Why Trump Is So Clumsy About Fighting ‘Free Trade’

By Marshall Auerback, a market analyst and commentator. Originally published at Alternet

President Trump announced last week that he plans to impose 25 percent tariffs on imported steel and 10 percent on imported aluminum. It’s important to note that any policy pronouncement from this president is done within the paradigm of a real estate wheeler-dealer who sees deals of any kind as a zero-sum game. I win, and you lose; there is no such thing as a good trade deal that works as a win-win for both sides.

Expressing the opposite view is Paul Krugman, who writes, “Trade isn’t a zero-sum game: it raises the productivity and wealth of the world economy.” And the corollary also applies as well: any action taken to disrupt the free flow of goods between countries is likely to provoke a counter-reaction, the result being a trade war in which every country loses out (there are already early indications of the latter, as seen in a tweeted headline from a UK paper, “Hit the Chevy with a Levy, Tax your Whiskey and Rye”).

Given that Krugman won a Nobel Prize for his work on international trade, it is unsurprising that he gives a full-throated endorsement of free trade:

“If there were an Economist’s Creed, it would surely contain the affirmations ‘I understand the principle of Comparative Advantage’ and ‘I advocate Free Trade.’ For one hundred seventy years, the appreciation that international trade benefits a country whether it is ‘fair’ or not has been one of the touchstones of professionalism in economics. Comparative advantage is not just an idea both simple and profound; it is an idea that conflicts directly with both stubborn popular prejudices and powerful interests. This combination makes the defense of free trade is close to a sacred tenet is any idea in economics.” (pg. 131)

The two “sacred tenets,” free trade and comparative advantage, are inextricably linked. After all, a “comparative advantage” begets the question, compared to what? We export goods to other nations when we can do that relatively better than they can and likewise import goods or services that we have a comparative disadvantage in producing. So tropical fruit is exported from, say, Mexico or Chile, rather than from Canada. And Australia’s abundance of natural resources explains why it has become a mining superpower.

Of course, this classical model of trade and comparative advantage breaks down somewhat in an ultra-globalized world in which capital accounts have been largely liberalized (thereby allowing businesses to “arbitrage” wage rates/regulation by migrating to offshore manufacturing facilities with lower regulatory thresholds and cheap labor), and where technology is highly mobile and can be used to diminish natural advantages such as climate or natural resources. Technology and labor skills can also be altered by national development strategies of the kind exemplified by the countries of Asia (South Korea being a prime example), as Robert Wade illustrated in his seminal work, “Governing the Market.”

The bottom line is that it is a mistake for a country simply to follow an idealized playbook from an economics textbook on free trade/comparative advantage, and allow itself to be out-gamed via strategic trade policy/national development decisions taken elsewhere—particularly when the economy is not operating at full employment, which is key to optimizing the benefits of free trade. It’s all very well to argue that cheaper imported goods are benefits, but it is hard to consume those benefits when one is unemployed against a backdrop of rusting unused factories that have been shuttered, and where the jobs have been sent to Mexico. As misconceived as Trump’s actions might appear, then, one senses that the latter dynamic is the source of his angst when he talks about the U.S. getting “a bad deal” from countries like China (although frankly, this president seems to think that any country with whom the U.S. runs a trade deficit is ripping off America).

Within the Trump administration, when the discussion turns to trade imbalances, it almost invariably turns to China. Whether it was economic nationalist Steve Bannon, or the current director of trade and industrial policy, and the director of the White House National Trade Council, Peter Navarro, Beijing is generally seen by these two trade hardliners as the epicenter of America’s trade problems (even though Bannon has left the administration, his economic nationalism, along with that of Navarro, appears to be in the ascendant at this juncture).

Here is the economic nationalist case against Beijing: China manipulated its exchange rate via the purchase of U.S. bonds. The undervalued exchange rate resulted in a high savings rate in China, while the U.S. government used the proceeds of its bond sales to stimulate the domestic economy and support wars in Afghanistan and Iraq, which built up yet more debt. China produces goods at very low cost due to extremely low wages and sells them to U.S. citizens via its undervalued exchange rate. They obtain dollars that they recycle in similar fashion over and over again. The U.S. accumulates goods via this vendor financing, while the vendor accumulates dollars that are invested in bonds. Meanwhile China dumps goods into the U.S., destroying valuable jobs at home.

The process described above continued uninterrupted for years, increasing debt in the U.S. and building up large foreign exchange savings in China. All the while, Uncle Sam financed the housing market, resulting in an historic housing bubble. That housing bubble resulted in a false signal of a wealth gains that were then invested in the stock market leading to a stock market bubble, both of which financed over-consumption, and the buildup of yet more trade imbalances, until the entire system came crashing down in 2008, destroyed the savings of millions of Americans (including among others, Steve Bannon’s father).

But was the resultant fiasco a product of “unfair” trade, or was it symptomatic of a broader problem of financialization? If the latter, then Beijing might be the wrong target, and protectionism the wrong policy response. This is a particularly germane question, given that the perpetuation of our current system of finance—along with the corresponding refusal/failure to fix this after 2008—has led to yet more private debt accumulation and the re-emergence of the trends that led to the 2008 crisis: a capitalism characterized by securitization, globalization, the proliferation of complex financial derivatives, deregulation and a corresponding reduction in supervision and legal oversight (even the modest regulations introduced via Dodd-Frank are steadily being gutted a mere 10 years later).

In that context, here is why trade deficits can hurt: If households attempt to net save by spending less than they are earning, businesses attempt to net save (reinvesting less than their retained earnings), and a country runs a large trade deficit, then nominal incomes and real output will fall, absent a robust fiscal policy response that focuses on employment (as opposed to tax subsidies for already profitable businesses—see Amazon.com—or tax cuts for the rich).

The government has already dropped the ball on fiscal policy (with a “tax reform” heavily tilted toward the 1 percent). As L. Randall Wray and Eric Tymoigne have highlighted, “the essential point is that the United States government has been willing to become less involved in economic affairs and the improvement of the economic welfare of its population,” which has been exacerbated by trade deficits. Cheap imports are great if you’ve got a job and the spending power to buy the goods. But the de-emphasis of activist fiscal policy has meant that a larger share of the burden of improvement and maintenance of the standard of living has been put on the private sector, especially households, via debt accumulation (aided and abetted by the vendor style financing arrangements, which were exemplified in our trading relationship with Beijing).

Trade deficits, then, create demand leakages, which have to be offset from somewhere. You can do this via the government sector (fiscal policy), or dissipation of yet more private sector dis-saving (and debt accumulation). As far as the latter goes, market strategist Robert Parenteau has suggested, “that a drop in private income flows while private debt loads are high is an invitation to debt defaults and widespread insolvencies—that is, unless creditors are generously willing to renegotiate existing debt contracts en masse” (the creditors clearly haven’t done that yet, and no reason to expect that to change imminently, given the current political configuration).

