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Thursday, January 25, 2018

Bernstein:Populism, Globalization, Trump at Davos, Tariffs, the Dollar… [feedly]

Populism, Globalization, Trump at Davos, Tariffs, the Dollar…

As my title betrays, I'm trying to organize my thoughts around all of the above. There's a unifying theme to all this, and maybe if I noodle on about it here for a bit, I'll trip over it. But let me stipulate from the outset that I'm pretty sure the underlying theme of the moment will link up to the extremely important and deeply insightful recent work of the economist Dani Rodrik.

–Trump and a bunch of his staff are at the World Economic Forum in Davos, Switzerland. This feels like one of those teen movies where the good kids' parents are away and the kids have a party, which the bad kids show up to trash. The good kids act all scared and annoyed, but they're secretly titillated to have the bad kids at their party, hoping they'll set off some fireworks.

–Trump at Davos creates a collision of many strains of global political economics and Trumpian psychology, as Noah Bierman nicely covers here. Trump's populism is largely phony, so to the extent that he hits the Davos elites with America-first protectionism, it will be accompanied by an implicit wink, as if to signal: "Hey, fellow billionaires. This globalization stuff is working out great for us. But watch and learn, Davos. If you want to keep this deal going, you've got to shout a lot more about the 'forgotten man and women.' You might even need to slap a tariff on something here and there. But that's a small cost of doing business. You guys saw my tax cut, right?! You're welcome!"

–Well, Treasury Sec'y Mnuchin certainly let the cat out of the bag yesterday. He said "a weaker dollar is good for trade," which knocked already declining currency down even further, to its lowest level since late 2014 by the WSJ ICE index. The thing is, what he said is…um…true, and the nonsense that Treasury officials have had to spout about how the US is always and everywhere for a strong dollar is false and non-economic. Readers know I have no love at all for the Trump administration's economic policies, but I have to say that I appreciate this example of dumping a DC trope that never made sense in the first place.

–Which brings me to the tariffs. Between Mnuchin's dollar comment, the TPP-11 (the revival of the multi-lateral trade deal without the US), tariffs/quotas on solar panels and washers (but not dryers!), and possible forthcoming "section 232" tariffs on steel (the rationale for 232 tariffs is national security), the DC trade establishment has to be reaching for their vapors.

–These actions have generated lots of hand-wringing from the usual suspects, but what do they amount to? Presidents of all stripes have long invoked measures against countries that dump alleged under-priced goods on our shores, or unfairly hurt our own manufacturers (as the non-partisan ITC found in these cases; see this USTR fact sheet). Such measure make those goods more expensive, but at least in recent history, they've  never been large enough or long-lasting enough to change the underlying structure of the industry, domestic or foreign. At this point, 95 percent of our solar panels are imports! The tariff can have but a marginal impact on that share, and changes in the dollar and industrial policy have much greater long-run impacts on trade flows and balances. This then raises the good question as to why raise the tariffs? Typically, they've been used as a chess move, signalling to trading partners that we're unhappy with their pricing practices (which, to be clear, is not an endorsement). So, do yourself a favor and discount hyperventilating "trade war!" warnings by the usual critics. Forget the trade deals, the tariffs, and the noise they engender. Watch the trade and capital flows, which go up and down, but remain robust and will likely be boosted this year by synchronized global growth.

–Trump is apparently slated to argue the his "America first" nationalism must be a fine thing because, you know, the stock market's up and the unemployment rate is down. This makes absolutely zero sense. Other countries stock markets are up more than ours and growth is accelerating across the globe. Any trends Trump is enjoying were inherited. If he can claim credit for anything, it's not screwing up the economy Obama left him. Finally, there is no nationalist agenda, just a bunch of hot air accompanied by standard-issue, establishment Republican trickle-down tax cuts and industry deregulation.

–Still, even amidst all this posturing, what's most interesting about Trump in Davos is the collision of the cheerleaders of globalization with the president who ran against them, even while his legislative agenda is comforting and familiar to some of them. This collision invokes conflicts far more interesting than the Trump show, as masterfully covered in recent work by the economist Dani Rodrik. His survey of the history of globalization, clear-eyed look at the actual predictions (vs. the sugar-coated ones) of trade theory, documentation of the empirical outcomes of expanded trade, along with his fundamental understanding of the interactions between politics, institutions, and trade provide the deepest insights I've seen into this moment in global political economy. Read this for a somewhat technical, but still readable, version summarizing his sweeping take on these issues, and then read his highly accessible new book, which I'm working through and will have more to say about when I'm done. For me, and I suspect you'll feel similarly, this work perfectly crystallizes much of what got us to where we are today.

 -- via my feedly newsfeed