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No, Trump Isn’t Reagan On Free Trade

In their desperate attempts to paint presumptive 2016 Republican presidential nominee Donald Trump as Ronald Reagan, Breitbart News has activated reporter Julia Hahn to attack former Reagan administration staffer and now top talk radio host Mark Levin.

Levin has critiqued Donald Trump’s anti-free trade policies in scathing terms. On May 7, Levin wrote at Conservative Review:

One of the major planks in Donald Trump’s campaign platform, if not the top priority, has been a stalwart insistence that voluntary commerce and trade with other countries weakens America’s economy and costs American jobs. Moreover, he insists that he knows best how to manage it all in the best interests of America. Indeed, Trump has not only proposed slapping a 45 percent tariff on all goods made in China, and massive tariffs on other countries like Japan and Mexico, but he repeatedly declares that he will personally impose punitive taxes on Ford Motor Company if it follows through with plans to build a manufacturing plant in Mexico. He has also threatened punitive penalties against Apple Inc. if it continues making iPhones in China.

All of this is true. And all of it is potentially crippling to the economy. According to a study from the National Foundation For American Policy, Trump’s proposed tariffs on China, Mexico, and Japan would “be ineffective in shielding American workers from foreign imports” and would “impose a regressive consumption tax of $11,100 over 5 years on the typical US household.” The report adds that Americans “hit poor Americans the hardest…cost[ing] US households in the lowest 10% of income up to 18% of their (mean) after-tax income or $46,70 over 5 years” – precisely the people Trump purports to represent. Were Trump’s proposed tariffs extended across every country – and hey, why not extend such a brilliant policy idea across the board? – it would cost the average American household $6,112 annually, $30,560 over five years, or $459 billion each year for all American consumers.

But according to Hahn and other trade restrictionists including Pat Buchanan, tariffs are wonderful policy – and they’re Reaganesque, too! She calls Reagan’s trade policies “mercantilist” rather than capitalist, saying “the American producers should survive for the simple reason that they’re American – not because it’s cheaper, and not because it’s necessarily better, though it may be, but because America is better off for having it made within our own borders.” She says tariffs are justified by other countries “cheating” on trade.” She says that tariffs help industries and consumers by creating profits that are then reinvested into lowering costs of production. She cites statistics about trade deficits showing that “By 1991, the total US trade deficit had fallen to $66.2 billion. In 2015, the total US trade in goods deficit was $736 billion.” Hahn even goes so far as to pretend that the disastrous Smoot-Hawley tariff regime that deepened a terrible recession into the Great Depression was just dandy, citing that noted economist Buchanan. Hahn finally cites Reagan’s famous 45% tariff against motorcycles from Japan in order to save Harley Davidson; she added on a list of relatively minor tariffs and quotes on products including sugar, Japanese semiconductors, and Canadian lumber.

There are a good number of false and misleading claims here. Let’s go through them briefly.

Reagan was not a protectionist in rhetoric or action; Trump is. Here’s Reagan circa 1986: “Our trade policy rests firmly on the foundation of free and open markets. I recognize…the inescapable conclusion that all of history has taught: The freer the flow of world trade, the stronger the tides of human progress and peace among nations.” That’s not mercantilism, which suggests that trade is just an element of power politics – that we must “defeat” other nations through trade restrictions (which historically have included everything from maximum wage laws to slavery).

How about the notion that we must punish countries for “cheating” on trade through devaluation of their currencies? That’s nonsense, too – devaluation of currency by foreign countries has no real impact on trade, other than strengthening the American dollar and giving Americans more disposable income. If China starts printing off dollars so as to make their goods cheaper for Americans, so what? That just means that we can afford more Chinese goods – and they have to use our dollars, since the currency in China isn’t yuan, which means they will have to spend on our economy as well. Currency is just a measure of labor. Trade swaps labor for labor. You can’t make labor magically disappear or appear by printing more pieces of paper. There’s a reason that China’s currency manipulation is costing the Chinese economy dearly. And there’s a reason that hyperinflation in countries like Venezuela hasn’t meant an advantage against the American economy. Here’s Thomas Sowell:

In general, international deficits and surpluses have had virtually no correlation with the performance of most nations’ economies. Germany and France have had international trade surpluses while their unemployment rates were in double digits. Japan’s postwar rise to economic prominence on the world stage included years when it ran deficits, as well as years when it ran surpluses. The United States was the biggest debtor nation in the world during its rise to industrial supremacy, became a creditor as a result of lending money to its European allies during the First World War, and has been both a debtor and a creditor at various times since. Through it all, the American standard of living has remained the highest in the world, unaffected by whether it was a creditor or a debtor nation.

In the same vein, America’s supposed “trade deficit” means nothing for the economy – in some our strongest periods of growth, we’ve had trade deficits, and we’ve had trade surpluses in times of economic depression.

How about Smoot-Hawley, defended by Hahn and Buchanan? It wasn’t just bad, it was disastrous policy. As Burton Abrams of The Independent Institute writes, the trade war we launched destroyed our economy:

Between 1929 and 1933, world trade decreased by 67 percent….[Smoot-Hawley] failed miserably in creating jobs. Much more onerous to the economy were the economic losses from reducing trade and the subsequent loss of beefits that trade brings. Losers lost more than gainers gained.

As for Reagan, the Great Communicator lowered major global tariffs repeatedly, as Daniel Griswold of the Cato Institute points out:

It was the Reagan administration that launched the Uruguay Round of multilateral trade negotiations in 1986 that lowered global tariffs and created the World Trade Organization. It was his administration that won approval of the U.S.-Canada Free Trade Agreement in 1988. That agreement soon expanded to include Mexico in what became the North American Free Trade Agreement, realizing a vision that Reagan first articulated in the 1980 campaign. It was Reagan who vetoed protectionist textile quota bills in 1985 and 1988. During Reagan’s eight years in office, Americans eagerly expanded their engagement in the global economy. In 1980, the year before Reagan became president, Americans spent a total of $334 billion on imported goods and services and payments on foreign investment in the United States. By 1988, his last year in office, American spending in the global economy had nearly doubled, to $663 billion.

Global trade agreements are significantly more telling than individual tariffs on individual goods. That’s particularly true of Trump bugaboo NAFTA, which, as Michael Wilson of Heritage Foundation has written, was “Ronald Reagan’s Vision Realized.”

And did tariffs save Harley Davidson? In the short term, yes. Long term, absolutely not. Innovation did. Temporary tariffs staved off bankruptcy, but it was Harley changing its design methods that led Harvey itself to ask for the tariffs to be reduced in 1987, one year ahead of when the tariffs were scheduled for review. Japan’s Research Institute of Economy, Trade and Industry (RIETI) estimated that just 6% of Harley’s sales increase could be attributed to the tariffs. And tariffs did come at a cost to American consumers, who were asked to subsidize Harley.

So no, Trump’s trade policy isn’t smart or Reaganesque. It’s backwards and it’s damaging.

 
 
 

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