Turning trade deficits to surpluses is another way to mitigate the problem, but how to achieve this when the U.S. has not run sustained trade surpluses for decades? Additionally, as Krugman and other critics of Trump’s proposed policy response have pointed out, a blunt resort to protectionism is likely to prove self-defeating, given the probable retaliation from America’s trade partners, the concomitant disruption of global supply chains, and the corresponding rise in imported goods prices, which cuts into consumers’ buying power (by acting as a functional tax hike). In other words, it’s a “lose-lose” proposition.

The other problem in relying on trade to improve growth and employment is that, put simply, it takes two to tango. To reduce its trade deficit or, more unrealistically, to run a trade surplus, the U.S. would have to secure cooperation from its trading partners (the use of tariffs seldom achieves this and it is also hard to believe that countries like Germany or China would readily abandon their mercantilist model, simply to help the U.S.). Furthermore, a reliance on trade to promote fuller employment renders U.S. economic performance subject to the vagaries of other countries’ policies. Domestic fiscal policy, by contrast, does suffer from these twin deficiencies.

However, even those who understand that trade imbalances can create job shortages or demand shortages often argue for more stimulus spending (or tax cuts), with little concern for how the stimulus is distributed throughout the economy because of that canard that “national planning” will subvert the workings of the free market.

There are, however, a number of problems with leaving everything in the hands of the amorphous market—for example, if the government stimulus merely ends up in the pockets of firms as profits and there is no guarantee that those profits spur hiring of more workers (which is why we have proposed a program that supports direct employment via a Job Guarantee). Yes, it is true that a fiscal program of this sort may not replace all of the manufacturing jobs lost due to persistent trade deficits. But (per Tymoigne and Wray), “there are [needs] at least as great in the area of public services, including aged care, preschools, playground supervision, clean-up of public lands, retrofitting public and private buildings for energy efficiency, and environmental restoration projections.”

As U.S. producers have increasingly struggled with a renewed flood of cheap Chinese imports, the result has often been the closure or offshoring of manufacturing plants and the consequent loss of employment of thousands of American workers. Trump has explicitly addressed his hawkish trade stance to these constituencies (even if his actions hitherto have done much to address their complaints).

But there are better ways to address the problems than simply slapping tariffs on imported goods. If we refocus government fiscal policy to create full employment, then most trade issues would become a sideshow and the “flood of cheap imports” would be viewed less as a job threat, and more a means of enhancing the consumption preferences of a fully employed workforce. Surely, this is preferable to penalizing the population via trade wars, or of forcing the poor and unemployed to bear the entire burden of adjustment as and when trade liberalization takes place. A resort to protectionism is crude, but free trade’s champions cannot simply dismiss the realities of job displacement without a viable policy response beyond the assertion that free trade itself is a sacred tenet of economics.

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  1. MisterMr

    My 2 cents:

    All developed countries (and this includes China) face a problem of underconsumption: the rich get a large share of total income but want to accumulate it as wealth, so this could cause crises and depressions.
    Thus government have to “recycle” private savings into consumption by running budget deficits (but giving the savers fictitious assets, that is bonds) or sometimes the financial markets do this through balance sheet expansions.

    What happens is this (taking government debt as an example): Joe capitalist has a factory that produces 100 muffins, each selling for 1$.
    He pays his workers 60$, 20$ in taxes (that go for example to pay police wages), and 20$ in profits.
    Then workers buy 60 muffins, policemen buy 20, and Joe has to buy the last 20 muffins, which otherwise would go unsold.
    But Joe doesn’t want to eat 20 muffins, he would rather accumulate wealth, so buy only 10 muffins, 10 go unsold, Joe sees that he’s producing too many muffins and fires some workers, causing a recession.

    But the government doesn’t want this, so either:

    a) Employs more policemen but doesn’t increase taxes:
    Now Joe’s factory produces 100 muffins, Joe pays 20 in taxes but policemen buy 30 muffins (10 of which financed by government deficits), and Joe’s profits are now 20$ again, 10$ he consumes in muffins, 10$ he ends up owning government bonds.

    b) The government lowers taxes but doesn’t lower expenditures: it taxes only 10$ but still employs policemen for 20$; the result is the same than in A, but Joe’s profit are now 30$ instead than 20$, that from Joe’s point of view is great but from my point of view is bad because it both increases inequality and makes underconsumption worse.

    So all governments are forced to stimulate the economy by going into debts, but since countries trade with each other, some of this stimulus leaks: the USA government gets into debt but Americans buy some Chinese goods and pump the Chinese economy; ceteris paribus those who stimulate more the economy will end up as net importers, those who stimulate less will end up as net exporters.

    But this has a price: Italy, for example, is a net exporter, and the more it gets into “austerity” the more it becomes a net exporter, but while exports help keeping the economy afloat, the damage of austerity policies to the economy is much bigger, and not coincidentally the austerian center-left was recently beaten up bad in the elections by two sides (the right and the m5s) who bot have policies that require high government deficits (those of the right more slanted toward the rich).

    Now for a country who is below the technology curve, like China or former soviet countries, this kind of mercantilist policy might be still worth the price because this way they import “technology”, and therefore become more productive, but for a country like Italy, the UK or the USA, that really don’t need to import technology, austerity just sucks.

    The problem of the “neo-protectionists” is that they assume that A) they can stop or reduce imports without reducing internal consumption/stimulus, which is a nonsense; B) that they don’t understand (or don’t want to understand) that they are going to “reshore” lower added value activities.

    The reason for this neo-protectionism IMHO is that the working class is pissed off by the lower wage share, but the neo-protectionist don’t actually want to cut into the profits of capital, so they make up a bogus theory where someone (foreigners) is tealing our lunch and pretend with workers that this is done in order to increase their wage, while contemporaneously pumping up the profits of local companies (e.g. tariffs on steel imports will pump up profits of USA steel manufacturers).
    But in reality it can’t be that the same policy is both increasing the wage share AND increasing the profit share, since the two sum to 1, and these neo-protectionist countries are a form of “have your cake and eat it too” pipe dream (see:brexit).

    1. John B

      This article by Auerback is outstanding — it is one of the few articles I have ever seen that seriously deals with tariffs as an ugly solution to real problems. That is the correct discussion to have, but one that economists have ignored for decades because they have been so devoted to insisting that trade is always good and tariffs always bad (at least in the US). MisterMr’s comment is in the same vein.

