Trump on Trade

He’s a funny fella, Trump. With a single tweet he’s got everyone denouncing tariffs and other protectionist policies, with even the BBC writing articles on how damaging they are. Suddenly everyone is a proponent of unfettered free trade, which until last week was the preserve of libertarians versed in Austrian economics and fans of Tim Worstall’s blog.

I mean, up until a few days ago we had the EU mandarins and Remainers assuring Brexiteers that tariffs will be implemented once Britain departs without anyone from the mainstream media pointing out this will hurt the EU more than it will Britain. In fact, most were insisting the exact opposite. Yet with a single tweet representing perhaps three seconds of thought, Trump has inadvertently got everyone agreeing on how stupid import tariffs are. Not that anyone running the EU, which operates some of the most protectionist policies anywhere in the world, understands free trade. But it does give the Brexiteers some ammunition with which to respond to the threat of tariffs in ongoing negotiations.

Tariffs don’t make economic sense of course, and free trade does make us richer on aggregate. But the ZMan makes a reasonable point here:

The hidden cost of free trade is a lot of people you don’t know losing their jobs or seeing their wages cut. When you’re the guy getting the pink slip, the cost is not hidden and that has a social cost, as well.

This is a point many Remainers miss about Brexit: not everything is about economics. Britain may well be worse off economically after leaving the EU, but many British people don’t believe wrecking whole communities through mass immigration (which is often highly localised) is an acceptable price to pay for half a percentage point increase in GDP. Of course, the financial gurus in London don’t mind because it’s not their communities being wrecked. Note that the strongest proponents of open borders work in professions which are closed shops, hence immune from the influx of cheap labour. If Polish accountants, Portuguese doctors, and Romanian law firms could compete freely for business in London, we’d see a wholesale change in attitude from the ruling classes.

The ZMan goes on:

The fact is, a nation is its people. What defines France is the shared character and shared heritage of the people we call French. What defines a people is not the cost of goods or the price of labor. What defines a people is what they love together and what they hate together. It is the collection of tastes and inclinations, no different than family traditions, that have been cultivated and passed down from one generation to the next.

Perhaps mass immigration has brought economic benefits to Europe, but it has also brought about an erosion of social trust, particularly in certain areas where unskilled migrants are concentrated. Did anyone ask the people who live in these areas their approval before upending their society? Or did we all assume that provided everyone gets richer on aggregate, such societal costs are acceptable (particularly if you and I don’t actually have to pay them)?

It’s the same with trade. I am all for free trade, and I don’t believe in tariffs for the reasons people say. However, there needs to be an acknowledgment that there are both winners and losers of free trade, and even though the winners vastly outnumber the losers, we should not glibly deny that losers exist. For decades, the consensus among the ruling classes has been that the losers of global free trade shouldn’t be considered at all – unless they can cause political trouble like farmers in France, or have family and friends in government like lawyers everywhere – and they are acceptable casualties in the battle for economic growth. Well, regardless of what the solutions to their plight are – assuming there are any – I believe we should start by acknowledging that there are losers of free trade, and understand their concerns. It’s easy to wave a hand and say “they can do something else” and make references to blacksmiths and motorcars, but retraining is pretty difficult in a town flooded with low-skilled migrants. And blacksmiths didn’t go out of business because the state encouraged cheap car plants to be built next door while punishing those who used anvils.

Consider NAFTA, for example. This has allowed Chinese companies to set up in Mexico with no intention whatsoever of supplying goods and services to Mexico, instead using it as a back door to the USA while bypassing their environmental and social regulations. Sure, the US now gets flooded with cheap goods making everyone richer on aggregate, only swathes of the country now consists of condemned towns perishing under an unprecedented opiate crisis. This is progress how?

A big part of Trump’s presidential campaign was acknowledging the losers of free trade and globalisation, which went a long way to propelling him into the White House – while his rival hob-nobbed with billionaires and poured scorn on the unemployed working classes. His latest comments on Twitter have now got everyone discussing the folly of tariffs in general, but also forcing them to acknowledge the social costs of free trade policies and the people who’ve found themselves disenfranchised. While this remains just a tweet and doesn’t translate into bone-headed protectionism, I don’t think this is a bad thing. Hopefully some sensible policies will come out of this, not least between Britain and the EU.

