Tag: trade

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Our favorite Navy Fighter Pilot, @BrentB67 (let’s get him back on Rico!) joins this week’s Whiskey Politics podcast to discuss the current economy. Brent Berarducci of BlackLion Capital Management shares his unique and timely perspective as we talk about the trend towards populism, the U.S. debt, trade protectionism, and just what the heck is happening in Saudi […]

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A Simple Explanation Why the Trump Theory on Trade Deficits Is Wrong

 

This explainer from Mike Feroli at JPMorgan does a pretty good job showing why a focus on trade deficits as a measure of US economic vitality is wrongheaded (bold is by me):

When each worker in the economy does a narrow task efficiently, the overall economy is more productive than if each of us tried to grow our own food, sew our own clothes, and produce our own economic research. The basic case for free trade among nations rests on a similar argument—when each country can specialize in the activities at which it is most efficient, the overall size of the global pie will be larger. If trade were to be substantially restricted, we would expect to see lower levels of productivity and GDP in the long run, as workers and countries are forced to make things they are not especially good at making.

Trump vs. Free Trade

 

It is hard to believe that less than a week has passed since Donald Trump made his presidential address to the joint houses of Congress. The success or failure of his administration will depend largely on the policies it adopts—and his speech is a good window into his administration’s plans. Trump articulated pro-market views domestically, but deeply flawed protectionist views internationally. It’s possible that genuine economic growth will result from the former. But it is equally plausible that implementing his protectionist trade policies will lead to economic disaster. How he resolves this tension may well determine whether he succeeds or fails as president.

Trump’s recipes for domestic economic reform are often right on the money, given that they loosen regulatory barriers that thwart domestic competition. His speech was on target when he announced that “the time has come to give Americans the freedom to purchase health insurance across state lines—creating a truly competitive national marketplace that will bring cost way down and provide far better care.” The President understands that competition drives prices down and reduces administrative costs. This economic victory was squandered when the Affordable Care Act spurned interstate competition in favor of a hugely complex system of regulatory markets that have proved to be, as predicted, unsustainable.

And the same day that Trump gave his presidential address, he took constructive first steps toward curbing regulation by signing an Executive Order that would undo Barack Obama’s ungainly 2015 “Waters of the United States” Rule. Trump’s new Order stated: “It is in the national interest to ensure that the Nation’s navigable waters are kept free from pollution, while at the same time promoting economic growth, minimizing regulatory uncertainty, and showing due regard for the roles of the Congress and the States under the Constitution.” The beauty of this Order is that it keeps the objective so simple that silly and duplicative regulations will not strangle economic growth by cutting out state control on local matters—precisely what Obama’s 2015 Order did.

Greg Corombos of Radio America and David French of National Review applaud the Trump administration for rescinding Pres. Obama’s demand that all public schools embrace transgender accommodation and leaving the issue to states or local school districts.  They also slam the Fourth U.S. Circuit Court of Appeals for ruling that any gun can be banned if it’s “useful for military service.”  And David vents about the one of the worst trades in NBA history.

Victor Davis Hanson examines the early initiatives coming out of the Trump Administration and reflects on whether the new president’s momentum is sustainable over the long run.

So Would the GOP Border Adjustment Really Be a Big Tax on Consumers?

 

House Republicans — and maybe President Trump, too — want to shift the US corporate tax system to a destination-based tax with a border adjustment. There’s been a lot of confusion about this border adjustment feature. Wall Street Journal reporter Richard Rubin offers a good explanation:

Think of it as a tax getting added at the border to imports and subtracted from exports. Target Corp.’s cost of buying toys from China wouldn’t be deductible from U.S. taxes. Exports—think of an American apple farm’s shipments to Canada—wouldn’t count as income for U.S. tax purposes. The Republican plan would add the border adjustment to the U.S. corporate income tax, which is expected to drop to 20% from 35%. So the tax on imports for corporations would be 20%.

