Why Trump's Higher Tariffs Now are Unlikely to Result in Lower Tariffs Later
On Friday I was browsing the AM dial looking for a sports talk radio station discussing Game 1 of the NBA Finals when I ran into Rush Limbaugh. Now, I am not one of those who will say that I never listen to X -- I will listen (at least for a while) to both the Limbaughs and Olbermans to understand what is going on in Tribe Blue and Tribe Red. And I am glad I did on Friday because I heard something that really shocked me.
No, this is not faux public shock at some Conservative taking a position one would fully expect him to take, but just the opposite -- Limbaugh was at least partially defending Trump's tariffs despite the fact that I am absolutely positive he knows better.
In fact I am sure he knows better because he made a very good 60-second case for exactly why tariff's were bad. Couldn't have done a better job in that short time myself. But then he did what many Conservatives have been doing of late -- he tried to justify the tariffs as part of some hypothetical long game of Trump's to negotiate a better deal in the future.
Personally, I think it is absurd to assume that Trump's real intention is to get us to a new equilibrium with lower tariffs all around the world. He does not understand the value of free trade and his closest adviser on this issue is an ardent protectionist. Trump's negotiation experience is all in zero-sum games where he is trying to extract the most of a fixed pie for himself, not in trying to craft win-win solutions across multiple parties.
But here is the real reason this won't work: The current relatively-free trade regime that exists today was built almost totally on America's moral leadership on the issue. Let me take a quick aside to discuss a parallel case. In 2012 the US compound in Benghazi was attacked. The Obama Administration publicly blamed this attack on an obscure anti-Muslim video posted on YouTube, and continued to insist for weeks on the video being to blame despite the fact that new evidence shows the Administration knew from the beginning the video had nothing to do with the attack. This was a terrible action for the Administration to take, because from China to Russia to Iran to Saudi Arabia to Britain to Berkeley, there is growing skepticism, even hostility, towards free speech. If the US President is not staking out a moral position on the world stage in favor of free speech, then it is not at all clear who in the world is going to oppose what seems to be a natural authoritarian tide to shut inconvenient people up. Obama did not have to defend the video itself (I have not seen it but I understand it to be confused and absurd and fairly indefensible) but he should have said something like "I don't like the video myself but in a free society we do not meet speech with violence, no matter how confused or misguided that speech is."
I have the same problem for many of the same reasons with Donald Trump's tariffs. Pro-tariff folks pretend like there is some powerful free-trade globalist conspiracy they are fighting, but in fact the real headwinds all around the world are in favor of protectionism. Few countries outside of the US have our historic dedication to free trade. In addition, many of our partners have their own anti-trade populist parties on the rise (e.g. Britain, Italy). And many of the most powerful political actors in our trading partners actually represent large corporations (some state owned and some just highly-aligned with the state) and powerful labor unions who would be perfectly happy to pursue additional crony protectionism of their industry even at the expense of the majority of their country's consumers and businesses. All these forces for protectionism have always been kept at bay in large part by America's leadership on the issue. How better to demonstrate to the Luddites that trade deficits are not bad than by accepting large trade deficits and having the strongest economy in the world?
Rush Limbaugh and other Trump Conservatives want to argue that these Trump tariffs are the opening move in an extended negotiation that will likely result in a better end state. I have an alternate way of portraying them. This is the United States walking into a group of barely-recovering alcoholics -- a group in which the US has historically been the powerful moral voice who has kept all these countries on the wagon -- and slamming a bottle of Jack Daniels on the table. The results are not going to be pretty.
slocum:
Agreed. And here's another downer. In my scan of the usual suspect lefty web-sites, I see them bashing Trump as usual over the Mueller investigation, but significantly not over tariffs or a potential trade war. The hope that hatred of Trump and everything he does would turn the blue tribe into free-traders seems not to be panning out either.
June 3, 2018, 12:15 pmTruthisaPeskyThing:
Coyote's latest posting on Trump's tariff issue continues in the line of ignoring or being unaware of today's reality in trade. Trump is NOT imposing tariffs into a world that is quite free of trade barriers and open for fair trade.
Of course, economics teaches how efficiency is advanced through fair trade, but economic efficiency is undermined when governments introduce distortions that affect market outcomes. For examples, when European nations forego tax collections on their companies' exports but will not allow the same practice for American companies, the comparative advantages are distorted.