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21 thoughts on “Trump on Trade

  1. There are also defence and strategic points to consider.

    I was gobsmacked to learn that the main bearings used in the engines of a Chieftain tank were supplied by Russia (or the USSR as it was then). Guess why the British Army of the Rhine (BAOR) was based in Germany with most of the tanks that the British Army owned facing the east …

    OK, it might have been cheaper to buy the bearings (or steel for shipbuilding, tanks, rifles etc.) from abroad but it might be a better idea not to rely on unreliable foreign sources for some stuff, regardless of the cost of producing the stuff in this country.

    Tariff free trade and damn the consequences has to have a limit and I would place the social cost as being important too – otherwise condemning those workers who supply the stuff being imported to a life of idleness and despair is inhumane.

  2. The Founding Fathers were not so harsh with their opinions about tariffs. Their point being that they are generally taxes on luxuries and therefore avoidable by choice, whereas a consumption tax on domestic goods isn’t.

    The risk of introducing tariffs today, of course, is the tit for tat responses it invites. If you’re the USA, you will be less concerned about this than, say, New Zealand though.

  3. What I find most interesting is that the left has for decades banged on and on about economics not being the most important thing – rather equality. Lefty policies make us all poorer – but more equally poor. And now Brexit comes along and they bang on endlessly about that extra 0.5% GDP growth and how fucking our social identity and democracy is worth it, for the money. This seems a major volte face to me and an open goal for the Tories had they but one MP smart enough to articulate it.
    And if the economy is suddenly so damn important how can they explain the shadow chancellor and his money grabbing shite?

  4. What I find most interesting is that the left has for decades banged on and on about economics not being the most important thing – rather equality. Lefty policies make us all poorer – but more equally poor. And now Brexit comes along and they bang on endlessly about that extra 0.5% GDP growth and how fucking our social identity and democracy is worth it, for the money.

    Absolutely. It has been a quite astonishing change in position.

  5. Pingback: For creatives, protectionism is fine when it suits them – Hector Drummond

  6. “people who’ve found themselves disenfranchised”: nobody has. Do you mean ‘impoverished’? Or do words mean whatever you declare them to mean?

  7. “people who’ve found themselves disenfranchised”: nobody has

    While they might not have been technically disenfranchised, ie, they can still vote, when you have the unsustainable situation where fully half the population is out of step with the entire mainstream political class, it’s hard to argue that someone hasn’t been de facto disenfranchised (in that they can vote, but they can’t vote for anyone who can change anything because there are no non-fringe candidates who are outside the mainstream consensus) if not de jure.

  8. Do you mean ‘impoverished’?

    No. I mean that, for all practical purposes, they are of no use whatsoever to the ruling classes and as such are seen to have no role to play in society. I’m not convinced having a single vote every few years after which little changes counts for all that much when the ruling classes see them as an inconvenience.

  9. Allowing the importation of goods from abroad, produced under conditions that would be illegal here, is not much different from condemning low productivity workers to unemployment by the imposition of a minimum wage. Lefty gets to use trade to lift foreigners abroad out of poverty, whilst at the same time reducing employment opportunities at home.

    That being said, I see most impositions on free exchange as immoral, including that between willing buyers and willing sellers where those two are not in the same country. My spiel above notwithstanding, I’m not sold on the ‘social cost’ angle either, as, as has been noted, trade lowers input costs for out domestic industry, which could increase employment opportunities. Yes, change creates disruption, but there are many sources of change. The best advice to everybody is to be frugal and save as much as possible whilst young and employed. At the end most of us see our skills set atrophying and acquiring new ones becomes more and more difficult, and convincing an employer to take a stab at a ’50 year graduate’ is pretty tough.

    There is potentially a case that globalisation weakens the internal bonds of nations. The activity of trading gives rise to social bonds. But to be fair, once an economy increases in size beyond a few thousand you don’t really interact commercially with most of the people that surround you. So I don’t think this argument holds water.

  10. Unions were significant reason why manufacturing jobs were moved overseas, not free trade policies. Right to work States in America are doing well for themselves, many manufacturing companies would rather be located in first world country because it is more pleasant place to live. I am connected to auto industry and I’ve heard that doing business in China or other third world countries is a nightmare and car companies would have kept their plants domestic but for high cost of labour.

  11. The problem with free trade is that it was conceived on a principle of rough parity between the trading nations in terms of social standards. Admitted low ones at the time, but no-one worried about the environment, or workers rights etc 150 years ago. Now its not just that Country X has cheaper labour than Country Y, or better availability of energy, or material inputs, its that production is artificially restricted in Country Y by regulations there. Country X will throw all its industrial waste into the nearest river, and have no workers rights, while Country Y will have stringent rules on both.

    So its no longer a fair competition, one side is fighting with its hands tied behind its back, and will always lose, unless it has some IP control over its product and pricing.

