Gordon L. Weil
“You can’t put lipstick on a pig.” But you can try.
Trump’s petulant trade policy lacks any underlying economic
theory. He wants to eliminate the U.S.
trade deficit no matter the cost or effects.
If imports cost more or new domestic production is more expensive, the price
will be paid by American customers unless foreign suppliers swallow them.
But a loyal member of the Trump administration is trying
hard to make that brutal trade policy appear to have a rational economic basis.
U.S. Trade Representative Jamieson Greer
asserts that Trump wants to almost instantly replace the entire world trade
system that has grown up since the end of the Second World War.
International commerce is based on a division of labor under
which each country exports the products and services resulting from its
economic strengths and buys the output of foreign production that best serves the
needs of its people. Competition
sometimes exists, improving choice and increasing value.
Under the system that came to be managed by the World Trade
Organization, tariffs were set at low levels and nations freed their trade with
one another, treating each as its most favored partner. Some nations benefit more than others from
the low, reciprocal tariffs. But most
prosper from it.
The system has worked reasonably well and, more importantly,
nations have become accustomed to it. It
has major problems, the result of historic change and attempts at manipulation
by countries. It needs reform, but Trump
is throwing it out, because it has not given the U.S., the world’s largest
economy, enough advantages.
One problem is that the manufacturing potential of
developing countries has been hindered, limiting them to the sale of their raw
materials. The vestiges of colonialism
have survived.
The other problem results from countries with state-run
economies rather than open markets. The biggest mistake the U.S. made was to allow
China to become a member of the WTO, enabling it to prey on free market
countries by manipulating the value of its currency and exports.
Clearly, it’s time for the world’s trading partners to
reform outmoded rules to deal with these and other issues. The U.S. might have taken the lead in such
reform, but it has refrained, because it has enjoyed the low cost of imports
from China.
Greer says that, more than simply trying to enrich American
industry at the expense of others, Trump intends to replace the relatively free
flow of trade with something like a cut-throat unmanaged market. U.S. nationalism is dressed up to look like a
serious trade plan.
While his theory might be offered as a bold and original
alternative to the WTO, it has in fact previously been tested, and it failed
disastrously. In 1930, the U.S. adopted high
tariffs that Trump now tries to surpass.
They were meant to protect the U.S. from the Great Depression, but they stymied
world trade and did not spur domestic industries.
In two of the hardest hit countries, the Depression brought
the New Deal in America and the Nazis in Germany. High tariffs worsened the economic crisis worldwide. Greer obviously hopes for better this time,
but he ignores history.
Trump daily demonstrates that he has no carefully conceived
economic strategy behind his tariffs. Federal
courts now consider whether his policy is even legal. He uses emergency powers in a situation that
may not qualify as an emergency. And his
haphazard application of tariffs is hardly a consistent response to an emergency.
He uses tariffs as a political weapon, not an economic tool,
raising them on Brazilian imports, because he dislikes its judicial system
treatment of a former president. He lifts
tariffs on trade from India to pressure it to stop buying Russian oil. He hits Canada hard, well, because it is
still Canada. Many of his actions are
based on blatantly false data, but he persists.
He claims to be making deals. The art of the deal is that
all participants believe they have benefitted. He usually does not propose a satisfactory
deal; instead, he makes other countries keep making offers, hoping to get Trump
tariff reductions. This is not dealmaking;
it is bullying.
The proof that there is no coherent economic policy, despite
Greer’s valiant effort, is the frequent adjustments that Trump makes day by
day. No specific level has an economic
basis. It is simply a matter of getting
as much as you can now, ignoring longer term economic or political effects. America loses allies, needed because trade is
not the only challenge the U.S. faces.
When other countries hold firm or fight back or Trump
realizes the degree to which the U.S. is dependent on certain of their exports,
he may back down. That’s called TACO –
Trump always chickens out. Is that real
economic policy, Mr. Greer?
