters who have lost well-paying jobs to automation and outsourcing.

Legions of Trump supporters have legitimate grounds for discontent. As my colleague Peter Goodman wrote last week:

Policy makers and politicians, Goodman writes,

Along these lines, Trump has successfully appropriated an issue — the distributional impact of free trade — that was, in recent years, the turf of Democrats.

On Sept. 30, Rex Nutting, a columnist at MarketWatch.com, wrote “How Donald Trump hijacked the Democrats’ best issue”:

The downside of Trump’s trade policy proposals is, however, considerable. Trump’s protectionist policies would negatively affect overall American economic performance and further aggravate the harsh distributional consequences of globalization for just those workers who support him.

Gordon Hanson, an economics professor at the University of California, San Diego, emailed me his analysis of Trump’s economic scheme:

Erik Brynjolfsson, an economist at M.I.T.’s Sloan School of Management, was more forceful:

Looked at this way, Trump’s stance is an implicit admission that he and his followers do not “believe in America” — an argument that the United States cannot compete successfully in the world arena unless protected by the imposition of high tariffs and punitive taxes on foreign production and foreign competitors.

Robert Reich, an economist at Berkeley, former secretary of labor under Bill Clinton and a leading supporter of Bernie Sanders during the primaries, agrees.

Trump’s trade proposals, Reich argues,

On Jan. 7, Trump told The New York Times that he would impose a 45 percent tax on goods imported from China. “I would tax China on products coming in,” he told the paper’s editorial board. “The tax should be 45 percent.”

When Ford proposed building new manufacturing facilities in Mexico, Trump declared in a September 2015 speech that he would call the president of Ford and tell him:

Trump said the same thing in March after the Carrier Corporation announced plans to move air-conditioning production facilities to Mexico:

Andrew McAfee, a director of M.I.T.’s Initiative on the Digital Economy and co-author of “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies,” was sharply critical of Trump. In an email, McAfee wrote:

Sean Wilentz, a historian at Princeton, contends that Trump’s proposal is only slightly less drastic than the Smoot-Hawley Tariff — a law passed over the objection of more than 1,000 economists and signed by Herbert Hoover in June 1930. Smoot-Hawley is largely acknowledged as one of the principle causes of the subsequent worldwide economic catastrophe. In an email, Wilentz wrote:

If the tariffs on goods produced in Mexico and China were enacted, the results, in Wilentz’s view, would be “pretty severe. Right away, U.S. domestic prices would rise significantly unless and until other sources take up the slack. And then comes the Mexican and Chinese response, killing exports to our second and third largest customers, respectively.” (Canada is No. 1.)

Many economists share the view that Trump’s trade proposals would be ruinous to the American economy, but in order to retain union support, Hillary Clinton has not been able to directly challenge Trump on these grounds. It was Sanders’s primary campaign that prompted Clinton to abandon past support for free trade agreements.

In October 2015, Clinton declared her opposition to the Trans-Pacific Partnership, a reversal from her 2012 position that the TPP set “the gold standard” for trade agreements.

The general shift on the left and right toward contesting free trade agreements poses substantial dangers to the American economy.

“Withdrawing from global competition is a particularly terrible idea for the United States right now, since we are on the verge of introducing much more capable robots into the manufacturing process,” Daron Acemoglu, the lead author of the research paper “The Race Between Machine and Machine” and an economist at M.I.T., wrote by email.

Once the advances in robotics are achieved, Acemoglu wrote,

Both Clinton and Trump, in Acemoglu’ s view, are failing to address

Without careful preparation, Acemoglu wrote,

Dani Rodrik, an economist at Harvard, pays careful attention to the price of globalization. He has warned that what he calls “hyperglobalization” can undermine democracy and he has stressed the costs imposed on “many working families” that “have been devastated by the impact of low-cost imports from China and elsewhere.”

That said, Rodrik has no enthusiasm for Trump’s proposals. In an email, Rodrik wrote:

In the case of manufacturing employment, however, Rodrik argues that

I asked Lawrence Summers, a former secretary of the Treasury and an economist at Harvard, about Trump’s proposals to levy heavy taxes on imports from China and Mexico. He replied in a phone interview: “They are lunatic.”

He noted that every time Trump’s poll numbers have gone up, the value of the Mexican peso has gone down. As a result, imports from Mexico have grown, while exports from the United States to Mexico have fallen, putting thousands of Americans out of work:

If the United States were to impose a 35 percent tax on Mexican imports, according to Summers, the economies of both countries would suffer:

Even one of the most outspoken and effective opponents of past free trade agreements, Lori Wallach, the director of Public Citizen’s Global Trade Watch, rejects Trump’s approach. In a Sept. 22 essay written with Jared Bernstein, “The New Rules of the Road: A Progressive Approach to Globalization,” the two write:

Worldwide, trade has “grown from 25 percent of global G.D.P. in the mid-1960s to 60 percent today,” Wallach and Bernstein write, and in the United States, it has grown from 10 percent to 30 percent.

Instead of trying to halt globalization, Bernstein and Wallach call for new “rules of the road” that protect

Trump’s trade proposals reflect his bullying style and his technologically uninformed approach to tackling America’s competitive vulnerabilities.

He has tapped into the deeply felt, legitimate grievances of millions of voters whose livelihoods have been destroyed by globalization, but his cure reveals his deficient understanding of the situation. Trump lacks a grasp of America’s innovative potential to master the emerging transnational future, the contribution of diversity to America’s global position and the need for far more muscular government intervention to address the uneven burdens of trade.

This is not the only area where the danger of his utter incomprehension lies. But it is the one on which he has staked his claim to the presidency. With his trade policies, as with pretty much everything else, his backward-looking, intellectually bankrupt agenda will take us very far from the promised land.