The entire aim of having trade is so that we can go buy those lovely things made by foreigners. We only export so as to be able to swap something for those foreign made goods. Thus tariffs are a bad idea to begin with — why should we tax ourselves for gaining access to the very point of our having trade in the first place? Sadly all too many don’t grasp this point. Too many of them being in the current Trump Administration.
Over and above the general point that we don’t want to limit trade nor imports there’s another worry with tariffs and trade wars. Which is what the International Monetary Fund is complaining about. The imposition of more tariffs is a disruption to that global economy. One that is going to reduce growth, the very thing we all desire.
Tim Worstall, “IMF Says The U.S. And China Trade Tariffs Are A Major Risk To World Growth”, Seeking Alpha, 2019-06-07.
July 9, 2019
QotD: Tariffs
June 29, 2019
Canada’s inability to deal with Chinese hard ball tactics
The Canadian government complied with a request from the United States government to detain a Chinese national for possible extradition to the US. But this was no ordinary Chinese citizen: it was Meng Wanzhou, the Chief Financial Officer for Huawei, a very big and very well-connected Chinese conglomerate. Ms. Wanzhou is not just a high-ranking executive, but also the daughter of the founder of the company. The Chinese government is more than miffed at Canada’s legal presumption and has been piling on the means of persuasion to get Canada’s notoriously pliable government to just pretend this never happened and to let Ms. Wanzhou proceed on her way. Under normal circumstances, this might well happen, but the US government is now under the control of a man who reputedly makes our Prime Minister lose control of his bladder, so we can’t just be seen to knuckle under to the bullying of the Bad Orange Man, nor can we be seen to knuckle under to the bullying of the PRC, leaving poor Justin Trudeau looking weak and powerless (and, to be fair, he is weak and powerless).
Andrew Coyne suggests that the best way to help a couple of poor Canadians who have been caught up in the inter-governmental shenanigans is to stop talking about some sort of “deal”:
U.S. Department of Justice among others announced 23 criminal charges (Financial Fraud, Money Laundering, Conspiracy to Defraud the United States, Theft of Trade Secret Technology and Sanctions Violations, etc.) against Huawei & its CFO Wanzhou Meng
Image via Wikimedia Commons.
I don’t doubt that behind the scenes government officials are doing everything they can, or think they are. But the pressure to bring the Canadians home is surely less for the conspicuous failure of other Canadians to give a damn.
Indeed, what is striking throughout this standoff is that most of the pressure has come from the other side. It is China, not Canada, that has used trade as a weapon, blocking imports of Canadian meat and canola. It was the Chinese air force that buzzed a Canadian warship in the East China Sea.
It is the departing Chinese ambassador to Canada who has launched one incendiary attack after another on this country, while Canada’s now-former ambassador to China was floating trial balloons about getting the Americans to drop the charges against Meng. It is China’s leaders who refuse to meet ours.
And yet for all of China’s lawlessness, for all its bestial mistreatment of our citizens and baseless attacks on our interests, the most common response in this country is not to demand that China repair its relationship with Canada, but to ask how Canada can mollify China.
June 22, 2019
The African Continental Free Trade Area (AfCFTA)
Alexander Hammond explains why a free trade deal among many African nations is good news for the United States and other non-African nations:
2018 map showing the African countries involved in the African Continental Free Trade Agreement.
Dark green indicates ratification, medium green are countries that signed in March 2018, and light green are countries that signed in July 2018 but did not ratify the agreement immediately.
Map by Themightyquill at Wikimedia Commons.
The poorest continent in the world is about to lend a hand to the United States. Last week, Africa implemented the world’s largest free-trade area, and that’s great news for American foreign policy. Back in December, U.S. National Security Advisor John Bolton unveiled a plan for the Trump administration’s titled the “Africa Strategy.”
The plan is simple — the United States will give less aid to Africa, instead prioritizing enhancing America’s “economic ties with the region.” Now that many African nations have unified under a single market, trading with the continent will become far easier — and a trade deal between the United States and Africa would help out everyone involved.
Streamlining Trade
The African Continental Free Trade Area (AfCFTA) trade deal officially came into force on May 30, a month after it reached the twenty-two-nation threshold needed to do so. Now, tariffs on 90 percent of the goods traded among AfCFTA member states will be removed — a move that, according to the UN, will boost intra-African trade by 52 percent in only a few years.
