A lot of people think I’m a Democrat because I spend so much time criticizing Donald Trump. The truth is that I’m one of the comparatively few traditional conservatives left in the country. Biden may be, as I’ve said before, the most conservative candidate in the race, but that does not make him conservative and it leaves him to my left on quite a few issues. So, if you want to see me criticize Joe Biden, buckle up.
One of the big disappointments of the Biden Administration was the failure to remove a great many of Donald Trump’s massive barriers to trade. Although Biden did campaign on lifting Trump’s tariffs, which are literally taxes on trade, in practice he left many of the tariffs in place, especially those on China, while lifting many that impacted other trading partners such as Europe.
I suppose I could give Biden the benefit of the doubt that the Adminstration might believe that removing the tariffs might make their fight against inflation more difficult. After all, making imported goods less expensive could stimulate consumer demand and goose the economy rather than causing it to slow.
As it is, the Tax Foundation estimates that the combination of Trump’s tariffs and retaliatory tariffs imposed by his targets has shrunk the GDP by 0.25 percent, cost hundreds of thousands of jobs (which may be just as well because unemployment is so low that we’d have a hard time filling those jobs without more immigration), and depressed wages by about 15 percent. When Republicans talk about stagnant wage growth, don’t forget that Trump’s tariffs played a major role.
It is axiomatic that if you tax something, you get less of it. Taxes on international trade have the effect of reducing international trade. In Donald Trump’s view, that is a feature, not a bug, but I’m not sure what Biden is thinking.
Biden’s new tariffs target Chinese electric vehicles and solar cells as well as steel, aluminum, and medical equipment. With moving away from gas-powered vehicles a big priority for many Democrats, Biden’s move is particularly curious. If we want Americans to shift to electric vehicles, the way to do that is to make electric cars more affordable as well as more capable. A tariff on imported EVs does the opposite. (Barron’s notes that the new 100 percent tariff would have no practical effect because the current 25 percent tariff has already closed off US markets to Chinese EVs.)
Milton Friedman, who may be the only charming economist who ever lived, once explained in simple terms why tariffs are counterproductive and damaging to the country that imposes them.
“In time of war, we blockade our enemies in order to prevent them from getting goods from us,” Friedman said. “In time of peace, we do to ourselves by tariffs what we do to our enemy in time of war.”
In other words, imposing tariffs on imports is like waging war on our own economy. While the aim may be to hurt foreign competitors, the real victims are American consumers and businesses who suffer from higher costs and fewer choices. Another axiom of taxes is that taxes are ultimately paid by the end user of the good or service. In the case of federal tariffs, that is the American consumer.
An additional class of victims is American exporters. US companies that send a lot of their products overseas are often damaged by retaliatory tariffs. There are a great many examples of this, such as Harley Davidson, the iconic motorcycle company, which saw a 27 percent drop in profits when Trump launched his tariff war. When the tariffs were removed in 2021 under President Biden, Harley’s profits and stock took off.
Another example came from a trip to Canada that I took in 2019. While there, I spoke to lobster fishermen who explained that Trump’s tariffs had been a boon to Canada. In an article for The Resurgent (archived on my blog), I detailed how the trade war between the US and China had closed off export markets for American lobster. Chinese buyers still wanted their lobster so they shifted to Canadian suppliers who found a new export market. The big losers turned out to be Americans.
The bottom line this year is that there is no free-trade candidate. The Republican Party’s shift towards protectionism is just one more way that the party has become like the Democrats and is another policy example of how Donald Trump is not a conservative.
Not long ago, it seemed as though free traders had won the policy battle. Democrats who, until Trump, had been the primary supporters of higher taxes and government central planning, were coming around on the idea of trade. Bill Clinton signed NAFTA into law after the treaty passed with bipartisan support and became a phenomenal success for all three member nations. But now, it seems that the last free-trade president that we have had was [checks notes] Barack Obama? Can that be right?
Yes, that’s true. Obama was a proponent of the Trans-Pacific Partnership, a trade consortium that would have isolated China by lowering trade barriers between the US and many other countries around the Pacific. The claim that the TPP was pro-China was one of Trump’s most damaging lies until the 2020 election.
