The antidote to Trump’s ‘economic illiteracy on stilts?’ A dose or Reagan’s pro-trade wisdom – AEI – American Enterprise Institute: Freedom, Opportunity, Enterprise29th December 2018
Here’s what we learned today on Twitter from the Protectionist-in-Chief about international trade:
….The United States looses soooo much money on Trade with Mexico under NAFTA, over 75 Billion Dollars a year (not including Drug Money which would be many times that amount), that I would consider closing the Southern Border a “profit making operation.” We build a Wall or…..
— Donald J. Trump (@realDonaldTrump) December 28, 2018
…..close the Southern Border. Bring our car industry back into the United States where it belongs. Go back to pre-NAFTA, before so many of our companies and jobs were so foolishly sent to Mexico. Either we build (finish) the Wall or we close the Border……
— Donald J. Trump (@realDonaldTrump) December 28, 2018
Jeff Jacoby was quick to correct Trump’s “economic illiteracy on stilts,” by reminding Trump that:
The US and Mexico don’t trade with each other as countries. Trade occurs among private buyers and sellers, exporters and importers. Assuming transactions are voluntary, NO ONE loses from trading. Each transaction benefits both parties, or it wouldn’t take place.
That correct view of international trade as win-win transactions among individuals (not countries) is so elementary and obvious that even the average 5th grader could readily understand it, so it’s embarrassing for a US president to so regularly spew such economic illiteracy on Twitter.
What’s the antidote to Trump’s economic illiteracy? A dose of President Reagan’s pro-trade wisdom is a good place to start, as Dan Mitchell points out today: “President Trump’s view of global trade is so bizarre, risky, uninformed, misguided, and self-destructive that I periodically try to maintain my sanity by reviewing the wisdom of one of America’s greatest presidents.”
Below are three videos of President Reagan’s weekly radio addresses where he addresses the issues of trade, protectionism and trade deficits (also featured on Dan’s blog), with a “money quote” from each address.
1. Reagan’s Radio Address I on November 20, 1982:
If one partner shoots a hole in the boat, does it make sense for the other partner to shoot another hole in the boat? Some say Yes, and call that getting tough. Well I call it stupid.
We must resist protectionism. Because it can only lead to fewer jobs for them and fewer jobs for us.
2. Reagan’s Radio Address II on August 31, 1985:
The case of shoe imports illustrates why so-called protectionism is almost always self-destructive, doing more harm than good even to those it’s supposed to be helping. Advocates of protectionism often ignore its huge hidden costs that far outweigh any temporary benefits. Protectionism almost always ends up making the protected industry weaker and less able to compete against foreign imports. Between 1977 and 1981, US footwear manufacturers received protection from foreign imports, but at the end of that time they were more vulnerable to foreign competition than before.
Instead of protectionism, we should call it destructionism. It destroys jobs, weakens our industries, harms exports, costs billions of dollars to consumers, and damages our overall economy.
3. Reagan Radio Address III on November 26, 1988:
Over the past 200 years, not only has the argument against tariffs and trade barriers won nearly universal agreement among economists, but it has also proven itself in the real world, where we have seen free trading nations prosper while protectionist countries fall behind.
America’s most recent experiment with protectionism was a disaster for the working men and women of this country. When Congress passed the Smoot-Hawley tariff in 1930, we were told that it would protect America from foreign competition and save jobs in this country – the same line we hear today. The actual result was the Great Depression, the worst economic catastrophe in our history; one out of four Americans were thrown out of work. Two years later, when I cast my first ballot for President, I voted for Franklin Delano Roosevelt, who opposed protectionism and called for the repeal of that disastrous tariff. Ever since that time, the American people have stayed true to our heritage by rejecting the siren song of protectionism.…
The record is clear that when America’s total trade is increased, American jobs have also increased, and when our total trade has declined, so have the number of jobs (see chart above).
Part of the difficulty in accepting the good news about trade is in our words. We too often talk about trade while using the vocabulary of war. In war, for one side to win, the other must lose. But commerce is not warfare. Trade is an economic alliance that benefits both countries. There are no losers, only winners; and trade helps strengthen the free world. Yet today protectionism is being used by some politicians as a cheap form of nationalism, a fig leaf for those unwilling to maintain America’s military strength and who lack the resolve to stand up to real enemies—countries that would use violence against us or our allies.
Our peaceful trading partners are not our enemies. They are our allies. We should beware of the demagogues who are ready to declare a trade war against our friends, weakening our economy, our national security and the entire free world. All while cynically waving the American flag. The expansion of the international economy is not a foreign invasion; it is an American triumph, one we worked hard to achieve, and something central to our vision of a peaceful and prosperous world of freedom.
MP: It’s an important point made here often that total trade (Exports + Imports) is a better measure of the importance of international trade to our economy than the obsession with tracking net exports (Exports – Imports). The continual focus by politicians like Trump and the media month-after-month on the “trade deficit” with Mexico or China is misplaced, and the ubiquitous media reports and endless comments from Trump that describe “trade deficits” disparagingly (like his Tweets above) completely miss the bigger picture of international trade that Reagan understood perfectly. Rising exports, rising imports, and rising total trade are all signs of an expanding, healthy economy, and contribute to economic growth, economic prosperity, and job growth. The chart above confirms Reagan’s message by showing graphically the close relationship over time between America’s rising total trade and rising US employment.
As the Wall Street Journal described Trump back in May: “He aspires to be Ronald Reagan but his tariff folly echoes of Herbert Hoover.” But don’t expect Trump to pay any attention to Reagan or his message about trade, he’ll continue to act more like Herbert Hoover and put the US economy at great risk with ongoing protectionism and trade war. Realistically, we can expect a continuation of Trump’s demagoguery, upside-down thinking and “economic illiteracy on stilts” — the complete opposite of Reagan’s message above — using the vocabulary of war and describing international trade as warfare with our trading partners, who have been invading America to beat/rape/crush/rob us of our wealth while they steal our jobs and production. Blah, blah, blah. Yada, yada, yada.