Given the United States’ new plans for the continent, the AfCFTA’s member states aren’t the only economies that will reap the benefits of an African single market.
A key component of the Trump administration’s Africa Strategy is to advance “U.S. trade and commercial ties” with Africa by creating “modern comprehensive trade agreements.” A single African market will be a far simpler trade partner for America. Now, only one set of trade deals will need to be negotiated with the AfCFTA — as opposed to fifty-five intricately-crafted trade deals with each small African economy. The U.S. Trade Representative has even released a report noting how time-consuming and costly it is to negotiate trade deals with each African nation. Because trade deals are long and expensive processes, creating a solitary trade deal with the AfCFTA will keep more money in the U.S. government’s purse.
June 19, 2019
Avoiding a hot war with Iran
Jay Currie responds to a recent article at ZeroHedge, on the US-Iran situation:
The game map for Gulf Strike, an early 1980s board wargame by Victory Games.
Image from https://pbem.brainiac.com/vg.htm
The article outlines all the ways that this approach to war with Iran would be folly and while I don’t necessarily agree with all the points made, the general point that massive force however strategically deployed will almost certainly produce results that the US and the rest of the world will not like one little bit. While you can bomb the Hell out of Iran, Iran has a number of retaliatory options ranging from the possibility of an EMP hit (they may have a rudimentary nuke) to closing the Strait of Hormuz to using Hezbollah sleeper cells in the US to hit critical infrastructure. While I have no doubt the US could beat Iran in a straight war, it would be long, bloody, politically suicidal for Trump and nasty for ordinary Americans.
Worse, it would be a strategic error. If the US leaves its current sanctions in place the Iranian economy will grind to something of a halt. Support for the current Iranian regime, already shakey, will decline. Yes, the current regime will continue with its provocations – I have no doubt it was Iranians who put holes in the sides of two tankers. But, so what?
Exciting as a hot war with Iran would be for assorted policy wonks, it would be an expensive exercise in futility compared to a longer term cold war with some clever extras.
First off, the Americans should make it very clear to the Iranians and the world that while they are committed to freedom of navigation, they are not interested in massive responses to minor incidents. If there is to be any response at all to the tanker mines (if that is what they were) it should be very local indeed. Find the boat in the video and sink it (or one very much like it – no need to be too picky).
Second, using US cyber assets – such as they are – it is time to see just how effectively infrastructure can be disrupted rather than destroyed. A sense of humour would be a huge asset here. Being able to cut into TV broadcasts is one thing, telling jokes at the Ayatollah’s expense is another.
Third, the Israelis did a very good business in the selective assasination of Iran’s nuclear scientists. A similar tactic against Iranian civil and military officials engaged in terrorism or attacks on shipping would be throughly demoralizing for the Iranian regime.
On point two, I’m reminded of a key scene in Robert Heinlein’s “If This Goes On—” (later published in expanded form in Revolt in 2100), where the United States has fallen under the control of religious fanatics (vaguely Christian, but carefully not identified with any then-current sect) so that “The Prophet” occupies the role of head of state and unquestioned all-powerful religious leader. The current Prophet performs a televised annual “miracle” where he is seen on-camera to transform into Nehemiah Scudder, the First Prophet, and give blessings and advice to the current Prophet and to the American people. The conspirators manage to take over the central TV feed and replace the “genuine” Prophet’s message with a skilled actor’s portrayal of Scudder calling America to arms to overthrow the false Prophet. This is the start of the armed rebellion against the Prophet. In the technology of the story, this required a strike team to attack and occupy the physical studio where the broadcast originated — literally a suicide mission. In our digital world, the “strike team” might never need to leave Fort Meade (or wherever the data centre might be)…
June 14, 2019
Eliminating the trade deficit
A few weeks back, Robert Higgs explained why President Trump’s concerns about the trade deficit are, at best, misplaced and how “fixing” it would lead to a much worse situation:
Donald Trump addresses a rally in Nashville, TN in March 2017.
Photo released by the Office of the President of the United States via Wikimedia Commons.
So, let’s consider the president’s trade policy in, as it were, its very best light. Suppose, then, that the government succeeded in eliminating the trade deficit entirely. Residents of the USA would continue to sell huge quantities of goods to foreigners but buy nothing at all from foreign sellers. The trade deficit would be not only diminished but wiped out and replaced by a huge trade surplus. Trumpian triumph!