Ricochet and the TPP

 

Ricochet began as a podcast and a subscription-based website, but quickly became a community that extends well beyond. Perhaps it would be more accurate to say it began with the unlikely friendships of its founders — @peterrobinson and @roblong — so the ensuing meet ups and social media interactions of members should not be surprising. Via Facebook, Twitter, or face-to-face, the debates and conversations don’t end here.*

Nor do they always begin here. And sometimes, that’s regrettable because I learned a thing or two that others could certainly appreciate. Case in point, @jamielockett proposed elsewhere that President Donald Trump’s decision to withdraw from the Trans-Pacific Partnership was a mistake. That led to the following exchange including myself, Jamie, and @jamesofengland, reprinted here (somewhat abridged) with their permission. 

The Anti-Business Businessman

 

We’ve been instructed not to take our new president literally, but instead seriously (in the felicitous phrasing of Salena Zito). As I write, there are hints that the inaugural address will focus on the theme of “America First.” President-elect Trump may or may not be familiar with the historical taint of that phrase, but in any case the meaning he attaches to it has been clear enough.

Throughout his career, Mr. Trump has been consistent on two issues: trade and admiration for strong men. He departs from the consensus about American leadership in the post-World War II era. Rather than seeing US security guarantees and promotion of trade as providing the means through which the world (and the US) has seen unprecedented growth, peace, and prosperity, he thinks we’ve been chumps.

“America First” is a declaration of No More Mr. Nice Guy. This is the link between his views on NATO and trade. In the former case, he appears to think that the NATO alliance is a favor we do for an ungrateful Europe. While it would be a very positive development if every NATO member were to spend the agreed-upon two percent of GDP on defense, there is reason to doubt that Trump’s comments are simply veiled threats to achieve that. Is it pure coincidence that while denigrating NATO, Trump has shown excessive friendliness to Putin, whose chief goal (just ask Gen. Mattis) is undermining the alliance?

Victor Davis Hanson provides cultural and historical context for Donald Trump’s presidential victory and speculates on what the early days of the new administration may yield.

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In the wake of Donald Trump’s election, the Mexican stock market and the peso are down. Between fears of increased tariffs and of a renegotiated NAFTA, Mexico’s economy is on hold. Should Trump follow up on his promises to curtail trade between the U.S. and Mexico, expect to see a new flood of immigrants heading north long […]

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Victor Davis Hanson explains why many Americans are increasingly removed from the nation’s core political, economic, and cultural institutions.

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Is that coffee you’re drinking fair-trade certified and ethically sourced? Is the microprocessor in your laptop manufactured by a company whose board is half comprised of women? Have the holes in your blue jeans been carefully frayed by Indonesians working in an air-conditioned surround? Vanity is an ugly vice; vanity with regard to one’s virtue […]

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Rob Long Is Wrong

 

I am flattered and humbled that my last post was discussed on the last flagship podcast, but I am sorry to say that I think Rob Long is wrong about TPP.

When Rob says that, “somethings are true even if Barack Obama says they are true and TPP is good for this country.” I am going to get into more of the substance of TPP in a few moments, but I’d like to begin by saying that Obama advocating for anything is a red flag. Why should I trust Obama when he says this is free trade or that this is good for America? Why would I trust anyone in government after the last 8 years? Did the Affordable Care Act make healthcare more affordable? Did Dodd-Frank protect consumers or did it just end up hurting small community banks while protecting big banks and big law firms? I should trust Obama on TPP after he said there wasn’t a smidgen of corruption at the IRS? I should trust Obama after he said he found out about Hillary’s server on the news even though the FBI documents showed that he emailed her on that very same server? I’m sorry, but Barack Obama is not to be trusted.