      I could, I think, imagine a tariff system that could seriously try to address some of the problems of in-country inequality, regulatory arbitrage, and environmental degradation that current world trade is contributing to. For example, under “optimal tariff” theory, a LARGE economy like the US or EU as a whole can set tariffs at rates that actually improve its own domestic welfare, even accounting for the reduction in trade and consumption of imports. Optimal tariff theory is still taught a little in introductory trade economics, but has largely been ignored for many years because it does reduce global welfare. Still, if the Trump administration or the EU were to impose moderate levels of tariffs and use the proceeds to address inequality or environmental issues, it could perhaps be justified. Interestingly, the use of the national security exception in Article XXI of the WTO agreements, in order to prevent global warming with a carbon tariff, would appear to have a stronger legal basis than using that exception to address potential steel shortages.

      That said, I can’t imagine the Trump administration using tariffs intelligently to address either inequality or environmental concerns. I’d agree with Mr. MrMister that whatever unions might want, increasing profits for influential constituencies will be the primary factor that drives the details of his tariff policy. Details are important. So we’ll probably get only the ugly part of the tariff equation, and it can be very ugly.

      1. John B

        And yes, I understand that economically, governments don’t fund their operations from taxes, including tariffs. But politically, funding streams are important. So, an income equality tariff or a carbon reduction tariff could have a useful role in promoting useful fiscal policies. But I doubt that’s what we’re getting here.

      2. sgt_doom

        I like the article, but am dismayed whenever anyone cites Krugman, who clearly doesn’t even understand the banking system, as he has proven in the past time and again!

    2. False Solace

      Everyone’s favorite political economist-with-a-Scottish-accent Mark Blyth suggested, in his year-end wrap-up I think, that China is perfectly happy to get out of the mercantilist exporter line because Chinese elites have had it with air pollution and similar undesirable externalities. What’s the point of exporting to the West if it makes your cities literally unliveable and you can earn the same profits selling to Chinese consumers, which will have the side benefit of quelling some of the labor strife and civil violence they see on a daily basis.

      It’s more the US companies that are eager to continue arbitraging labor and environmental regulations to undercut businesses back home — they also want in on that expanding Chinese consumer market. I somehow doubt that’s going to work out for them. The Chinese have zero compunctions about restricting desirable internal markets to domestic vendors.

      So if the US wants to hike some trade barriers, I think China is going to be fine with that. What Trump is up against is his own US-based offshorers and Germany with its sock puppet the EU and its relentless focus on driving up trade imbalances and crushing German labor for the good of the Deutschmark — I mean the Euro.

  2. Ignacio

    Very good stuff in this article, although I migth explain a few things differently. Not because I disagree with what is written. I don’t. It’s just that the narrative runs somehow differently in my poor little brain compared with Auerback’s brilliant one. Because of my limited understanding I would very much like further explanation on this phrase, which intuitively looks correct and I think is one of the keys in the article:

    Furthermore, a reliance on trade to promote fuller employment renders U.S. economic performance subject to the vagaries of other countries’ policies.

    These vagaries mentioned refer to retaliation measures, merchantilistic policies (forcing national savings) and/or other equations I miss?

    1. Marshall Auerback

      Just one brief example: If a country is pursuing austerity, that could well curb its consumption of imports (i.e. American exports). The US has no control over that. That’s the problem with a strategy which depends on export-led growth: you are depending on the kindness of strangers, as Blanche Dubois would say. Whereas a country fully sovereign with its own free-floating currency always has the capacity to pursue job creation/full employment policies at home, regardless of what an outside country does.

      1. MisterMr

        “Whereas a country fully sovereign with its own free-floating currency always has the capacity to pursue job creation/full employment policies at home, regardless of what an outside country does.”

        But then that country would likely become a net importer(*), and while a country like the USA can be a net importer for very long this is going to cause some financial umbalances.

        * unless you assume that a floating currency would automatically restore a trade balance, but I don’t think it’s true because this is based precisely on the assumption that countries will not increase their debt forever.

        1. Skip Intro

          The country would only become a net importer as the result of political choices, or lack thereof. The country is sovereign and pursues “job creation/full employment policies at home”, which implies that subsidies/tariffs could be used to suppress/replace imports.

          1. MisterMr

            It would become a net importer because, unless there are sky-high tariffs in place, local people will spend part of their income on foreign programs, whereas foreigners will not have an higer income and thus will not spend more on local products.

            Sky-high tariffs are impratical unless you are seriously able to run an autarky, because trade partners will reciprocate (unless you are an european country in the 18/19th century and can impose your trade pacts with gunboats).

      2. Ignacio

        Thanks a lot Marshall. I think I can label your example under “merchantilistic policies”.

        So there are good reasons to focus on policies that strengthen the internal economy, or the part of the economy that does not depend very much on international trade, rather that battling the latter with tariffs that 1) migth have unintended consequences on consumer prices 2) migth be battled with retaliatory measures and 3) whose effects could be muted with policies designed to affect current account balances.

        “Clumsy” could be too mild to describe Trump’s policies…

    1. Arizona Slim

      It’s Trump! And he’s the worst-est president ever!

      So say the hair-on-fire liberals on my Faceborg feed. And that, people, is why I made the decision to give up Faceborg for Lent.

      1. Expat

        Thanks for that brilliant political insight. The question was valid. If Trump is not the asshole so many claim he is, why do they think he is? Not every attack on Trump is an invalid, commie plot to destroy America. If Obama’s tariffs on Chinese steel did not raise hackles, perhaps there was a valid reason for them. If I recall, the Obama tariffs were part of a world-wide anti-dumping, anti-subsidy program which was supported by the EU. The push to impose punitive tariffs on a few steel producers was bi-partisan.

        By many metrics, Trump is a dreadful president and certainly a terrible human being, but that is not the point of the commentary. Trumpeteers have lost the plot, it seems, and can no longer assimilate reasonable and valid criticism. Any questioning of The Donald is tantamount to attempted assassination.

        So, would you care to explain why: 1. Trump is so misunderstood or hated. 2., Why you are so easily triggered about him? 3. Why these trade policies will MAGA?

        1. Yves Smith Post author

          Her response was valid. The hatred of Trump is significantly about class. He’s a rich guy who makes no bones about being from the wrong side of the tracks. He refused to do what people like him are supposed to do, join the culturally accepted organizations to become a respectable rich person. He likes way too much tacky gold decor and has dated and married swimsuit models. He also made the mistake of having one of the few things he said consistently campaigning be that normalizing relations with Russia would be a good idea, we couldn’t be at odds with both China and Russia (imperial overreach, although he’d never say anything so sophisticated-sounding) and the intelligence apparatus has been working on overthrowing him literally since the day he was elected. As Lambert was just about the first to point out, this is an effort to change the Constitutional order and that a President serves only at the approval of the CIA and NSA.