Note, however, that such an outcome would be impossible to sustain for long even if it could be attained (which in fact it could not). Foreigners would be spending huge quantities of dollars to purchase goods from Americans, but they would have no means of earning dollars because Americans would not be buying anything from them. Foreigners could continue to make such purchases only if they received dollar credits from foreigners. But lenders would have no incentive to lend dollars to the Chinese, say, when they knew that the Chinese would have no ability to repay the loans because they would have no means of earning dollars in the future by sales to Americans. So a big U.S. trade surplus requires that totally implausible assumptions be made about international transactions in general and international lending in particular.
But apart from such practical difficulties and impossibilities, a Trumpian trade triumph, even if it could be achieved, would be a horrible objective to attain. Americans would be employing labor services, natural resources, and other productive inputs to produce goods and shipping them to foreign buyers. In exchange, they would receive nothing but bank account balances. Such a deal! Surrendering huge volumes of valuable goods and receiving in return larger numerals in people’s bank account statements, more dollars that could not be used to purchase anything, no matter how important or desirable, from abroad — all such purchases having somehow been stopped by a harebrained government and the economic ignoramus in charge of it.
June 12, 2019
The fantastic notion that Donald Trump is “at heart really a free trader”
Guest-posting at Catallaxy Files, Don Boudreaux explodes the farcical notion that President Trump is using protectionist tools with an eventual free trade goal:
Donald Trump addresses a rally in Nashville, TN in March 2017.
Photo released by the Office of the President of the United States via Wikimedia Commons.
In the case of Donald Trump, the claim that he is at heart really a free trader who raises tariffs today with the aim of bringing about lower tariffs tomorrow — and all because he is committed to achieving free traders’ ideal goal of maximum possible expansion of the international division of labor — is especially preposterous.
Trump has pontificated on trade for decades, and every word out of his mouth clearly reveals a man who knows nothing about the economics of trade and who is as clichéd an economic nationalist as can be imagined.
Behold this line from a 1990 interview he did in Playboy: “The Japanese double-screw the US, a real trick: First they take all our money with their consumer goods, then they put it back in buying all of Manhattan. So either way, we lose.”
Let’s examine this unalloyed gem of economic witlessness.
Overlooking Trump’s outrageous exaggerations, such as his claim that the Japanese buy up “all” of Manhattan, we start by stating an obvious truth: the voluntary purchase of a good is not a transaction in which the buyer is “screwed” or has his or her money “taken.” Instead, the buyer’s money is voluntarily spent. While every person of good sense sees a foreign seller who makes attractive offers to domestic buyers as someone who improves the well-being of each buyer who accepts the offer, Trump sees this seller as a con artist or thief.
And so Trump ignores the value to Americans of the imports we purchase. In typical mercantilist fashion, he believes that the ultimate purpose of trade is to send out as many exports as possible in exchange for as much money as possible — money that in Trump’s ideal world is never spent on imports. His view on this matter is even more bizarre than that of ordinary mercantilists. For Trump, imports are not merely costs that we endure in order to export, they are actual losses. (Although it goes without saying, I’ll say it nevertheless: Trump does not understand that imports are benefits and that exports are costs.)
Furthermore, by describing the money spent on imports as “our money,” Trump reveals his belief that money earned by each American does not belong to that individual but, instead, to the collective.
Also in the fashion of the typical mercantilist, the presumption is that the nation is akin to a gigantic household whose members all share in and collectively own its money. And just as Dad justly superintends little Emma’s and Bobby’s spending to ensure that they don’t dissipate the family’s wealth, Uncle Sam must superintend his subjects’ spending in order to ensure that we don’t dissipate the nation’s wealth.
One other flaw in the above quotation from Trump’s Playboy interview is notable: he believes that foreign investments in America inflict losses on us. He doesn’t pause to consider that when we Americans sell assets to foreigners we regain ownership of some of the dollars that Trump, in his previous sentence, lamented are lost to Americans when we bought imports.
Nor does he ask what the American sellers of these assets do with the sales proceeds. Perhaps we invest some or even all of them. And if so, perhaps these new American investments will prove to be more profitable than are the investments made in America by foreigners. (By the way, contrary to another mercantilist myth, Americans are not made better off when foreigners’ investments in America fail. Quite the contrary.)