Coyote must be listening too much to mainstream media and completely ignoring the statements and actions of Trump. If nations are willing to adjust the terms of trade to be more fair to American companies, then the tariffs disappear. Trump has stated that and demonstrated that. Coyote's position that the threat of tariffs will only lead to more tariffs is without foundation.
Chamberlain's moral leadership in loving peace did not lead to peace. Bellicose nations are not persuaded by peace-loving statements; rather the activities of bellicose nations are curtailed when they are convinced that other nations are willing to walk away from "temporary peace" featuring unjust decisions. Likewise, nations with unfair trade policies are not persuaded by American moral leadership on tariffs; rather their policies will be examined and adjusted when they are convinced that America will not be a patsy on trade terms.
And where was Coyote's outrage when Obama imposed tariffs that were much higher than Trump's proposal
June 3, 2018, 12:15 pmslocum:
"Chamberlain's moral leadership in loving peace did not lead to peace. Bellicose nations are not persuaded by peace-loving statements..."
Trade is nothing whatsoever like military conflict. We would be better off with unilateral free trade, opening our own markets regardless of what foreign countries do. To believe otherwise is to believe that a country benefits when it imposes trade sanctions on itself or mines its own harbors (Catch-22 style) to prevent foreign goods from getting in. To believe otherwise is to believe that autarky leads to wealth, it is to believe that North Korea's isolationist Juche policy is just smart economics and that the U.S. does countries a favor when it imposes economic sanctions on them (thereby 'protecting' them from the 'harmful effects' of foreign trade).
June 3, 2018, 1:01 pmDaniel Barger:
Whether or not high tariffs now will result in lower tariffs later is debateable.....and IRRELEVANT. What IS relevant is the fact that for many years the US has had low or NO tariffs on most products from EVERYWHERE. And as a result we are getting raped by countries like China that manipulate markets and prices to take advantage of that fact. ANYTHING is better than the current paradigm.
June 3, 2018, 6:29 pmJohn Moore:
It is also true that while, in theory, free trade helps all players, that is only at the national level. Individuals and classes of people can be badly hurt. In fact, there is nothing in the theory that prevents almost all the benefits to go to a few wealthy individuals, while everyone else suffers.
June 3, 2018, 7:17 pmgormadoc:
Warren did post about tariffs during the Obama years. You could have at least tried the search bar; it does work.
Here are a few posts about it, since you couldn't figure out a new trick (like every other protectionist, really):
https://coyoteblog.com/coyote_blog/2012/01/protectionism-the-worst-form-of-crony-capitalism.html?doing_wp_cron=1528084062.0731599330902099609375
https://coyoteblog.com/coyote_blog/2010/02/tariff-article-rewrite.html
https://coyoteblog.com/coyote_blog/2016/09/why-are-we-making-it-so-hard-for-the-chinese-to-provide-us-with-lower-cost-aluminum.html
https://coyoteblog.com/coyote_blog/2009/09/here-is-a-great-issue-for-progressives-somehow-i-doubt-they-will-run-with-it.html
https://coyoteblog.com/coyote_blog/2009/09/so-much-for-the-tax-pledge.html
Thanks for playing.
June 3, 2018, 9:00 pmPeabody:
It would be great if Trump would use tariffs as an opportunity to remove some cronyism. Import taxes are a lobbyists dream with all sorts of niches carved out with different rates designed to benefit or punish very specific types of goods. I would love to see a low, flat rate. Maybe even two rates. Say, 5% for countries with similar labor and business regulations and 10 or 15% for those countries that do not. In theory I'm opposed to import taxes, but in same way I'm opposed to sales tax. But I'm not going to get up in arms because the state is grabbing a chunk of every retail transaction.
June 3, 2018, 9:01 pmLowcountryJoe:
Russ Roberts perfectly addresses your objection right here => http://russroberts.info/human-side-trade/#more-1075
June 4, 2018, 1:25 amLowcountryJoe:
Words mean things. So, explain what you mean about how we've been taken advantage of but do read this before you write anything else inaccurate => https://www.theglobalist.com/are-trade-deficits-good-for-the-u-s-economy/
June 4, 2018, 1:36 amLowcountryJoe:
Not with the amount of pro union folks they have to appease. Democrats hatred of the free 'trumps' their contempt for the president regardless of how sketchy that title of 'Republican' is that the president is sporting this decade (in spite of his contribution history).