And I think that the Democratic enlightenment on trade goes a long way toward explaining Republican protectionism. In a party that is increasingly defined by being reflexively against whatever the Democrats are for, the fact that “ObamaTrade” was backed by a Democratic president was enough to turn a large part of the party against free trade in general and the TPP in particular.
That wasn’t the only reason, however. It’s true that some Americans have seen their jobs and industries impacted by shifts in trade, but the US has benefitted overall. Even though US manufacturing has continued to grow steadily since the implementation of NAFTA, the trade deal left a sour taste in the mouths of many whose lives were upturned by the sudden shift in the economic tides. This is understandable, but it was neither the first nor the last time that individuals suffered (at least temporarily) as the world changed around them. People who are out of work due to foreign competition make better television than people who are making a good living due to international trade.
International trade is a good thing, even though many of us don’t realize it until we are confronted with the lack of trade. Likewise, trade is an area where I hoped that Joe Biden would follow in Barack Obama’s free-trade footsteps. That has not been the case nearly as much as I’d hoped.
So, I’ve criticized Joe Biden. I disagree with his trade policy in pretty strong terms, but his saving grace is that on trade, as with so many other issues, Donald Trump is worse. Biden kept too many of Trump’s tariffs in place and is implementing some new ones in a targeted fashion, but Trump wants to implement an across-the-board 10 percent tax on imports and his likely Treasury Secretary is plotting ways to intentionally devalue the dollar. Biden’s targeted tariffs are unnecessary and unhelpful but they are better than Trump’s “Leroy Jenkins” approach to trade in which he declares trade wars on adversaries and allies alike.
One of my own rules of thumb is that presidents can’t do a lot by themselves to improve America’s bottom line, but they are always happy to take credit for the strong American economy. The corollary is that presidents can do a lot of things to damage or slow the economy. (Re)starting an unnecessary trade war is one of those things.
Over the past few cycles, Americans have become accustomed to the choice between bad and worse. That’s where we are on the issue of trade as well as the larger picture of the 2024 election.
Choose carefully. Even if you don’t like the Biden economy (which is actually pretty good), the odds are good that if Donald Trump gets his way, you’ll like his economy even less.
Whether it’s politically possible or not is a different question but we probably should be revisiting something like the TPP, and also a free trade agreement with the EU, and any Anglophone democracy. But we’ve already given enough to the Chinese. Every dollar to them is a dollar to an enemy. Their cheap cars are at our expense, literally.Report
I agree with this.
The axiom that “free trade enriches both parties” is true, but the question is, do we really want a nation like China to become wealthier?Report
One of the things that I had failed to appreciate was that “both parties” was one heck of an aggregate.
There were a lot of local green lines going up, sure. But there were also a lot of local red lines going down.
And pointing out how, in aggregate, the green line was going up finally ended up striking me as exceptionally unpersuasive. Even if my green line was going up too.
But the good news is that the Dow and NASDAQ are higher than ever before in history.Report
As I always say, it’s a question of which you prefer: high employment and high goods cost, or everything’s cheap but everyone’s on the dole.
And there’s a surprising horseshoe-theory concordance between Right and Left that the former is preferable!Report
Especially since the trade and wealth leads to political liberalization theory has been disproven.Report
I also agree. There are further considerations too. In the 90’s and early aughts when American strength seemed overwhelming and, further, that wars for territory seemed backwards and pointless the question of defense was lower priority. Now, with both China and Russia nakedly exhibiting territorial lust defense considerations are more prominent. Civil manufacturing can be repurposed quickly to military manufacturing in many cases.
Further, absent from Mr. Thorntons’ analysis is any mention of how purposefully, egregiously and destructively the Chinese have prioritized subsidizing and exporting manufacturing even to the detriment of their own people’s wellbeing. A strict free trader would say that free trade would remain advisable as it’d be, in essence, taking a subsidy from the Chinese to us but that would ignore the potential long term costs.