          Now Trump is also a loudmouth, a jerk, is hostile to immigrants and comes off like a sexist lout (and is probably worse) has no idea what it means to be President (in terms of doing things like learning how to draft and pass legislation) fabulously erratic, and has brought in mainly outsiders who don’t know how DC works (that alone was fatal to Carter, who actually had been an executive and so knew a lot about governing). But if you are gonna say who is irrational here, go read the press and social media. Obama deported more immigrants than Trump over the same time frame, did more to reduce rights (getting rid of habeas corpus, expanding the surveillance state), and was responsible for huge losses of wealth of middle and lower income Americans, particularly blacks, by doing nothing to halt 9 million foreclosures, the vast majority of which were not only preventable, but preventing them would also have reduced investor losses.

          The “liberulz” are at least as nutcase on this topic, and arguably threw the first punch by calling Trump supporters “deplorables”. That did as much damage to Hillary’s campaign as Romney’s 47% remark. And also contrary to your insinuation there are rational Trump defenders even if you don’t like their premises and priorities.

          1. Expat

            Trump has spent his life trying to get accepted but was always an outsider because of his heritage and personality. He was not from the “wrong side of the tracks” in the usual sense; his father was a wealthy property developer who kick-started Donald (who then lost it all, by the way).
            I was never arguing that Obama was better. If anything, he was worse simply because of his hypocrisy. That is not a valid counter argument (“oh yeah! Well hitler is worse!” is only slightly worse as an argument).
            I never insinuated that there are not rational Trump defenders. Trumpeteers are sub-breed. My attack was on the knee-jerk reaction that anyone who attacks Trump is a liberal, commie, coastal elite who hates America. It is akin to the “my country, right or wrong” crowd.
            Trump is a man. A man about one-third of American voters elected to be president. He is not God and does not even have a national mandate.
            JCC’s question was to ask why Obama got away with it and why Trump does not. The reaction from Arizona Slim was to immediately attack liberals and whine that everyone hates Donald. That is not a valid or rational response.

  3. Jesper

    I often see a JG being promoted as the (only?) way of increasing the number of people working in the public sector. Is there a belief that the only way of increasing the number of people working in the public sector is by introducing a JG?

    Federally funded programs tend to require federal oversight/control i.e. local government applies for funding for something and if the federals like this something then funding is provided. Is there a belief that the current, and in the near future, federal government would use the resources given to it by a JG for the public good instead of for the good of the oligopoly?

    1. Mel

      It’s risky, but can you see anybody else who would use those resources for the public good?

  4. Lars Jorgensen

    Warren Mosler had this post on his Facebook wall, 2. marts kl. 20:07 ·

    My comments on tariffs:

    Shop to Win!

    The President no doubt knows that when you go shopping, buying at the lowest price is the mark of a winner, while paying too much is the mark of a loser. Yet when it comes to buying lumber from Canada, cars from Germany, and now steel and aluminum, the President has viciously attacked and is now retaliating against other nations for not charging us enough for their products!

    And while everyone knows that buying at the lowest price is a good thing, there is no serious push back from Democrats, the ‘free trade’ Republicans, the media or any of the headline mainstream analysts. There is clearly something very wrong with their underlying mainstream logic that leads to this type of costly Presidential blunder.

    Yes, when we buy imports jobs are lost, just as when we replace workers with machines, including lawn mowers, vacuum cleaners, and power washers, jobs are lost. And yet somehow we’ve survived all that. We went from needing 99% of the people working to grow our food to less than 1%, and manufacturing jobs are down to only 7% of the labor force. And yet the remaining 90% of us are not all unemployed, as jobs have proliferated in the service sector, where most of those jobs are now considered to be better jobs than the lost agricultural and manufacturing jobs. Nor has a trade deficit necessarily resulted in higher unemployment or lower pay. In 1999, for example, we had record imports with unemployment under 4% and inflation under 2%, and students were getting recruited for good paying jobs well before graduation.

    The answer to sustaining high levels of employment and pay is fiscal policy. If for any reason, including more imports, weak demand at home is keeping unemployment too high or wages too low, the appropriate policy response is fiscal relaxation- either a tax cut or spending increase, even if that increases the public debt- and not to tax or otherwise drive up the cost of imports. Unfortunately however, the policy that allows all of us to pay the lowest prices for imports and have good paying jobs to replace those lost because of imports has been taken entirely off the table by both Republicans and Democrats. Consequently a very good thing for America- lower prices of imports- has been turned into a very bad thing- unemployment, and all because of the fake news about the public debt that is supported by Republicans and Democrats.

    The US public debt is nothing more than the dollars spent by the federal government that have not yet been used to pay taxes. Those dollars spent and not yet taxed sit in bank accounts at the Federal Reserve Bank that are called ‘reserve accounts’ and ‘securities accounts’, along with the actual cash in circulation. Treasury securities (bonds, notes, and bills) are nothing more than dollars in securities accounts at the Federal Reserve Bank, functionally the same as dollars in savings accounts or CD’s at commercial banks.

    Think of it this way- when the government spends a dollar, that dollar either is used to pay taxes and is lost to the economy, or it’s not used to pay taxes and remains in the economy. Deficit spending adds to those dollars that were spent but not yet taxed, which is called the public debt. And what’s called ‘paying off the debt’ (as happens to 10’s of billions of Treasury securities every month) is just a matter of the Fed shifting dollars from securities accounts to reserve accounts- a simple debit and a credit- all on its own books. (No tax payers or grand children required…) The ‘ability to pay’ is always there- it’s just a debit and a credit to accounts on the books of the Federal Reserve Bank. The fear mongering about the US running out of money or constraints by foreigners is simply not applicable to today’s monetary system.

    And if you are worried about inflation, our proposal works to lower prices for all of us, while the Presidents direct policy is to raise the prices we all pay.

    And if the concern is national security, the policy response that best serves public interest is to order the defense department to require domestic sourcing of what they consider strategically important,
    and let the rest of us continue to shop for the lowest possible prices.

    Point is, once it’s understood that 1) the public debt is nothing more than what can be called the net money supply 2) there is no risk of default 3) there is no dependence on foreign or any other lenders 4)there is no burden being put on future generations the President will be free to make us all winners by being our shopper in chief who works to get us the lowest possible prices.


    1. Synoia

      Is this correct ONLY if you can use the country’s money to settle trade debts?

      If your country has to get US dollars to settle it’s debts, then it does it apply?

      Thus is it currenty only true for the US?

      If that is not correct, then please explain?

      1. False Solace

        Correct. If you borrow in a currency you don’t control you’re at the mercy of your ability to get more of that currency.

        So valid for the US and other countries borrow in their own currency, don’t peg their currency to someone else’s currency, and don’t belong to a currency board such as the Euro.

  5. Norb

    The whole narrative depends on people believing that global corporations are benevolent actors in society. At their core, providing useful goods and services- and the best possible delivery system.

    The notion breaks down when one realizes that these monopolies are run by sociopaths. Combined with financialization, also run by predatory sociopaths, makes for a toxic mix of social injustice.

