Opinion

Trade Orthodoxy Reconsidered

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Posted: Jul 01, 2018 12:01 AM
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Trade Orthodoxy Reconsidered

Trade is good. Or, so say most orthodox Republicans. From the earliest days of the Silk Road, the wealthiest nations and cities were trade centers. It was trade that allowed cities like Venice to rise from a swampy delta to become a center of international power. The tiny island state of Singapore (with no natural resources) has become an economic miracle thanks largely to trade. We became an economic Goliath during the last century, especially after World War II by selling everything from refrigerators to computers to the rest of the world. Conversely, we have been told that by conservative economists for generations that tariffs are bad. After all, it was the Smoot-Hawley tariff that caused the Great Depression, right?

So what are we to make of this president, claiming to be a Republican, imposing tariffs on steel, aluminum and other things that come from our trading partners, especially the People’s Republic of China? Tariffs are taxes. We don’t support new taxes, do we? What does he see that perhaps we have missed?

In a word, he sees jobs

First, he noticed that we have been jobbed by most of our trading partners for several decades. We’ve agreed to terms that have given those partners unfair trading advantages. It has cost working Americans millions of good paying, family supporting jobs. They were allowed to go off shore. The previous president even scolded us for hoping that they might ever come back. The new negotiator in chief said nuts to that. He campaigned on renegotiating those trade agreements. He promised to fight for fair trade and bring many of those jobs back. Apparently some of our leaders in Washington weren’t paying attention. Donald Trump won and he’s actually committed to keeping those promises.

Oh, the G-7 clucked about the possibilities of dire repercussions. The Canadian Prime Minister warned and the EU leaders lectured. China promised a tit for tat reaction. Wall Street pharmacies began running out of Valium as the money mangers fretted over an oncoming trade war. But, our president knows something that our trading partners don’t want to admit. They need us a lot more than we need them. They can huff and puff and bluff. But, he is holding a straight flush…and they know it. 

The dirty secret is that under this unfair trading system, big business and Wall Street have been doing just fine. While working Americans have been losing ground. Real wages had been shrinking for more than a decade. Tax cuts help. But, running massive trade and budget deficits have consequences. What we really need are good jobs and better wages. It is true that consumers benefit from cheaper imported goods. But, before consumers can buy, they need incomes. That requires jobs. Jobs that produce something. 

The greatest negotiator who ever lived was a guy by the name of Al Capone. He once famously observed, “You can achieve more with a soft voice and a loaded gun, than you can with a soft voice.” President Trump understands the leverage he has over the G-7 and China. He has a strong hand and he is playing it well. If you doubt this, just look at the reaction of the G-7 leaders when he suggested that all sides remove all tariffs and trade barriers. Their reaction spoke volumes.

Please remember a couple of other points. First, that it was called a Great Depression only here in the United States. Most of Europe had returned to growth before Germany began pounding the war drums. There were many other factors that caused and protracted the Depression. Smoot-Hawley may have contributed, but it cannot explain the length and depth. And second, our federal government was funded largely with tariffs (taxes on imported goods) for more than a century. During that time we grew from a collection of struggling colonies into an industrial power. 

Maybe it’s time to move beyond our orthodoxy. Our trading partners cannot defend the terms of trade as they now exist. Neither should we. The president wants the barriers to come down. They will come down sooner if we and our Congressional leaders stop sniping and start supporting the President’s fight for fair trade. 

Gil Gutknecht served six terms as a conservative Republican in the U.S. House. He began to raise concerns about our trade agreements after observing big business, especially the pharmaceutical companies, manipulating trade policies to the detriment of average Americans.