An even deeper error infects Trump’s “understanding” of foreign investment: he implicitly — and, once again, like all mercantilists — assumes that the amount of capital in the world is fixed. Only then would it be true that each American sale of assets to foreigners necessarily reduces Americans’ net financial worth (which is presumably what Trump means when he says that “we lose” when the Japanese purchase Manhattan real estate).
May 21, 2019
May 3, 2019
The rarely used US Foreign Agent Registration Act (FARA)
Ron Paul wonders why Russian national Maria Butina got a harsher sentence under the Foreign Agent Registration Act than an actual foreign agent who was paid millions of dollars by the Iraqi regime under Saddam Hussein:
Russian gun rights activist and graduate exchange student Maria Butina was sentenced to 18 months in prison last week for “conspiracy to act as a foreign agent without registering.” Her “crime” was to work to make connections among American gun rights activists in hopes of building up her organization, the Right to Bear Arms, when she returned to Russia.
She was not employed by the Russian government nor was she a lobbyist on Putin’s behalf. In fact the Putin Administration is hostile to Russian gun rights groups. Nevertheless the US mainstream media and Trump’s Justice Department are treating her as public enemy number one in a case that will no doubt set the dangerous precedent of criminalizing person-to-person diplomacy in the United States.
The Foreign Agent Registration Act (FARA) was passed in 1938 under pressure from the FDR Administration partly to silence opposition to the US entry into World War II. While a handful of cases were prosecuted during the war, between 1966 and 2015 the Justice Department only brought seven FARA cases for prosecution.
Though very few cases have been brought on FARA violations, one of them was against Samir Vincent, who was paid millions of dollars by Saddam Hussein to lobby for sanctions relief without registering. He got off with a fine and “community service.”
Millions of dollars in unregistered payments from Saddam Hussein gets no jail time, while Butina gets 18 months in prison for privately promoting a cause most Americans support! How is this justice?
The US Justice Department is not even as tough on illegals who commit capital crimes in the US!
Unfortunately Maria Butina was in the wrong place at the wrong time. With the rise of the “Russiagate” hysteria, Butina’s case was seen as a useful tool by Democrats to push the idea that President Trump was put into office by the Russians. Plus, many of them are also hostile to our Second Amendment and to the National Rifle Association. So it was a perfect storm for Butina.
March 31, 2019
CSI: Robert Mueller won’t be renewed for a third season
In the latest Andrew Heaton newsletter, a brief ode to CSI: Robert Mueller, which didn’t get enough of a ratings boost from this season to get renewed for next year:
The biggest news of the week is, of course, that the Supreme Court ruled a guy in Alaska can continue moose hunting on his hovercraft. (Thank God — if we can’t blast away at megafauna from a floating disk, why did we even bother fighting the British to begin with?!) After that spectacular work of jurisprudence from the highest court in the land, the second biggest news item is probably the Mueller report.
[…]
Back to the Mueller report. I didn’t really follow CSI: Robert Mueller over these last two seasons. For one thing, it seemed very complicated. One character got indicted over rugs. Another character got indicted over porn hush money. These always struck me as convoluted plot devices.
Secondly, I suspected that the Mueller report would wind up being more smoke than fire, so I decided not to do daily play-by-play’s, and instead focused my prodigious analysis on things like hover board moose hunting. (For example, if you shoot a moose while levitating, does the activity fall under FAA jurisdiction, or is it still under the purview of the Federal Moose Department, like everywhere else?)
My friends who breathlessly and repeatedly stated that Trump was hours away from a Watergate-level scandal seemed very confident the walls were closing in, and very eager to accumulate any and all ammunition to fire at the White House. For them, the Mueller investigation did not exist to determine whether or not the president colluded with Russia. Its purpose was to broadly accumulate sufficient material to impeach Trump with, on any charge capable of pulling it off. But that was never the remit of Mr. Mueller — nobody ever said, “Hey throw some spaghetti at impeachment charges until something sticks.”
To be clear, I am not a fan of Mr. Trump, nor would I hesitate to support his impeachment if presented with good evidence that he broke the law or unlawfully shot a moose from an unregistered hovercraft outside of designated moose-killing zones (MKZ). But if we’re going to go down the impeachment route, there needs to be a smoking gun and a clearly outlined felony charge. Removing the head of state from office through political guile and vague technicalities wouldn’t alleviate the staggering divisiveness Mr. Trump has bequeathed us, it would bake it in for two generations.