    Peoples minds are stuck in a competitive mode of thinking and conditioned to think that the nation has to be competitive with the rest of the world in all things. This is simply not true for resource rich countries. Also, the media propaganda machine is having difficulty hiding the self-serving message the oligarchs wish to promote.

    Trade must be beneficial for both parties in the transaction. But that requires political competence.

    The invisible hand of the market as a governing principle is finally reaching its end date. So now real politics will reassert itself in everyday life, whether people like it or not. Its either that or starve.

    1. diptherio

      And no mention of environmental impacts of trade, nor of the increased consumption that it allows/demands.

      1. lyman alpha blob


        I would sum it up as all things being equal, free trade is a benefit.

        But of course all things are rarely equal and the sociopaths at the top take full advantage. Wage and regulatory arbitrage – a nice way of saying ripping other people off – does not create a win/win for everybody because so many factors like environmental damage and other externalities are not factored in.

        If they were, the whole notion falls apart.

  6. L

    Very good. But one suggestion:

    The bottom line is that it is a mistake for a country simply to follow an idealized playbook from an economics textbook. on free trade/comparative advantage,

    Or to paraphrase a referenced made by the Philosopher Stephen Toulmin:

    Economics is at best an analytical method. People seem to forget that.

  7. Steve Ruis

    The standard line of economists is that free trade and comparative advantages “are good” is just more than a little wrong. As with most academic positions, the starting conditions are glossed over. This statement is fine if the economies involved are all of equal size and robustness. But for large economies dealing with small economies, free trade is a weapon of oppression. By enforcing free trade, a weaker economy is flooded with goods cheaper than it can make for itself and consequently never develops a native industry to compete. It is thus frozen out of many zones of competition. This is why all major economies have been built under protectionism … all of them; I can find no exception. Protectionism has its own problems, e.g. if it is carried on too long industries can become moribund, but is absolutely necessary if a country wants to develop native industries to compete in world markets.

    Very weak economies, in a free trade scenario, end up trading their natural resources (the developing countries will come in to help extract them, so very helpful) for trade goods and then be left with neither resources nor native industries and be left with economies based upon tourism or some other base that can barely support a modern economy.

    So, aphorisms like “free trade is good” need to be examined carefully, especially when spoken by academics whose commitment to reality is as nebulous as economists. These are people who make arguments about Country X and Country Y with one paragraph descriptions of their economies and then make an argument on that basis. It is about as useful as war planning using GI Joe action figures.

  8. Tony Wikrent

    The historical record shows that for tariffs and other protectionist policies to be useful in developing a national economy, they must be just one part of a much wider program–what is usually termed a national industrial policy. There must also be 1) support for the development and diffusion of new technologies in manufacturing, agriculture, communications, and transportation. Historical examples in USA include land grants to build canals and railroads, direct funding of Morse’s work on the telegraph, Navy experiments with steam engines in the later 1850s and early 1860s, and the National Advisory Committee for Aeronautics, which became NASA in 1958. 2) the building of infrastructure, such as navigation improvements to rivers, harbors, and coasts; roads; railroads; airports (LaGuardia Airport, for example, was built as a “socialist” “make work” project of the Works Progress Administration during the First Great Depression); and the Internet. 3) A national banking system that dampens speculation so that private investment is encouraged to flow into actual industrial, communication and transportation capacities. Historical examples in USA are the Bank of the United States, the Second Bank of the United States; and the 1863 National Banking Act passed to meet the financial exigencies of Civil War by clearing away the chaos left by Andrew Jackson’s “war on the Bank.” 4) A Doctrine of High Wages.

    The problem, of course, is that conservatives, libertarians, and neoliberals have, for 3/4 of a century now, been incessantly attacking any notion of government involvement and supervision of economic activity. But, the historical fact is that government supervision of economic activity, is exactly what the founders intended.

    This package of policies was known in the 19th century as the American School of political economy, and contrary to the free market / free trade mythology peddled by conservatives, libertarians, and neoliberals, was used by almost every country that successfully built an advanced industrial economy, including Germany and Japan in the 19th century and South Korea in the 20th century.

      1. Skip Intro

        OK replies seem to be landing in unpredictable places… disregard above… or wherever ;-/

    1. Synoia

      Governance is about management and rule of law. The US is unique where some group does not believe in “the King’s peace” and promotes anarchy, so they can loot.

    2. Steve

      The USG has had and continues to practice stealth industrial policies in America, it’s just that it’s for industries like banking/financial services and the military/security/intel which tend not to be great at broad based/sustainable contributors to employment generation and are highly efficient at “extracting” resources out of the economy. No amount of USG trade policy, without a change in USG stealth industrial policies, (financialization and militarization of our society) is likely to significantly alter the growing socioeconomic conditions which the system is efficiently producing in America.

  9. Skip Intro

    Cuba’s biopharma industry may be a counter example, i just read about it. You could argue that they had ‘protectionism’ forced on them externally by an embargo, or you might not be able to fit that under the term protectionism.

    1. Oregoncharles

      They had self-reliance forced on them. There’s a lot to be said for it. The US used to have a modest – maybe 10% – tariff on anything that could be produced here (apparently they didn’t realize that tea could be produced here). I think it’s a sensible policy, to encourage a degree of autarky. And, of course, jobs.

  10. Dan Lynch

    This is one of the saner essays on the trade debate. I mostly agree with Marshall.
    Two nits to pick. First, completely free trade is not compatible with a planned economy. Say the U.S. decides it wants to have a strong semiconductor sector — that will require subsidies and/or protections from foreign semiconductor manufacturers.
    Of course our neoliberal owners are ideologically opposed to a planned economy. Trump essentially disagrees, saying we should have strength in critical industries like steel and aluminum. I think Trump’s intentions are sound (we can debate which industries are critical).
    Second, the JG “including aged care, preschools, playground supervision, clean-up of public lands, retrofitting public and private buildings for energy efficiency, and environmental restoration projections.” JG aged care, pre-schools, and energy efficiency projects would compete with private sector — a no-no. Also, who would take care of the aged and the pre-schoolers when the economy is at full employment and the JG pool shrinks? Also scratch energy efficiency projects because they would be capital-intensive, not labor intensive. That leaves clean up of public lands — in other words, picking up litter. I doubt if a skilled, educated semiconductor worker who lost his job due to subsidized competition in Asia will be content picking up litter for minimum wage! While a JG might have a place for low skill workers and backwards parts of the country, it would be a poor substitute for an economy that is managed for full employment via functional finance. MMT claims to believe in functional finance — start acting like it! Roll out a plan for implementing functional finance.

    1. Oregoncharles

      Actually energy efficiency projects and solar installation are pretty labor intensive. Don’t know about the percentages, but they require a lot of individual attention, esp. retrofits. Even better manufacturing would tend to substitute human attention for capital and materials. Certainly you can design the rewards to encourage labor over capital, if you actually want to.