    Which is why manufacturing and primary industries are largely dead in the West, because its been exported to place that can produce in conditions that would never be allowed in the West. Which in my view is highly hypocritical – using cheap imported products while denying the right of anyone to produce the same product in the same manner in your country is pure hypocrisy.

    ‘I don’t want a factory producing cheap plastic tat to pollute the river in my town, but I don’t mind if it does so in Shenzhen. Stuff the workers who used to work in the plastics factory in my town, I want cheap plastic tat!’

  12. Why not import Czech or Latvian or Lithuanian presenters for TV or radio.

    Their English is good. They’ll work hard and be pleased to be paid a quarter of what BBC ‘stars’s are paid

  13. Every single economic decision has winners and losers. Walmart displaces many small stores. Should we ban Walmart? In terms of the social costs, innovation is as costly as free trade: just ask the Luddites. Should innovation be banned?

  14. Why not import Czech or Latvian or Lithuanian presenters for TV or radio.

    I can imagine they’d be easier on the eye, too.

  15. Every single economic decision has winners and losers. Walmart displaces many small stores. Should we ban Walmart? In terms of the social costs, innovation is as costly as free trade: just ask the Luddites. Should innovation be banned?

    Not at all. I’m not even sure there is a solution. But we should at least acknowledge that the Ma & Pa shop has closed down because Walmart has moved in, and if Walmart’s presence in town is because of a deliberate government policy* while Ma & Pa are being hammered by another, then Ma & Pa’s fate is a matter of public concern.

    *Bad example, I know.

  16. “Every single economic decision has winners and losers. Walmart displaces many small stores. Should we ban Walmart? In terms of the social costs, innovation is as costly as free trade: just ask the Luddites. Should innovation be banned?”

    No of course not. But we need to realise that this is not the same as say railways displacing canals, or the internal combustion engine displacing the horse. Not least because those new technologies grew in the same country. A barge builder could go and get a job on the railways. And didn’t need new qualifications to swap – many of the same skills from one old technology moved to the new. Railways needed carpenters, metal workers and stone masons just as much as the canals did, and they needed grunt muscle just as much too.

    What we have today is one sort of industry disappearing overseas, to be somewhat replaced by something entirely different. Its no good saying ‘Go where the jobs are!’ to a 50 yo former assembly line worker, he’s not going to get a job in robotics or software design is he? Or be able to acquire the skills for those jobs either. So you literally are throwing a significant proportion of the population onto the scrap heap. Their skills are no longer wanted, and they cannot get the new ones. And to cap it all at the same time you import millions of unskilled labourers from around the world so that wages for unskilled work are driven through the floor.

    All of which takes place inside a couple of decades. And you expect it to be popular?

  17. All of which takes place inside a couple of decades.

    I think that’s a major factor, too. The motorcar didn’t make blacksmiths redundant overnight. The pace of change now leaves people high and dry in middle-age having started out in a promising career.

  18. “this is not the same as say railways displacing canals”

    – but it is the same as, say, self-serve cash registers displacing cashiers.

    “Its no good saying ‘Go where the jobs are!’ to a 50 yo former assembly line worker”

    – no it is not. But it is good to say that the government should not create artificial obstacles (like tariffs) in the way of creating new businesses. Because physical capital can be reallocated quickly, even if human capital cannot. But, of course, it is convenient to hide the rent seeking of incumbent big business behind the ostensible care about that 50 yo.

  19. An excellent post, Tim.

    PS How’s the book doing? I have bought it and reviewed it…

  20. “But the ZMan makes a reasonable point here:

    The hidden cost of free trade is a lot of people you don’t know losing their jobs or seeing their wages cut. When you’re the guy getting the pink slip, the cost is not hidden and that has a social cost, as well.”

    Those who are ‘hurt’ by a change in the status quo are those who benefited from that status quo. The ‘hurt’ suffered is directly proportional to the benefit they were getting prior.

    The ‘social cost’ of that? If there’s a social cost for the change then these people should have been paying for the benefit they received under the previous paradigm if they feel they should be compensated for its disruption. Otherwise, they weren’t hurt, at worst they ended up with a zero net gain, and a lot got a large gain over a long time period, more than making up for the short-term loss when their occupation becomes obsolete.

  21. Those who are ‘hurt’ by a change in the status quo are those who benefited from that status quo. The ‘hurt’ suffered is directly proportional to the benefit they were getting prior.

    So we shouldn’t sympathise with those who lose their job because they benefited from the job in the first place? This isn’t an argument I’d want to make myself, tbh.

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