They get off on the wrong foot--at least by my lights--by completely misunderstanding Donald Trump. The lede:
While Trump has been careening between policy positions on near everything (China, the Koreas, Syria, NATO, DACA, and health care policy among others), he has in his public statements and tweets remained dedicated to the economic nationalism that was a central plank in his campaign platform. In recent weeks he has kept himself in the headlines announcing aggressive tariffs on steel and aluminum imports from Canada, Mexico, the European Union, also his blunderbuss tariffs on Chinese manufacture perhaps igniting a mini-trade war, his obsession with combating the US trade deficit, and his tantrum at the G-7 conference snubbing his European counterparts and especially attacking Canada....the media accepted Trump’s economic nationalist theatrics as the real Trump, ...
They view Mr. Trump as an ignorant bozo, not conscious of his own policy and incapable of forming a coherent strategy. I think this is precisely wrong--Mr. Trump knows exactly what he is doing, and why.
But if you don't understand the president's method, then you can interpret his supposed madness any number of ways. P&R suggest that Trump's rhetoric notwithstanding, his underlings are sticking with the "neoliberal" agenda of free trade, for which the failed Trans Pacific Partnership (TPP) treaty is a proxy. P&R infer this conspiracy because they can't imagine that the "ruling class" can be against free trade, and therefore it's Trump who doesn't know what he's doing.
At some level they're right. The business community--from the Chamber of Commerce to Main Street to Wall Street have all come out vociferously against tariffs. Even Whirlpool (the appliance manufacturer), which had long demanded protection from South Korean competitors, is now complaining loudly that the steel and aluminum tariffs raise their costs far beyond any benefit from tariffs against LG and Samsung. So even they are now suggesting all tariffs be abandoned.
How different this is from 1930, when the business class broadly supported the Smoot-Hawley duties. Supply chains today are so complex and so global that nobody profits from tariffs anymore. The near universal opinion is that tariffs are bad and will lower everybody's standard of living. Even the very language--"trade war"--suggests as much. No war ever made people better off.
Only a few people proclaim protectionism as a solution to our economic woes. The lead voice is Pat Buchanan, who claims that tariffs are what made this country rich to begin with. Despite being a Buchanan fan, I disagree with every word of this piece, including most of his cited "facts."
Mr. Buchanan is a voice in the wilderness.
I don't believe Trump is against free trade. Like P&R, he claims to only want "fair" trade, though the interpretations of "fair" do not correspond. And the president does have point: the days when the US can afford to run persistent trade deficits--year after year, decade after decade--are over. There were reasons we did that during the Cold War, but the world has changed. The US is no longer willing to subsidize global commerce.
I've written about these topics elsewhere, including at some of the links below.
Getting back to P&R--they claim to have discovered a third way that's neither protectionism nor free trade. They call it "fair trade", which they think is somehow radically different from Trump's version of "fair trade." I think they're wrong--no matter how you slice or dice it, "fair" trade is just a form of protectionism. The only (very slight) difference between P&R and Trump is who gets protected.
In P&R's scheme, Americans should be allowed to buy products from Mexico only if Mexican workers are paid on an American scale and receive American-quality benefits (including things like environmental protections). Let's count the ways this won't work.
- Workers in Mexico are less skilled than American workers. That shows up today as only low-end vehicles are manufactured in Mexico, e.g., the Chevy Cruze. The important, high-end cars, e.g., F-150 pickup trucks, are all assembled in the USA. This is partly a function of skill level.
- Infrastructure in Mexico is way below the American standard. Electricity and water are much more expensive. Transportation costs way more--the country has a poor highway system and nearly no rail network. (One can blame geography for that deficit.)
- The infrastructure to provide workers with American-style benefits does not exist. The medical facilities do not exist because the population is too poor to afford them. The financial markets necessary to provide reliable pension plans also don't exist.
- The reason Mexico is poor is because there are too few rich people in Mexico. The number of Mexicans who can afford an F-150 pickup is negligible compared to, say, New Jersey. Ciudad Juarez is a thousand miles further from New Jersey than Michigan or Tennessee. Manufacturing of large, heavy objects (cars) is always cheaper near the marketplace.
Mexicans can compete with American labor only by reducing their prices, which is what they do. P&R want to prohibit them from doing that, which will put Mexican manufacturing completely out of business. P&R's solution is the same as a very huge tariff.
Beyond this, P&R miss some important distinctions. First is the difference between tradable and non-tradable goods. Tradable goods can easily cross borders--things like cars, textiles, airplanes. Non-tradable goods are not easily exported, e.g., food service, plumbing repair, medical care, education. By far the bulk of the US economy is in the non-tradable sector--workers there do NOT benefit from tariffs at all.
But they are hurt. As tariffs (or P&R's substitute) raise the cost of imports, non-tradable workers will be forced to pay higher prices and their standard of living will suffer. So P&R's proposal will (very hypothetically) aid Mexican workers (assuming they still have a job) at the expense of Americans employed in the non-tradable sector--i.e., the majority of workers.
One last point. It turns out that open borders and free trade are approximately the same thing (at least in the tradable sector). With open borders (which I assume P&R support), jobs are kept in the USA and workers are imported to fill them. With free trade, the workers stay in their home countries, but the jobs are exported so they have work. Either way there is labor arbitrage.
So P&R are proposing something completely ridiculous. They want to prevent Mexican workers from having jobs in Mexico, but at the same time welcome them to the US to take the same jobs here. I don't understand the justification for this weird and politically unpopular procedure. Indeed, I don't think P&R have thought their proposal through very carefully.
I appreciate P&R's good intentions. They want to improve the lives of Mexican workers at what they believe will be no cost to American workers. But they believe in a free lunch--and it will end in catastrophe. Good intentions notwithstanding, our two friends need to think through how it would all come down in practice.
Note: Mrs. Trotsky and I will be celebrating our anniversary by spending next week in Mexico City. Who knows--I might even visit the Old Man's fortress? Sadly, I don't read or speak Spanish, so I doubt I'll learn very much about politics. Though if I do you'll be the first to hear about it. However, I won't be getting anything posted next week--I'm leaving my laptop at home.
Further Reading:
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