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WHY TRUMP IS RIGHT ON TRADE

trump-tweet-030318Many conservative “intellectuals” responded to President Trump’s proposed tariffs on steel and aluminum with hyperbole, bromides and cliches, delivered in the tone of a professor lecturing a dense pupil. Here’s an egregious example by Ben Shapiro.

Humbug.

In The Wealth of Nations (1776), Adam Smith devastated the prevailing orthodoxy of mercantilism, which viewed international trade as zero sum. A nation gained only by screwing its trading partners.

Smith introduced the concept of win-win, the essence of free market capitalism. It was a milestone in economic thought.

It would be swell if every nation treated trading partners fairly. But like unicorns and leprechauns, genuinely free international trade exists only in the imagination.

Free(r) trade is so good we are net beneficiaries even though our trading partners cheat, say libertarian economists and the U.S. Chamber of Commerce.

That may be so. But it isn’t libertarian economists or Chamber of Commerce types who lose jobs when our trading partners cheat.

Wouldn’t free(r) trade be even better if our trading partners didn’t cheat so much?

If we don’t impose sanctions when they do, why would cheaters stop cheating?

President Trump is as much a free trader as his critics. But he lives in the real world. In it, manufacturing accounts for more of the Wealth of Nations than does trade.

The United States was the world’s leading producer of manufactured goods into the 1960s. Thanks mostly to our trade policies since, the arsenal of democracy became the rust belt. We’ve run (mostly massive) trade deficits every year since 1975.

Trouble began when Nixon brought China into the world economy. He had excellent geopolitical reasons for doing so – to drive a wedge between China and the Soviet Union, to make it less likely China would ever use its nuclear weapons.

We sing the praises of Adam Smith, but the Chinese are mercantilists. They screw all their trading partners, us especially.

Since the 1990s, our trade deals have been negotiated by people who (a) aren’t very smart, (b) know little about business, (c) don’t care what happens to blue collar workers, and (d) don’t like America very much.

The United States accounted for 25.7 percent of world GDP of $75.278 trillion last year. Next were China (15.9 percent), Japan (6.5 percent), Germany (4.9 percent), France (3.4 percent) and Britain (3.4 percent).

Everyone else wants access to our market. Our trade negotiators hold four aces, but – until Trump – they’ve folded to bust hands.

The most egregious example is NAFTA. We had a $1.35 billion trade surplus with Mexico the year it was ratified. Since then we’ve run deficits totaling $1.069 trillion. What is it Mexico produces we can’t live without? How did we live without it before NAFTA?

Aluminum and steel are as essential to our economy as oil. And it’s hard to make airplanes, tanks and warships without them. We must have reliable sources for both.

China produces nearly half the world’s raw steel. The Communists who run China consider the United States their main enemy.

Until last month (and maybe still), most of the aluminum we import was controlled by Russian oligarch (and Putin buddy) Oleg Deripaska.

There will be costs if we impose a 10 percent tariff on aluminum, a 25 percent tariff on steel.

U.S. manufacturers who turn aluminum and steel into finished products worry about how a large increase in the cost of raw materials will affect their bottom line. In the short term, tariffs may cost more jobs than they’d create.

And consumer prices would rise. But not by nearly as much as the caterwauling suggests, because the costs of raw aluminum and steel are a small part of the retail prices of finished goods made with them.

Tariffs would raise the price of a can of beer by about a penny, the cost of a new car by less than 0.75 percent, estimated Commerce Secretary Wilbur Ross.

I’d pay that and more, to ensure a healthy economy, a prosperous middle class, and a strong defense. I wouldn’t want to pay a lot more for just a little benefit. It’s a matter of proportion. Spare me the bromides, clichés, and the attitude, conservative intellectuals. Show me the numbers.

There could be another way to make the playing field more level.

According to the International Trade Administration, we import a negligible amount of steel from China. We get most from Canada (16 percent), Brazil (13 percent), South Korea (10 percent), and Mexico (9 percent).

Yeah, right. Canada and Mexico don’t produce raw steel. They utilize a glaring loophole in NAFTA to pass through Chinese steel.

Did the very stable genius in the White House throw out the steel tariff number just so his critics will be relieved if he junks NAFTA instead?

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European pols such as EU President Jean-Claude Junker and British Prime Minister Theresa May are shameless hypocrites who are playing with fire when they threaten retaliation for Trump’s tariffs.

The EU recently, Britain in 2016 imposed higher tariffs on aluminum and steel than Trump proposed.

If Junker wants a trade war, bring it on, the POTUS-VSG said. The EU has higher tariffs on goods we sell to them than we have on the goods they sell to us, he noted.

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Here’s another reason why a trade “war” would be over quickly.  The economies of our opponents are far more dependent on exports than is ours.

At Davos in January, Secretary Ross challenged the world’s business leaders to name a country anywhere that has lower tariffs than the United States. None could.

President Trump wants Congress to impose reciprocal tariffs. This one won’t. Too many lawmakers get campaign contributions from executives in multinational corporations and others who benefit from feckless trade policies.

Many of the same people subsidize Conservative think tanks and publications.

They’ll bellow about the disasters our idiot president is blundering into. But Congress, the MSM and conservative media can’t stop Trump from imposing tariffs on aluminum and steel, or exiting NAFTA.

A few months will pass. The sky won’t fall. In the midterms, the rust belt will vote Republican. MAGA.

 

Jack Kelly is a former Marine and Green Beret, and was the Deputy Assistant Secretary of the Air Force during the Reagan Administration.  Until his retirement in January 2017, he was the national security writer for the Pittsburgh Post-Gazette