Despicable man-child though he may be, overall it’s a win for our country that its leader turned out to not collaborate with our arch-rivals to undermine democracy. That’s a net positive. I’ve become more Burkean during the Trump years, and worry about the institutional damage his relentless tantrums are inflicting on constitutional restraints, the veracity of courts, and the role of the media. I don’t want to add the validity of American elections to his collateral damage.
You can subscribe to the Heaton newsletter here or you can visit his website here.
March 26, 2019
Matt Taibbi on “a death-blow for the reputation of the American news media”
A revised and updated chapter from his Hate, Inc.:
Note to readers: in light of news that Special Prosecutor Robert Mueller’s investigation is complete, I’m releasing this chapter of Hate Inc. early, with a few new details added up top.
[…]
Over the weekend, the Times tried to soften the emotional blow for the millions of Americans trained in these years to place hopes for the overturn of the Trump presidency in Mueller. As with most press coverage, there was little pretense that the Mueller probe was supposed to be a neutral fact-finding mission, as apposed to religious allegory, with Mueller cast as the hero sent to slay the monster.
The Special Prosecutor literally became a religious figure during the last few years, with votive candles sold in his image and Saturday Night Live cast members singing “All I Want for Christmas is You” to him featuring the rhymey line: “Mueller please come through, because the only option is a coup.”
The Times story today tried to preserve Santa Mueller’s reputation, noting Trump’s Attorney General William Barr’s reaction was an “endorsement” of the fineness of Mueller’s work:
In an apparent endorsement of an investigation that Mr. Trump has relentlessly attacked as a “witch hunt,” Mr. Barr said Justice Department officials never had to intervene to keep Mr. Mueller from taking an inappropriate or unwarranted step.
Mueller, in other words, never stepped out of the bounds of his job description. But could the same be said for the news media?
For those anxious to keep the dream alive, the Times published its usual graphic of Trump-Russia “contacts,” inviting readers to keep making connections. But in a separate piece by Peter Baker, the paper noted the Mueller news had dire consequences for the press:
It will be a reckoning for President Trump, to be sure, but also for Robert S. Mueller III, the special counsel, for Congress, for Democrats, for Republicans, for the news media and, yes, for the system as a whole…
This is a damning page one admission by the Times. Despite the connect-the-dots graphic in its other story, and despite the astonishing, emotion-laden editorial the paper also ran suggesting “We don’t need to read the Mueller report” because we know Trump is guilty, Baker at least began the work of preparing Times readers for a hard question: “Have journalists connected too many dots that do not really add up?”
The paper was signaling it understood there would now be questions about whether or not news outlets like itself made galactic errors by betting heavily on a new, politicized approach, trying to be true to “history’s judgment” on top of the hard-enough job of just being true. Worse, in a brutal irony everyone should have seen coming, the press has now handed Trump the mother of campaign issues heading into 2020.
Nothing Trump is accused of from now on by the press will be believed by huge chunks of the population, a group that (perhaps thanks to this story) is now larger than his original base. As Baker notes, a full 50.3% of respondents in a poll conducted this month said they agree with Trump the Mueller probe is a “witch hunt.”
February 17, 2019
When Trump gets serious with Canada about defence spending
Ted Campbell notes that, despite all the nay-saying, President Trump appears to be getting results with US allies on defence issues. That being the case, he’s wondering when Prime Minister Trudeau will get the message:
A right rear view of a Canadian army Cougar wheeled fire support vehicle being used as an observation post by soldiers standing watch during the combined U.S./Canadian NATO Exercise Rendezvous ’83. Location: Camp Wainright, AB
I was commenting on this before president Trump was elected; and shortly after his 2016 election victory I said that
“Prime Minister Trudeau and most European presidents and prime ministers will have to face a newly elected US president who wants them to pay for a bigger and bigger slice of their own defence. Real leaders would do well to recognize that the Americans have a valid point … some, probably many of them, including Prime Minister Justin Trudeau, may try to pretend that it doesn’t matter; they will be wrong.”
I was impressed, then, with how deeply many, many Americans felt about Donald Trump’s campaign message which said that allies were “freeloading,” and taking unfair advantage of America’s innate generosity … I was very, very conscious of the fact that, when I was a young man, a junior officer in Canada’s tough, superbly disciplined, well trained, trained, nuclear armed “vest pocket army” (as more than one allied general called us) brigade group in Germany, Canada used to pay its full and fair share … but we stopped, in the late summer of 1969, when Pierre Trudeau tried to totally withdraw from NATO and, indeed, from the world.
