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Trump’s trade positions threaten a worldwide depression

Posted by John Reed on

Donald Trump says he would be a much tougher negotiator on international trade.

People say they don’t care about details of what Trump says. All they need is he is not a politician.

I’m sorry, but life does not permit such heuristics. Not being a politician is not enough. A non-politician can be a disaster, too. There’s more to the job than just not being sleazy.

The Great Depression was caused by the pending, then actual, enactment of the Smoot-Hawley Tariff compounded by the Fed not printing enough money after the stock market crash.

Other countries retaliated by enacting their own tariffs on U.S. goods. All European countries who owed us money from World War I loans defaulted to punish us for Smoot-Hawley, except Finland who paid off their loans.

Reducing international trade caused the Depression. The Fed prolonged it. It was not government spending for World War II that ended it; it was the Fed feeling for patriotic reasons, that they needed to print more money as the war approached.

Free trade is the only sensible policy. Trump says he is for free trade but…

Everyone says they are for free trade but

What comes after the but means they are not for free trade.

They say they are for “fair ”trade which means they are only for free trade if other countries are for free trade. That, in turn, means we will never have free trade because there will never be a time when all countries kill all their tariffs and subsidies and bans and so on.

Economist Milton Friedman said a government imposing tariffs on imports is like that government kicking their own citizens in the shins—because tariffs raise the prices of imported goods, often so high as to constitute a ban on those goods. And Friedman went on to say that talk like that of Trump, about making extortionate demands on Mexico and other countries in order to force them to lower tariffs, is like our country telling other countries, “If you don’t stop kicking your citizens in the shins, we will start kicking our citizens in the shins.”

Where you or I buy things—by importing them or buying domestically, is none of anybody’s business. It’s not Donald Trump‘s business, or Obama’s. This is a free country. I can buy from whom I want without tariffs, or I should be able to do that.

Who favors tariffs and other anti-import-measures known collectively as protectionism? Manufacturers who hope to sell goods abroad and their workers, mainly unions, and the politicians who represent the districts where those manufacturers are located, and Americans who are ignorant of basic economics, in other words, most Americans.

For example, America pays the highest prices in the world for sugar, because a bunch of American sugar beet growers “bribe” Marco Rubio and other senators to keep renewing tariffs on foreign sugar. Coke is sweetened by cane sugar everywhere on earth but in the U.S. where it is sweetened by corn syrup. This is because of the long-existing sugar tariff. Whether or not Americans should drink sugared beverages is a totally different issue. Rubio did not vote for that for your health. He voted for it because he is just another corrupt politician who wants contributions from the sugar growers and votes from their employees.

Now comes Trump who says he will be “Mr. Tough Negotiator” who will force other countries to lower their protectionism against American goods because he will increase tariffs on theirs if they do not give in.

1. Smart negotiators do not brag about being tough or better negotiators than their negotiating opponents because it turns the negotiation into an ego contest. This is dumb for the same reason great poker or pool players pretend to be lousy players; for the same reason that football coaches do not let their players give upcoming opponents “bulletin board material” that can be used to psyche up that opponent’s players. Furthermore, being a great negotiator is less important to the outcome than the basic bargaining power of the parties. Negotiating skills only affect the resulting deals at the margins.

Obama did not get a lousy deal from Iran because he is a poor negotiator. He got it because he is overly opposed to war—maybe blindly opposed to war—and he made no secret of that fact. Same as the Munich Pact between Britain’s Neville Chamberlain and Hitler in 1938.

2. To protect their egos and their ability to get reelected, opposing national leaders will react to President Trump’s demands by walking out of the negotiations. If and when Trump increases tariffs, which would be illegal in the case of NAFTA with Mexico and Canada, the other countries would impose similar or worse tariffs on the goods made by the U.S. The result would be a worldwide depression, and one that would be worse than the Great Depression of the 1930s because the world today is far more dependent on exports today than then.

As I am writing this, I am wearing a mock turtle shirt made in Jordan, wrangler jeans and JC Penny’s briefs made in Honduras, and Thorlo socks “proudly made in the USA.” Trump would cause me and you to have to buy all our clothes and everything else, like my Lexus, in the U.S., which would raise their prices dramatically.

If you think that would be good for America, you are hopelessly ignorant of economics and I will not approve your comment so don’t bother to send me one. Post it on your website.

3. The but…heads on free trade, like Trump, are also against “dumping.” That is the spin word for the allegation that foreign countries are selling their goods here for cost or less so they can corner the market, then later raise the prices higher than Americans would charge if they were still around to compete. That is nonsense. Countries have tried to do that, but as soon as they raised prices if they ever got to that point, they would immediately lose out to competitors.

There actually is dumping, but it stems from corrupt and/or stupid foreign governments, not any viable corner-the-market strategy.

In fact, most of the cheap prices of imports are not at or below their cost. Their costs are lower because of lower wages and less government regulation on employers, pollution, and so on.

And even when they are selling below cost, why discourage that? Dumping is a hell of a good deal for Americans. The U.S. manufacturers and their workers need to learn how to compete better. Most do in our currently relatively free market world. There is more to wholesale prices than wages and regulations, there is also productivity due to a more educated workforce, lack of the mañana attitude that seems to characterize the entire world outside of Canada and the US, and higher productivity due to better technology and more efficient use of capital and capital equipment.

And those who can’t or won’t compete with lower cost foreign goods can go into the import business where foreign taxpayers all over the world will subsidize the American lifestyle and American importers’ profit margins by selling stuff to us at a loss. We would be, and are, nuts not to not only allow, but to encourage, foreign countries to sell us stuff below their cost.

My Unelected President “Medlock” says, “This is a free country. Americans can buy from whomever they want. The government has no right to interfere. And if foreign citizens want to subsidize their companies selling stuff here at a loss, that’s great for us.” The Medlock policy would result in a lower cost of living here and the most competitive industries in the world being located in America because they are unprotected and have to learn how to compete without government help.

Trump’s trade policies are devoid of any understanding of human nature, economics, or psychology. They would produce a worldwide depression, as they did the last time broad protectionism was tried in 1930. Trump’s version would be worse because of greater international trade now and his childishly turning the trade policies into a personal ego contest.

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