Finally, there is an element of chickens coming home to roost as free traders were generally very indifferent to the plight of the losers from free trade here at home. Liberals can, at least, honestly claim that they tried to help however imperfectly but the right has always been something between indifferent to disdainful to those people and now they find themselves shocked that the masses have little love of free trade.
But, yeah, free trade in the areas you talk about seems quite advisable and, ironically, a TPP style agreement would be an incredible boon to our position vis a vis the Chinese.Report
Unsurprisingly I agree in full. I think the core mistake in the 90s was the belief in free trade in itself as opposed to a tool in the repertoire. The result is we sold ourselves short and failed to deal with the trade offs. Now where we do it the point should be for strategic advantage in a world where we aren’t as powerful as we once were. I get the sense the American public is not ready to be receptive to that kind of argument, at least not yet.Report
The 90s thing was never about Free Trade, it was about Clinton paying back the bond traders who funded his campaigns by letting them send the manufacturing industry to Mexico and China where the labor was cheap.Report
Which was marketed as free trade and, objectively, was free-er trade than the status quos at the time.Report
At some point the US and EU are going to have to reckon with the geopolitical consequences of their trade policies. There have been concerns raised in the US and EU about New Zealand being pulled into China’s orbit because of our close trade ties with China. But why do we have such close trade ties with China? Why does a country that mostly makes dairy products sell so much to a country that’s majority lactose intolerant? Because they will actually buy our stuff.
New Zealand pursues trade agreements with a lot of countries, but most developed countries restrict trade in agricultural products, even in their trade agreements with us, and that makes it hard for us. I’d really rather not have our economy at the mercy of Xi Xinping, and New Zealand could be a useful bulwark against growing Chinese influence in the South Pacific. But at some point the US is going to have to decide it would rather remain the predominant global power or whether it would rather coddle its farmers.Report
The key question is whether and if it does at what point trade becomes commonly understood as part of a national security framework.Report
A very good point but a very painful point. The real brute aspect of free trade as a political issue is that its opponents are passionate with significant losses to absorb while its beneficiaries are everyone and the effect is subtle. That makes for absolutely savage politics and which is why it’s so hard to do.Report
This is one of those perennial things where we can all agree that ‘all things being equal, fair and free trade is a win for everyone.’ Then we realize we don’t agree on the terms, free, fair, equal or trade.Report
Never mind that all thing are not equal.Report
I understand not reading three or four whole paragraphs, I do.
But this was two lines.Report
No. Free trade doesn’t depend on “equal” (actually it depends on different marginal productivities). It also doesn’t depend on “fair”.
Counter intuitively, the benefits to trade happen to the country that is the least restrictive, not the most restrictive. China’s stupidly massive subsidies are giving American consumers free money.
I oppose trade with Russia and China because it would be “a win for everyone”, not because it wouldn’t.Report
The ‘things’ modified by ‘equal’ aren’t what you’re discussing… or maybe they are. But that’s what I’m getting at… ‘Free Trade’ is a totem or fetish or goblin that doesn’t mean what people say it means.
Also… I’m not sure your last sentence parses? Missing a word somewhere?
edit: for less clarity.Report
his last sentence reminds us that Russia and China “winning” in free trade situations means having more resources to do things that the US strategically opposes.Report
Philip: more resources to do things that the US strategically opposes
Things like mass murder, genocide, invading their neighbors, and so on.
Free trade would make all of us richer. That’s a bad thing in this situation.Report
Got it, thanks for clarifying the last sentence.
I get that it seems to be consistent with the principle of ‘Free Trade’ as an axiomatic economic principle. That is, Free Trade is so unambiguously good that sometimes we have to prevent that good from being shared with our rivals.
But if we can stop ‘Free Trade’ for political reasons, then that’s defining ‘Not Trading’ as ‘Free Trade’. Which is fine… we’re free to use free ambiguously. We’re free to apply rules to ‘Free Trade’ and the rules we think are good are part of the ‘Free Trade’ regime, and those rules we don’t like aren’t.