I wonder when President Trump will send someone like Timothy Betts, the Deputy Assistant Secretary and Senior Advisor for Security negotiations and Armaments in the US State Department, to Ottawa to demand that Canada should pay up after a half century of “freeloading” on the US taxpayers’ goodwill. That will come as a nasty shock to Team Trudeau and, indeed, to a majority of Canadians who have gotten used to the notion that the Americans will defend us out of the kindness of their hearts. I’m not sure that Canada is next in line, but I suspect we’re on his short list.
January 10, 2019
A timely reminder about the dangers of expanding government power
At Coyote Blog, Warren Meyer points out to the Republicans that if it was bad during the last presidency, it’s just as bad during this one:
Dear Republicans:
The last thing we need now is even more expansion of executive power. I remember when, gosh it was like only two or three years ago, you Republicans were (rightly) bemoaning Obama’s executive actions as unconstitutional expansions of Presidential power. You argued, again rightly, that just because Congress did not pass the President’s cherished agenda items, that did not give the President some sort of right to do an end-around Congress.
But now, I hear many Republicans making exactly the same arguments on the wall that Obama made during his Presidency, with the added distasteful element of a proposed declaration of emergency to allow the army to go build the wall.
[…]
I can pretty much guarantee you that if Trump uses this emergency declaration dodge (and maybe even if he doesn’t now that Republicans have helped to normalize the idea), the next Democratic President is going to use the same dodge. I can just see President Warren declaring a state of emergency to have the army build windmills or worse. In fact, if Trump declares a state of emergency on a hot-button Republican issue, Democratic partisans are going to DEMAND that their President do the same, if for no reason other than tribal tit for tat.
January 7, 2019
It’s not what you report, it’s how you report it
Media reports over the last few weeks have highlighted the fact that three people have died in US national parks during the government “shutdown”, and most do their best to imply that these deaths are at least indirectly the fault of President Trump. What isn’t highlighted is that the three deaths — individually tragic as they undoubtedly are — are fewer than normally occur in US national parks:
Visitors to US National Parks in 2014.
Image via Wikimedia Commons.
This does sound a little bizarre it’s true, but it seems that America’s National Parks are actually safer with the government shut down than they are when it’s all running. Not quite what we’d expect, all those rangers and the like we’d think would reduce risk to people.
It is actually possible that this is true too. Could be that rangers themselves are actively dangerous although that might not be the way to bet. But it’s possible that the presence of rangers leads to people thinking they are safer and thus they take more – and overcompensate – risks. As with people wearing seatbelts driving more aggressively and so on.
Actually, what is really true here is that varied journalists want to find something to shout at Trump about and deaths in national parks during the shutdown is a good enough excuse…
November 3, 2018
“[I]t makes no sense to punish Americans with tariffs in order to convince foreign governments to stop punishing their citizens with tariffs”
Veronique de Rugy discusses the mercantilist errors that still influence politicians and voters on free trade policies:
There are many changes to domestic policy that could help protect Americans from the predations of protectionism. For instance, when considering whether or not to grant U.S. firms “trade remedies,” such as countervailing duties, officials should have to take into account the consequences for American consumers of any tariffs they’re thinking of imposing. Policy makers aren’t currently required to do that, and one agency — the International Trade Commission—is actually forbidden from doing so.
This must change. Recent developments prove that it’s dangerous to simply assume all U.S. presidents and a critical mass of legislators will remain committed to the principles of reciprocal free trade. Buyers of imported goods or products made with imported materials — which, to be clear, is all of us — can’t depend on the economic acumen of the policy makers deciding whether or not to impose tariffs. Instead, consumer protections need to be built into the regulatory process. Because there are virtually always more workers in consuming industries downstream of the trade barrier than there are in the sector receiving the protection, a requirement to take the harm to consumers into consideration would make it very hard to impose protectionist policies.
Some free trade sympathizers have floated the possibility of Congress reclaiming its power to impose tariffs from the White House. Sen. Mike Lee (R–Utah), for instance, has introduced the Global Trade Accountability Act, which would require congressional approval for tariff increases or other “unilateral trade actions.” Unfortunately, if this otherwise well-designed bill became the law of the land, it would be akin to guarding the hen house with a hungry dog instead of a fox.
