A pyric trade victory?

Published 3:14 pm Monday, June 17, 2019


Contributing columnist

President Trump’s foreign policies are ambitious and risky. We have been playing softball with our trade policies ever since the end of WWII. Our trade partners take them for granted and believe they are entitled. Trump’s policies conflict with conservative traditions from both parties and they make a lot of folks nervous, me included.

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Trump has not made the objective clear, other than changing the terms of trade.  He has not explained why he thinks it is a problem and is worth offending both our foes and friends. “Is the game worth the candle?” There is a lot of history attached to his actions.

After WWII, the global economy was prostrate and governments around the world feared we would slip back into depression after the war. If these economies could not be re-started, they would be easy prey for insurrection. Something needed to be done and the “Marshal Plan” was just the beginning.

Before the war, countries were on a binge of protectionism and all those trade restrictions had to be unraveled or global growth could not take off; but the war-ravaged economies also had to be re-started. Tampering with the terms of trade could slow their recovery.    

Ours was the only untouched economy and we had most of the world’s gold supply. We were the “arsenal of democracy” during WWII; so, we sold arms and food for gold throughout the war.  With that gold stock we could run trade deficits with other countries for a while.  We hoped the deficits would prime the major economies.

When we negotiated tariff reductions, we followed a policy of giving generous concessions to our partners. These trade agreements were proliferated through multilateral trade agreements and “most favored nation status.” In the end, we experienced chronic “asymmetric trade relations” (chronic trade deficits).

Some will recognize a similar development in our post-war national defense policy. The U.S. was the only country capable of defending democracy. Our defense “umbrella” was extended to Europe, South Korea and Japan. We also took on the job as the world’s police force (the Korean war euphemistically became a “police action” and not a “war”).

The cost of this in terms of blood and treasure was staggering! Most of the world resented our role; yet, their governments refused to provide their own defense. Precisely what happened to Rome (“Pax Romana”), more evidence “no good deed goes unpunished.”

President Trump believes he is reforming these issues, trying to make more opportunities for the middle class — quit exporting their jobs and stop sending their children overseas to fight.  Europe is now paying more to support NATO and for our troops stationed in their countries. Korea is doing the same and Japan is rearming.  Japan’s rearmament changes China’s and North Korea’s defense calculus substantially.       

Trump’s most recent trade adventure is leveraging Mexico to stop/slow down the flow of illegal immigrants from Central America and from further abroad. He appears to have achieved some success here. It remains to be seen how long he can continue to use trade as a cudgel to discipline various countries before they revolt. I would prefer he bring out the “velvet glove” for now.

More trade lifts people out of poverty and it reduces the threat of war with your neighbors. Trade is good. Generally, countries benefit from trade. Still, some people are hurt by trade in every country. These micro-economic effects of trade over an extended period can wreck some industries that turn out to be important.

In our case, the general benefits have been consumption benefits rather than investment benefits that would make our core industries more competitive.

Without consulting middle-class blue-collar workers, those in power, both Democrat and Republican, let the middle-class bear the burden of our trade policies. Median household income has been flatlined for the last forty years and the gap between rich and poor has expanded at a ferocious rate. It’s time they get a little help. Specifically, in terms of technical training opportunities and recognition that not everyone should go to college. There is considerable honor in craftmanship.     

Bob Martin is emeritus professor of economics at Centre College.