  11. JE

    Not to derail the economics discussion… but does anyone read what they write or do editors exist anymore? I’d think that someone who ostensibly supports themselves with their writing would take the time to read through their work before posting to a worldwide audience. Twice in the last half of the article the author uses the wrong word, negating their main point. Using “domestic fiscal policy, by contrast, does suffer….” when he meant “domestic fiscal policy, by contrast, doesn’t suffer…” and later “even if his actions hitherto have done much…” when he meant “even if his actions hitherto haven’t done much…”

    The same errors exist on Alternet too, I checked, so it’s not a formatting/paste error here at NC.

    As nitpicky as that is, and as squeezed as content creators are to produce to survive, when I read a wonkish policy article that has simple obvious errors like this I wonder how much research and scholarship and actual expertise the article contains. Perhaps unfairly, I tend to devalue the author’s points. On a larger scale, at the risk of being a “stay off my lawn” curmudgeon, I find this kind of laziness or perhaps “crapification” to borrow from our esteemed host Yves to be endemic in the frenetic society we have built for ourselves. We value fluff over substance to a degree that has bled into all aspects of our lives, to our detriment in my opinion. I guess it’s turtles all the way down.

    1. Oregoncharles

      So I’m not the only one who noticed. An error that reverses meaning is really irritating – you have to stop and figure out what he REALLY meant. And then you have to wonder.

  12. Darthbobber

    Krugman distorts the history of his profession just a wee bit. Ricardian comparative advantage had been out of fashion for quite a few decades until he and a few other then-young Turks successfully set out to rehabilitate it from the late 70s on.

    Even when it was in fashion, among bankers and economists, it was rarely in fashion among industrialists, and the United States especially protected it’s domestic market. The UK was all about free trade during the era when that translated into British dominance. When that era passed they were less so.

    Kruggers also ignores the fact that literally nobody is talking about not trading.

    None of this makes the Trump trade “strategy” coherent, of course.

  13. Tofulope

    The logic of how globalization lowers working class wages is something I can follow in the sense that “lower value added” jobs will be exported. The reimport of these jobs through protectionism might also change the nature of these jobs, insofar as the capital used when rebuilding the factories onshore might need increase productivity through automation.

    What I do not understand is how financialization and globalisation can be separated, because the export of capital necessary to maintain trade imbalances does need to find an investment outlet. It appears to me highly demanding to regulate these things away, unless one were to resort to somehing like “financial protectionism”, e.g. by capital controls or outright restrictions on foreign ownership. Ultimately, these things would also limit the financing of the trade deficit and hurt consumption.

    I also do not understand how financialization necessarily harms workers. The fact that they are indebted is due to low wages, but wage pressure is more difficult to maintain if the workers have a better bargaining position as cheap workers abroad are not available anymore.
    Of course it is imaginable that a third world economy will now instead be established “onshore”, but this would have to happen absent financialization, because who would be left willing to finance it ? (As there there will be no more recycling of export money)
    Demand would also hit a wall in such an arrangement, also because there are not enough raw materials/bananas to export to sustain a banana republic type government.

    In summary do not understand how to fix financialization, without reducing globalization.

  14. a different chris

    >although frankly, this president seems to think that any country with whom the U.S. runs a trade deficit is ripping off America

    I think we need to make sure we, unlike Trump, are NOT saying this. ‘Cause the mainstream economists will quite logically say “how can getting things for free not be good for the receipient”. I sure don’t think they are “ripping us off”, they are actually ripping off their own workers in truth.

    So why do I think unfettered trade (pretending that is what we have) is not a good thing? I thought about using The Drug Dealer (who gives you drugs cheaply to start but he certainly does not have your long-term interests at heart) as an example. But maybe video games are better?

    I don’t play the video game I coded for you, so you are clearly “doing something”. And you may have some crap job that you use to pay me for access to it. But that is now your life. You aren’t exercising. You aren’t socializing. You aren’t doing anything but sitting in front of your console or delivering pizzas to pay for that console time, and everybody knows that is bad. Probably even you.

    I feel that countries, as individual economic units, can wind up with the same problem. Just because I can’t run like Usain Bolt doesn’t mean that Usain Bolt should do all my running for me. Does that make sense?

    Arrgh I hate analogies but they aren’t any stupider than economic “science”, are they? Shorter me is that, even in a perfect world which we are far from, super-specialization is just a bad thing. For people, for countries. Maybe for corporations, but they aren’t people no matter what you say.

    1. Oregoncharles

      To repeat a former but germane point: which is more important to most people, the price of plastic junk, or their job?

      I do think the answer is obvious.

    2. Expat

      US trade policy is hardly free trade. The US is highly protectionist of many segments of its economy. Additionally, the US uses its military to structure trade abroad which is both direct and indirect manipulation of “free trade.”
      As for the rest of your post, I think you should work on your analogies. They are…umm….a tad confused.

  15. Jamie

    They [China] obtain dollars that they recycle in similar fashion over and over again.

    That sentence is part of the author’s description of what transpires due to the trade imbalance between China and the US. The rest of the description is straight-forward. I get how the result is an accumulation of goods in the US and an accumulation of dollars (in bonds) in China. But I do not understand the function of “recycling” dollars or the purpose of this sentence. And I cannot see how it is significant if dollars “recycle” since the resultant accumulations are a given either way. What does this sentence add to the description? How does it affect one’s understanding of trade? What is the mechanism of “recycling” and why is it even mentioned since it is opaque?

    Currently this sentence only functions to make me think I do not understand the model presented, because I do not understand this sentence or it’s significance for the model.

  16. Tomonthebeach

    These comments read like International Trade 301. Alas, the person who needs this tutorial has the attention span of a flea, so are you all not preaching to your fellow choir members here?

    Would it not be more constructive to offer a simple-minded path out of the dilemma (beyond my educational background) so a simple minded autocratic regime might grasp the folly of recommendation from a posse of selfish hacks?

  17. Roger C

    Who is this Krugman fellow who seems so concerned about the potential for rising trade barriers? It is possibly the same Krugman who wrote this?

    “1. Major growth effects from trade policy, if they exist, must come from unconventional channels. Conventional trade theory DOES NOT justify claims of huge positive payoffs from free trade.

    “2. In the politics of trade policy, distributional effects can easily swamp concerns about efficiency.”