An extensive literature shows that moving tariff-setting policy away from Congress (and its parochial, locally focused interests) was a critical part of reducing protectionist influence in Washington. President Trump is terrible on this issue, but in general, a president is more likely than are members of Congress to consider the interest of the entire country — and, hence, to support broad trade liberalization.
October 3, 2018
USMCA (aka son-of-NAFTA) – what’s the damage after all?
The most common sentiment from Canadian comments appears to be “meh, it could have been much worse”. That doesn’t mean it’s particularly good, either:
All that cross-border yelling, a solid year of bluster and petulance, dire rhetoric about “stabs in the back” and “special places in hell,” fake deadlines and all-night negotiations, and we end up with pretty much the agreement we started with? All that was required to fix NAFTA, that destroyer of American jobs and pox on its prosperity, the deal Donald Trump memorably complained was “the worst agreement in history,” was to change its name — from North American Free Trade Agreement to US-Mexico-Canada Agreement? Seriously?
Not quite. The result is certainly a far heave from some of the more apocalyptic scenarios we had been entertaining ourselves with. But neither is it the largely unaltered “NAFTA 2.0” of much initial comment. There are substantive changes in there, most of them bad, and not all of them imposed by an overbearing U.S. on an unwilling Canada.
Still, it’s not quite the conflagration we’d been banking on, is it? Trump is the bully in middle school who threatens to take your lunch money, only to settle for a half a slice of your pizza. Or, in this case, 3.6 per cent of it.
That’s the share of the Canadian dairy market to which the U.S. will now have tariff-free access, a slight advance on the 3.25 per cent market share the U.S. had negotiated under the Trans Pacific Partnership — before Trump withdrew from it. (Oh, and “milk price classes 6 and 7” are eliminated, for fans of that dispute. It involves skim milk solids.) There are also some minor increases in tariff-free imports in the other supply-managed sectors: eggs, chicken, cheese and so on. Everything else will face the same triple-digit tariffs, as before.
That’s unfortunate. Supply management is a blight on the Canadian political and economic landscape we could well do without. The NAFTA re-negotiations were an ideal opportunity to bargain it away, as it should have been in the original NAFTA. That it remains more or less intact — even the dairy lobby could manage only a half-hearted jeremiad of imminent lacto-doom in response — is one of the chief disappointments in this agreement.
Still, what did you expect? There was never any chance of these negotiations resulting in a deepening and broadening of NAFTA — not with protectionists on both sides of the table. The only question was whether the status quo protectionists on this side — who wished to preserve all of NAFTA’s existing exemptions — could hold out against the expansionist protectionists on the other, who wished to cut NAFTA into little mercantilist pieces. As it turns out the answer is: surprisingly well.
A quick summary of the winners and losers in this agreement:
Is this a free trade agreement?
No. Unlike NAFTA, this latest agreement makes no pretense to be about free trade (or even freer trade). It’s a protectionist agreement imposed by the U.S. on the other two countries.
Who benefits from the agreement?
The primary beneficiaries of the agreement are labor unions, U.S. dairy farmers, U.S. drug manufacturers, and companies that provide automation for manufacturers (e.g., robot makers).
The agreement will require at least 30 percent of cars (rising to 40 percent by 2023) to be made by workers earning $16 an hour. This will force more cars to be produced in the U.S. and Canada since the typical manufacturing wage in Mexico is only about $5 per hour. The agreement also requires Mexico to make it easier for workers to form unions, which will make them less competitive against more productive unionized workers in the U.S. and Canada.
U.S. dairy farmers will also gain greater access to the Canadian market. Because of new restrictions on how much dairy Canada can export, there is the potential for U.S. dairy to gain a greater market share in foreign countries.
U.S. drug companies will also be able to sell pharmaceuticals in Canada for 10 years (rather than eight) before facing generic competition.
Because the agreement makes human labor in the three countries somewhat more costly, companies that create robots and other automation will likely be the long-term beneficiaries.
Who are the biggest losers in this agreement?
As with almost all protectionist trade agreements, consumers are the ones who will be hurt the most.
As the Washington Post notes, economists and auto experts think USMCA is going to cause car prices in the U.S. to “rise and the selection to go down, especially on small cars that used to be produced in Mexico but may not be able to be brought across the border duty-free anymore.”
Because the restrictions on Canadian steel and aluminum also remain in place, businesses that use those materials in manufacturing will pay inflated prices, and their products will be less competitive on the global market.