Free Trade isn’t an axiomatic economic principle, it is a rhetorical device we apply to the rules based system (or game) under which we act. And that’s ok.Report
We are not trading with Russia to hurt their economy, at the expense of hurting our own. No one is claiming this is “free trade”.Report
“Then we realize we don’t agree on the terms, free, fair, equal or trade.”
…or “win”, or “everyone”…Report
or ‘being’ and ‘is’ my personal favorites.Report
The easiest way to make sure everyone wins is to redefine “wins” and “everyone”.Report
Also meant to say, that yes, I agree… what’s winning and for whom are buried ledes. Tyler Cowen, of all people, had an interesting article the other day: Labor’s Declining Share Is Worrisome and Mysterious
https://www.bloomberg.com/opinion/articles/2024-05-13/labor-s-declining-share-of-the-economy-is-worrisome-and-mysteriousReport
Its only mysterious if you discount greed. Otherwise it makes perfect sense.Report
Maybe some NGO’s to tackle the issue of Greed? Could probably get corporate funding for programs teaching an anti-greed message. When you think about it, do we really want to employ greedy people? Do you want to work next to greed in the workplace?
I jest, but as a distributist, I’m genuinely open to new business modes/structures and trade laws.Report
I was being somewhat tongue in cheek – but the reality is corporations these days prize ever growing profits above all else – and since labor costs are really one of the things they can control, its where they lean the hardest.Report
There’s never been a free trade party in the US (or probably anywhere), historically. Republicans were the party of business and tariffs, and Democrats were the party of labor and quotas and subsidies. Reagan and Bush had to run a gauntlet to get to NAFTA. This is a golden age of trade, and like all golden ages, the people near the end won’t/don’t realize it. I do think the anti-trade motivations are a little different than usual though. There’s a lot more opposition to globalism in general and China in particular (although if you look at what people used to say about the Japanese even at the height of support for trade there’s always been an anti-foreign element).Report
Sure, but the criticisms of Japan were a lot more emotive and baseless than the critiques of China are now.Report
Part of me has always wondered how much of that was related to lots and lots of people with memories of Japan as the enemy. My grandfather fought in the Pacific and the reaction he had to my mom buying a Camry in the 80s is the stuff of family legend.
Ironically they’re one of the countries for which it is probably in our interest to be rich, and maybe even re-armed.Report
It’s like the Made in America canard – with most of the Honda’s and Toyotas (and Mercedes) we purchase assembled in plants in the US, what special place does or should Ford or Honda or any car company really hold in our economic policies.Report
Less certain about the early 80s but at this point not much. I’m pretty sure my VW was assembled in TN.Report
It is really a canard but it is somewhat harmless? I mean, sure, it’s distortionary but I’m not honestly sure if shipping fully assembled cars from overseas actually pencils out vs shipping the parts and assembling them here. As distortions go it doesn’t strike me as an egregious one- clearly Toyota, Honda, BMW etc feel the same way.Report
There were some weird dynamics post-war.
Germany, they were our enemy, but they were Protestants like the rest of us, and they’d always been great at science. They could make things. I wouldn’t want a German for a neighbor, but now they needed our help against the Russians, and we were mostly upset that when our tanks were rolling across Europe, we had to stop.
France and Italy were third-world Catholic cowards. They had no economies but made fancy things like perfume and dresses, and they’d had great cultures. They were ok, I guess.
Japan attacked us. They were sneaky. They were nothing, and they thought they could take us on. They killed tens of thousands of Marines holding on to uninhabitable islands. And then they started exporting cheap stuff, $5 cameras and toys. “Made in Japan” meant garbage. Then they started making little cars that you could park three of on the hood of a Chevrolet. The level of disrespect toward Japanese products is something you can’t explain to people who weren’t there.Report
It sounds enormously plausible and Pinky’s fascinating response suggests that you may well be right (I was in rural Canada through to the 2000’s and just couldn’t say).Report
This is my primary point of reference culturally.Report
If only we’d listened to that boy instead of walling him up in the abandoned coke oven.Report