    There is a Krugman, possibly the same one, who won a Nobel Prize for contributions to trade theory. There are situations, he wrote in his Nobel lecture, when economies of scale and economic geography explain actual trade patterns and comparative advantage does not. https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2008/krugman_lecture.pdf Elsewhere, he has emphasized that comparative advantage does not work to benefit both nations unless trade is balanced, there is no cross border movement of labor or capital, and there is full employment in both nations. Although the last point would be argued, nobody would suggest that the first three necessary assumptions are remotely true of USA’s foreign trade situation today. Therefore, we are not in a factual regime to which comparative advantage applies. Krugman again:

    “Let me quote from a classic paper by the late Paul Samuelson…: “With employment less than full … all the debunked mercantilistic arguments” — that is, claims that nations who subsidize their exports effectively steal jobs from other countries — “turn out to be valid.” He then went on to argue that persistently misaligned exchange rates create “genuine problems for free-trade apologetics.” The best answer to these problems is getting exchange rates back to where they ought to be. But that’s exactly what China is refusing to let happen.”


  18. djrichard

    China manipulated its exchange rate via the purchase of U.S. bonds. The undervalued exchange rate resulted in a high savings rate in China

    I think it helps to identify that at the time it was the PBoC in particular in China that was buying US bonds, by printing yuan to buy US dollars from their importers. So it wasn’t that there was “high savings” in China.

    Meanwhile China dumps goods into the U.S., destroying valuable jobs at home.

    I don’t know if I would say that China is actually dumping goods, that that’s what they’re specifically exploiting. What was being exploited initially was currency manipulation. But now the PBoC is out of that game, more or less, according to the IMF. Presumably other entities in China have picked up the slack, buying US dollars imported from the US. Which would be fine if that accumulation of US dollars in China resulted in those US dollars being repatriated to the US for goods and services. But that’s not what’s happening. Instead, they’re still being repatriated into US assets, just like what the PBoC was doing with those dollars.

    But why would these players do the same thing as the PBoC? Is it simply to sustain the status quo peg through other means, such that they’re acting as proxies to the PBoC? I think some of this might be going on, but that there’s something more significant to it than that.

    So here’s my guess. My guess is that accumulating US assets gives these other players in China a seat at the table where deal making of another level is done. Deal making that can occur anywhere in the world, it doesn’t have to be limited to the US. Say you’re a player in China and want to buy some assets in Africa. Simply move enough US assets in your US accounts to the US accounts of the appropriate parties in Africa. And then those parties in Africa turn over the relevant keys to assets over there.

    Really, it’s no different than how US oligarchs and institutions work. They accumulate US assets the very same way, from hoovering up the surplus (e.g. through the trade imbalance between US corporations and US labor). Accumulate enough of those assets, then you have the ammunition to do things when the need arises on the US game board, the game board of oligarchs and institutions. It used to be that that game board was limited to players in the US and was limited to deals in a US context. But now it’s opened up to anybody in the world, anybody who accumulates US assets (in particular through trade deficits). And it’s opened up the game board so it can be used for deals not just in a US context, but for deals anywhere in the world. Again, this is just my guess, but it’s the only way I can make sense of why trade deficits are sustainable without the involvement of central banks.

    In which case, how do you solve this? Well that would be like solving the trade imbalance between corporations and labor in the US. Nobody wants to solve that problem, at least nobody in power. Likewise, I don’t think anybody in power wants to solve the trade imbalance between the US and other countries. This is like mining gold.

  19. Sound of the Suburbs

    Today’s economist uses Ricardo’s law of comparative advantage to support free trade.

    In the 18th and 19th century the UK was the workshop of the world and the home of the industrial revolution.

    Did Western Europe and the US stick to Ricardo’s law of comparative advantage?
    Of course not, it would have been completely mad from an economic point of view.

    They put up tariffs until they had caught up with the UK’s technological advances.

    Ricardo had an idea about comparative advantage, but it wasn’t very good in practice.

    Where would the US be today if it had listened to Ricardo’s idle ramblings?

  20. Sound of the Suburbs

    Ricardo’s law of comparative advantage was put forward at the same time as he was campaigning for the Repeal of the Corn Laws.

    Free trade meant the nation could no longer afford to support the aristocratic rentier class who pushed up wages.

    Disposable income = wages – (taxes + the cost of living)

    The price of corn had to come down to make bread cheaper, to lower the cost of living. Employers could then pay internationally competitive wages.

    The architects of globalisation learnt one of the lessons of history but not the other, even though they were put forward together by the same person, Ricardo.

    The cost of living = housing costs + healthcare costs + student loan costs + food + other costs of living

    How does the US compete in the global economy?

  21. rps

    Trump isn’t fighting Free Trade; he’s fighting against Unfair Trade.

    Auerback states China produces goods at very low cost due to extremely low wages and sells them to U.S. citizens via its undervalued exchange rate. The key phrase is at very low cost due to extremely low wages, skirting why wages are extremely low in countries such as China, India, Mexico, Philippines, Turkey, Vietnam, etc.. because of their pool of voiceless and nameless workers from human trafficking, plus another supply chain of human chattel such as convict, indentured, forced and child labor. Here’s a list from The Bureau of International Labor Affairs (ILAB) at the US Department of Labor List of Goods Produced by Child Labor or Forced Labor by country.

    In the 86 years between the Tariff Act of 1930 and the Trade Facilitation and Trade Enforcement Act (TFTEA) of 2016, the Customs Border Protection (CBP) issued only 39 “withhold release” orders or official findings of cause. The vast majority of these actions—26 orders and 6 findings—targeted goods imported from China; the only other countries on CBP’s list of enforcement actions so far are India, Japan, Mexico, Mongolia, and Nepal. From November 2000 to March 2016, CBP had not issued a single enforcement action. However, in the year following TFTEA’s passage, CBP has issued only four detention orders. I wonder if Krugman considers himself a humanitarian?

    Another omission of facts the ‘free traders’ remain silent about are the unfair trade advantages of countries without commensurate USA laws, regulations, protections and practices of labor, wages, environment, and safety including: Fair Labor Standards Act (FLSA), 40 hr work weeks, overtime, vacations, FICA (social security, medicare), OSHA and EPA to name a few. I wonder if Krugman considers himself a environmentalist?

    The USA runs a trade deficit due to unfair, banned, and illegal labor and wage practices of countries such as China, India, Pakistan, Turkey, Vietnam, Burma, Cambodia, Colombia, Guatemala, Honduras, Brazil, Indonesia, Mexico, Nicaragua, etc.. If these countries are unwilling to meet our standards to protect their citizens, then Trump’s tariffs will either force them into compliance by raising the cost of imported goods or they will add more tariffs to US goods and thus, reduce their own workforce due to Americans unwilling to pay more for built in obsolescence products with a 30 day warranty.

  22. Oregoncharles

    ” “Trade isn’t a zero-sum game: it raises the productivity and wealth of the world economy.”

    Krugman is not a competent economist. Right back to the original theory, this is true ONLY if certain conditions are met. They are that both capital and labor do NOT move freely among the trading partners. That may have been more or less true in Ricardo’s day, but it certainly is not now. The profession is so corrupt that “comparative advantage” is used to justify freedom of movement for capital – a direct contradiction.

