Would Donald Trump’s trade policy work?

Donald Trump’s trade policy might be better than what the United States has now.  The problem with Donald Trump’s trade policy is that it is based on trying to force China and other countries to comply with U.S. demands rather than improving American economic performance.

Ultimately the future of the United States rests on what we Americans do, not on what the Chinese do or do not do.

Donald Trump

Donald Trump

He is right about one important thing.  Washington’s trade policies have not served Americans well.

In some ways, current reflect the priorities of Richard Nixon and Henry Kissinger, who thought the trade policies that favored nations such as Japan or Saudi Arabia were a price worth paying to keep them as loyal allies during the Cold War.

In other ways, they reflect the neo-liberal philosophy that emerged during the administrations of Ronald Reagan and Bill Clinton, which was that the route to prosperity was to serve the interests of large corporations.

International agreements such as the North American Free Trade Agreement and the proposed Trans-Pacific Partnership Agreement guaranteed the rights of corporations to move money and goods freely, but restricted the rights of governments to legislate on behalf of workers, consumers and the environment.

Such agreements have contributed to the erosion of American jobs, wages and national economic strength.

Donald Trump’s solution, as stated on his web site, is as follows:

  • Declare China a currency manipulator and demand that China allow its currency to rise to its natural rate.  Trump said its current rate is between 15 percent and 40 percent too low.  A rise in the exchange rate for the Chinese yuan would, all other things being equal, raise the prices of Chinese-made products in the U.S. and other countries.
  • Demand that China obey international standards for copyright and patent protection.  This would mean greater revenues for U.S.-based and other non-Chinese media, drug and information technology companies.
  • Demand that China stop subsidizing its export industries by such means as free or cheap rent, utilities, tax breaks and raw materials, low-interest loans and special tax breaks.
  • “Challenge” China to comply with 21st century labor and environmental standards
  • Lower or eliminate the U.S. government budget deficit so that we wouldn’t have to depend on the Chinese and other foreigners to buy government bonds.
  • Reduce the top corporate tax rate from 35 to 15 percent, and eliminate inheritance taxes and capital gains taxe
  • Build up American military forces in the South China Sea.

What strikes me about his list of proposals is that it consists of demands on foreign countries that they change their economic policies, which will be hard and maybe impossible to do.  What we Americans should be concentrating on is rebuilding our own economic strength.

He said he would enforce his demands by imposing tariffs on the goods of China and other countries that refuse to comply, and also on imports of U.S. companies that move manufacturing facilities overseas.

I don’t think the Chinese government will allow itself to be browbeaten into changing the policies that have given China economic growth, a trade surplus and a material standard of living better than Chinese have ever enjoyed in modern times.

Of course the United States government should not allow itself to be browbeaten either.  One of Donald Trump’s strengths is his record as an aggressive and cunning negotiator.  Smart writers as diverse as Eamonn Fingleton and Ian Welsh think the United States could benefit from Trump’s economic nationalism.

I don’t think that lack of U.S. aggressiveness has been a problem in negotiating trade treaties.  I think the problem has been aggressiveness on behalf of corporations rather than aggressiveness on behalf of American workers.

I give him credit for opposing the odious Trans Pacific Partnership agreement, which would elevate corporations to a position of equality with sovereign governments.  But his overall policy is more pro-corporate than pro-worker.

His tax policy calls for greater concentration of wealth at the top, an echo of the failed neo-liberal supply-side economics of the Regan era.  He remarked during the one of the debates that American wages are too high, making the United States less competitive in global markets.  Bernie Sanders called him on this and he backed down, but I think this reflects his thinking.

A tariff on Chinese or other foreign goods will not automatically bring jobs back to the United States.  If the United States has lost the capacity to manufacture certain goods domestically, all that a tariff will do is to raise the prices of goods that ordinary Americans pay.

A tariff increase benefits domestic manufacturers, but there is no guarantee that benefit will be passed along to workers in the form of increased jobs or to consumers in the form of lower prices.

Targeted and limited tariff increases to protect growth industries might be good as part of an overall economic strategy to improve American economic capability, but tariffs in and of themselves are merely a tax on consumers.

LINKS

U.S.-China Trade Reform from Donald J. Trump for President.

Donald Trump on Free Trade from On the Issues.

∞∞∞

Update.  I rewrote the first two paragaphs about four or five hours after I posted this.

 

 

 

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