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Maybe this is why rich politicians are more likely to favour increased trade regulation: A study by Pablo Fajgelbaum of the University of California, Los Angeles, and Amit Khandelwal, of Columbia University, suggests that in an average country, people on high incomes would lose 28% of their purchasing power if borders were closed to trade. But the […]

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If You Think Trade Deals Have Ruined the American Economy, Reconsider

 

TradeIf you think America’s fundamental economic story over the past few decades is a narrative of decline due to bad trade deals — especially the North American Free Trade Agreement — then you must completely ignore economic consensus.

Some key paragraphs from the new CBO study on trade deals:

In CBO’s view, the consensus among economic studies is that PTAs [preferential trade agreements] have had relatively small positive effects on total U.S. trade (exports plus imports) and, primarily through that channel, on the U.S. economy. The effects have been small because the agreements were mostly between the United States and countries with much smaller economies and because tariffs and other trade barriers were generally low when the agreements took effect (see table below). PTAs have had little effect on the U.S. trade balance (exports minus imports) and have slightly increased flows of foreign direct investment, mostly by encouraging additional U.S. investment in the economies of member countries. As a result, the indirect effects of PTAs on productivity, output, and employment in the United States have also been small and positive. Empirical estimates support that view. But those estimates are uncertain and may be understated, because the effects of nontariff provisions are hard to measure and because issues with data keep researchers from identifying how PTAs affect the service sector. Most economic evidence suggests that the total number of workers directly affected by PTAs has been too small to significantly affect labor market conditions nationwide.

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One of my persistent criticisms of Donald Trump the candidate is his protectionist stances on trade. There is no economic merit to propping up outmoded or inefficient domestic industries and businesses at the expense of international trade that permits production of goods and services at their lowest opportunity cost. Note the words “economic merit.” There […]

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One motivation for Brexit which I hadn’t read before: the UK had recently overtaken France as the fifth-largest economy in the world, and is expected to surpass Germany within the next two decades.: But until Brexit, Canada [and other non-EU nations] was shut off from this economic powerhouse, our only path to profitable U.K. trade wending […]

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Trade and Immigration After Brexit

 

Border control chaos at Heathrow airport's terminal 5, LondonNo matter what happens next, last week’s stunning “Leave” vote on Brexit has permanently disrupted the status quo ante. Both the Conservative and Labour parties are facing major leadership changes; Conservative Prime Minister David Cameron has resigned, and Labour’s Jeremy Corbyn has been besieged by his shadow cabinet for his tepid support of the Remain option. Stock markets worldwide continue to tumble and the British pound has taken a beating. The Sunday New York Times lead story took a somewhat hysterical tone when it announced that the Brexit vote “is already threatening to unravel a democratic bloc of nations that has coexisted peacefully for decades.” And the strong supporters of Remain are now determined, it seems, to predict the worst, perhaps in the hope that Great Britain will take the opportunity to “reconsider” its decision in light of the global economic hit that occurred the day the Brexit vote was announced.

As I recently argued, the Brexit vote was complicated, given the pros and cons on both sides. But now that the voting has occurred, the correct response is to put the fear-mongering aside and to think hard about the two major issues, so central to the Brexit debate, which will continue to vex Britain and the EU — trade and immigration. On this score, it is important to realize that those two issues are distinct. The argument for free trade is pretty clear — but with the much murkier issue of immigration, it is virtually impossible to come up with a knockdown argument in favor of either fully open or fully closed borders.

Let’s start with free trade. Here, the basic economic principle of comparative advantage works with equal force in both domestic and international markets. The most efficient form of production comes through a division of labor in which all parties provide those goods and services at which they are, relatively speaking, better at producing than anyone else. Thus, even if nation A were better than nation B at all forms of production, it hardly follows that nation B should remain idle. Instead, it should produce in that area in which it has the smallest disadvantage relative to nation A. So long as trade between the two nations remains open, both nations should on balance be better off than they would have been if each kept tariff walls high against any imports. The mutual exchange produces higher outputs across the board, and thus fuels growth in both nations. The principle is scalable, so that the more nations that come to the table, the greater the gains from trade, in both the international and domestic arenas. The substantive goal is to make the borders among sovereign nations porous.