    Under modern conditions, it falls back to either absolute advantage (physical conditions like climate or mineral deposits) or a race to the bottom. the environmental economist Herman Daly proposed forbidding capital movement between nations to regain comparative advantage, a proposal that causes economists and capitalists to run around with their hair on fire. A sublime spectacle.

    1. Oregoncharles

      “Given that Krugman won a Nobel Prize for his work on international trade”
      That would be the fake Nobel, awarded by the central bank of Sweden for best capitalist ideology.

      1. Oregoncharles

        ” So tropical fruit is exported from, say, Mexico or Chile, rather than from Canada. And Australia’s abundance of natural resources explains why it has become a mining superpower.”
        As I just explained, that is absolute, not comparative, advantage. Is Auerback normally this ignorant? Apparently Krugman is.

        Edit: Apparently Auerback is not: “The bottom line is that it is a mistake for a country simply to follow an idealized playbook from an economics textbook on free trade/comparative advantage”

        I’ll hold off on further comments till I’ve finished the article, but that critique of comparative advantage is foundational.

  23. Oregoncharles

    1) ” (even if his actions hitherto have done much to address their complaints).” He left out a “not” after “have,” the second time an omitted negative reversed his meaning.

    2) Now I see where he was going; but it still needs a correction in the basic theory. “Free trade” is just English for “laissez faire,” which means “let [business] do” – as it pleases.

  24. Conelrad

    The bottom line is that it is a mistake for a country simply to follow an idealized playbook from an economics textbook on free trade/comparative advantage, and allow itself to be out-gamed via strategic trade policy/national development decisions taken elsewhere …

    In this vein, it’s worth asking whether “free trade” is in fact all it’s cracked up to be. See, among others, Herman E. Daly’s “The Perils of Free Trade: Economists routinely ignore its hidden costs to the environment and the community,” in Scientific American, November 1993, and Ha-Joon Chang’s Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (2008),

    The U.S.’s problem in responding effectively to “bad deals” goes far beyond President Trump. Neoliberalism’s near-half century of ascent has left us largely incapable of recognizing that “good enough for government work” can be a compliment. We have lost faith in the ability of democracy to Think Big, believing instead in The Magic of the Market. (Re this “magic,” it’s worth remembering Karl Polanyi’s insight that the “free market” economy itself “was the product of deliberate state action.”)

    Time for a change.

  25. Altandmain

    A well designed tariff when you are running deficits can be beneficial.

    But it requires some things that are anathema to Trump:

    1. A solid industrial policy
    2. Tight control over domestic industry – they need to innovate not rent seek using the protectionism
    3. A population willing to make short term sacrifices for greater long term gains

    I hate to say it, but Trump doesn’t have what it takes. Neither do the American people. The East Asian nations made mercantilism work. The US doesn’t have anything near the social strength and cohesion of say, Japan. It just doesn’t.

    Imagine this – you are South Korea in the 1970s and 1980s. They restrict (and still do restrict) foreign car imports. They use a variety of non-tariff barriers to restrict the imports of cars. In the 1970s and 1980s, in theory, they could have imported from say, the US or Japan. They did not subscribe to the junk neoliberal economics.

    They raised barriers and used their shielded domestic market to get their infant car industry up. When they first exported, their cars were a laughing stock. Over the past 20 years, Hyundai and Kia have seen dramatic improvements.

    But the US is not South Korea, China, or Japan. Trump does not have the calibre of leadership needed to make it work.

  26. Expat

    I find it amusing that so many Trump supporters are deriding well-known and prize-winning economists in favor of an avowedly ignorant man who has failed at most of his serious business ventures, was known as a disinterested, mediocre student, and who has no firm opinions on anything.
    The notion that any country running a trade deficit is getting “ripped off” is, for lack of a better expression, born of ignorance. Are you all going to boycott your local McDonald’s because you are running a personal trade deficit with it? Or your dentist?
    The US does not have a trade deficit. The US imports raw materials and exports finished goods. Or it imports finished goods and exports…wait for it…dollars! Since the US is the only country on Earth who can produce dollars, this is our competitive advantage.
    Balanced trade would probably mean a collapse in US GDP and standard of living. If that is what would Make America Great Again, I am pretty happy to be living in communist Western Europe.

  27. AbateMagicThinking but Not Money

    Re Unfairness in Trade:

    Free-Trade at the price of a diminished commonwealth?

    Given that free trade is good, and that love of country is good, there comes a point when the presidence of one negates the other. That said, the unfairness in the matter is due to the double whammy of the importing companies’ advantage of capital and the additional advantage of access to low wage economies. This situation allows for the importation of goods that otherwise would be purchased locally, leading to the perception that importing companies seemingly have no love of country. China* for example, does not seem to be unfair to me as it probably is not the initiator of trade contracts freely entered into.

    Don’t impose tariffs; just impose patriotism, on capital rich, price-impulsive arbitragers. Perhaps it might be necessary to coerce the recalcitrant unwitting foreign-agent with those renowned techniques which those institutions such as the CIA use so indiscriminately.

    Trade freely for what you can’t obtain at home. Just don’t allow anyone to undermine the commonwealth willy-nilly. Of course standards must be maintained at the highest level so that there is no reason other than functionality, quality or scarcity to import goods. The administration of this aspect of the commonwealth is a knotty problem to say the least, but probably easier than managing the reverse of rapid decline**.

    To answer the question in the article: My suspicion is that Trump negotiates with the diminished ethos of Milo Minderbinder.


    *In my reading of history it is fascinating to see how the public’s attention is so often diverted (unerringly) from the true author of their woes to a well set-up whipping boy.

    ** My reluctant view is that rapid decline for the US is in progress – see what happened to Britain after Rupert Murdoch came to front-run the lowest-common-denominator media game.

  28. JTMcPhee

    “Free trade” is a big lie, let’s face it. And “trade” and consequent looting and consumption have been and are killing our species, and a whole lot of others, and demolishing the habitability of the planet.

    But the Juggernaut is at full tilt, running down a steepening hill, brakes burnt out, or just removed, “all nice and legal,” by the Successful and Agile and Innovative and Disruptive among us. Who still grasp for the last bits of externality-derived “profit,” in search of that surfeit of pleasurable sensation, of dominance and destruction, hoping somehow to have “enough” finally, or for the One to finally have “it all.”

    To the point, if I am hearing things right “, and deep apologies if wrong, that it seems even our hosts see what’s happening, and are considering how to decamp from the spaces they live in, where that involution is accelerating, in search of higher ground where the tooth-and-claw-ism has not ascended so high yet, to finish their own individual lives in a lesser state of fear and loss.

    Sauve qui peut — what it usually come down to, amongst us humans. Reduced, in the end, to making weapons and whistles and ornaments of the bones of those who we kill or who otherwise pre-decease us…

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