June 4, 2018, 1:47 amslocum:
"ANYTHING is better than the current paradigm."
Our economy is strong, our unemployment rate is very low and stock market is high. The idea that ANYTHING would be better, economically, than what we have now is completely bonkers.
June 4, 2018, 4:08 amslocum:
California and South Carolina have quite different business regulations. California's minimum wage is currently $11/hr and will be $15/hr in 4 years (in San Francisco it'll reach $15/hr next month). In South Carolina, the minimum remains at $7.25. California also has more stringent development and environmental regulations and a state income tax rate that tops out at over 13% compared to South Carolina's 7% maximum. South Carolina is a right to work state while California is not.
The U.S. doesn't permit states to impose tariffs on interstate commerce, but do you think that's a mistake? Do you believe that it would be better if California were able to impose a 10-15% tariff on goods from South Carolina and the many other states with dissimilar business regulations?
June 4, 2018, 4:23 amCapitalistRoader:
What other leverage does the United States have to force its allies to increase their defense spending to the 2% target?
https://www.economist.com/sites/default/files/imagecache/640-width/images/2017/02/blogs/graphic-detail/20170225_woc986_0.png
June 4, 2018, 6:24 amPeabody:
Well, that sort of opens up the Internet sales tax question/issue, which a different can of worms. It could also be pretty well argued that states do have tariffs in the form of use taxes. If someone imports something from another state, they are required to pay their state a tax. Though of course the problem for the states is pretty much nobody pays them. But from a legal perspective, this would probably be my position. A state should be as free as possible, including charging tariffs for imported or sold goods. However, I could see practical limitations such as prohibiting cutting benificial or punitive tariffs with different states/localities as could be a real problem for the country as a whole.
But to answer your question, no, I don't think it would be "better" if states could implement tariffs however they want. Similarly I don't think the US charging tariffs is better than no tariffs. But, we live in a real world and not an idealistic one in my or your mind. As stated, I'm personally opposed to tarifs and sales tax, however, the reality is that they are not going away. So my attempt was to propose what I believe is a much improved compromise. I know compromise is often considered a dirty word, but is also a necessity to accomplish anything.
June 4, 2018, 8:17 amPeabody:
Not exactly. Based on my reading he argues that over time society benefits from free trade but that economic shifts can create winners and losers in the short term and there can be a lot of losers.
From his summary: "Trade makes most of us better off and that in turn allows for growth and innovation that benefits almost all of us especially our children and grandchildren. But it’s a bumpy road and I think we need to be aware that for some people, especially the least educated, trade and technology are creating a world that is a lot less satisfying for them to live in."
So I think Russ would disagree with the extreme of John's final statement, but he concurs with John other statement that "Individuals and classes of people can be badly hurt".
June 4, 2018, 8:29 amChris:
These arguments are too rarified for me. To me, any tax on anything I buy is a tariff, and has the same effect on my trade balance. And a tax on my income is a tariff on everything. The real argument - the only argument - is what portion of the goods and services produced by people should the government be allowed to consume? How that is collected is just details.
June 4, 2018, 8:34 amslocum:
But individuals and classes of workers can be hurt by all kinds of economic changes -- those driven by new technologies, by sudden and unpredictable changes in consumer tastes, by changing fortunes of companies within an industry, by trade within the U.S. and so on. There's nothing special about foreign trade. A dynamic economy that generates economic growth also generates dislocations continually. Some companies and industries grown and others shrink and when and where shrinkage occurs, some jobs are lost forever and people and communities have to adapt.
June 4, 2018, 8:52 amslocum:
No, sales taxes are not like tariffs -- sales taxes apply uniformly to everything sold in a given state, regardless of whether it is a 'domestic' product or an 'import' from another state. States have actually tried to do things to impose costs or restrictions on out-of-state producers and the USSC has smacked them down, for example:
http://www.washingtonpost.com/wp-dyn/content/article/2005/05/16/AR2005051600441.html
June 4, 2018, 8:57 amPeabody:
Agreed. I don't know why you are replying to my post.
June 4, 2018, 12:26 pm