Cato on Trump’s trade policy

Daniel Ikensom from Cato writes:

The last 13 presidents of the United States — going back to Franklin D. Roosevelt, who signed into law the watershed Reciprocal Trade Agreements Act in 1934 — considered trade to be mutually beneficial for their fostering of economic growth and good relations among nations. Those presidents aimed to avoid trade wars and committed their administrations to reducing barriers, respecting the rules, and supporting the institutions of trade.

Trump sees the world differently. He has departed from more than 80 years of US trade policy continuity, charting a new and deeply troubling course. Although Trump is not the first president to blame foreign trade practices for problems real and imagined, he may be the first to believe that protectionism is essential to making America great. He is certainly the only head of state ever to tweet that “trade wars are good, and easy to win.” Trump’s trade policy is motivated by a toxic blend of ignorance, petulance and nationalist grievance.

When it comes to trade policy, Trump is the most left wing President in modern history. He is more protectionist than Bernie Sanders.

Unlike his predecessors, he sees trade not as a win-win proposition, but as a zero-sum game with distinct winners and losers. Exports are Team America’s points; imports are the foreign teams’ points; the trade account is the scoreboard. 

Which is totally wrong. Imports are not bad. Both exports and imports are good. Imports allow you to focus on areas where you have a competitive advantage rather than try and do everything yourselves.

In 2017, US goods imports totaled US$2.2 trillion — of which US$1.1 trillion were purchases of raw materials, intermediate goods and capital equipment — and US goods exports totaled US$1.5 trillion. If Trump were to impose, for example, a 10 percent across-the-board tariff on all imports, producer costs would rise by roughly US$110 billion (or 10 percent of US$1.1 trillion). Commensurate retaliation abroad would reduce US export revenues by roughly US$150 billion (or 10 percent of US$1.5 trillion). Together, the increased costs and reduced revenue would amount to a US$260 billion reduction in manufacturing-sector profits. Last year, the US manufacturing sector’s profits were US$550 billion, so a 10 percent import levy alone could end up cutting profits nearly in half.

Tariffs don’t protect many companies. They damage them as they increase costs.

For every US$1 that steel producers add to GDP, steel users add US$29; for every one job in steel production, there are 46 in steel-using industries. While Trump wants credit for “protecting” the steel industry with a 25 percent import tariff, he and his advisers downplay the adverse impact on steel-consuming producers.

Yep consumers get screwed.

Those who subscribe to Trump’s points of view — that trade is an “Us versus Them” proposition — probably think that the president is doing the right thing in subverting the institutions of global trade and provoking trade wars. More sycophantic supporters consider Trump’s strategy to be ingenious. Apologists who know better say that the president is merely fulfilling his campaign promises — and how refreshing is it that a politician is making good on his promises! All are complicit in the unenlightened, provocative and possibly unhinged trade policy that Trump has wrought.

Yep.