http://larrysummers.com/2018/03/26/implications-of-steel-tariffs-for-the-us-economy/
-- via my feedly newsfeed
A typical example is the recent op-ed by Jared Bernstein and Dean Baker in WAPO, and I cite them exactly for my respect for their economic views in general, and their commitment to progressive causes. In their view: "The bigger dangers to our economy are twofold. One, that our trading partners will retaliate by taxing our exports to them, thus hurting a broad swath of our exporting industries, and two, by leading an emboldened, reckless Trump administration to enact more bad trade policy." Essentially, they agree that tariffs would have a negative effect on employment, but perhaps not as big as some Cassandras have suggested, and that this 'bad protectionist' policies would continue. A similar argument can be found in Brad DeLong's op-ed, another progressive economist, in which he argues that the tariff is a tax hike for consumers. Brad, I should note, has recently published a very good book in which he praises the Hamiltonian system, that is, the use of managed trade to promote industrial development (I discussed it here).*
It should not be a surprise that American corporations continue to thrive in international trade (it's the American working class that is in trouble). Manufacturing is doing well, with the support of what Fred Block has termed the hidden developmental state in the US. So the problem is not that tariffs could not work. In all fairness, tariffs together with significant expansion of domestic spending on infrastructure (and more steel demand), with a vigorous defense of trade unions, with higher minimum wages, with policies to improve income distribution, like progressive taxes on the wealthy, to strengthen the domestic market might actually be part of a Hamiltonian strategy of economic growth. Note also that the whole point of imposing tariffs is to depend less on exports and more on domestic markets, so that to some extent retaliation should matter less. A more closed (not closed, but more so, like Keynes suggested in his National Self-Sufficiency piece of 1933) international economic order, to role back of some of the excesses of the neoliberal, pro-corporate globalization process, used to be be, and should be, on the agenda of the left.
The problem, then is less the tariffs per se, and more the fact that the Trumpian agenda is empty, and has nothing for the working class. That was my biggest concern reading the progressive economists complaints about Trump's trade views. Their solutions are to stop protecting patents and professionals, that is more 'free trade,' and a more depreciated currency (I'll leave my skepticism about this one for another post, at any rate I discussed this before). While I'm more sympathetic to the skepticism on property rights, note that China, in part, thrives, exactly because they do explicitly infringe the rules on patents (the first Geely car was a knock off of a Mercedes, and they bought Volvo to have access to foreign technology; there are many examples; it's worth noticing that the US did that in the past too). That would not necessarily be good for American corporations. To weaken doctors, lawyers and other middle (and upper middle) class professionals is certainly not the way out of the hole for the American working class.
I'm afraid that his trade policies, and the Dems position that effectively are to his right (like Hillary, but not Bernie) would make it more likely (hopefully not enough) for a longer period of Trumponomics than is acceptable. This suggests that a good chunk of Dems are stuck in the model that Mark Lilla has referred to as identity liberalism (see his book here), and have become vulnerable to right wing populism. It's getting increasingly difficult to have hope in the dark.
PS: For discussions of trade policy see this two previous entries which provide a simple discussion of the Ricardian and neoclassical models of trade and its limitations. I would also recommend the paper by Robert Wade linked here.
* There are many others that have written on this in the last couple of days. Paul Krugman could, arguably enter the list of progressives here, but he has been consistently more of a free trade guy. Krugman complain is more macro than the others. In his view, the Fed would hike rates, since we are close enough to full employment and any additional gains from the tariffs will be eroded, even without retaliation from other countries. In part, that would happen because higher interest rates would lead to inflows and an appreciation of the dollar (see here).
A typical example is the recent op-ed by Jared Bernstein and Dean Baker in WAPO, and I cite them exactly for my respect for their economic views in general, and their commitment to progressive causes. In their view: "The bigger dangers to our economy are twofold. One, that our trading partners will retaliate by taxing our exports to them, thus hurting a broad swath of our exporting industries, and two, by leading an emboldened, reckless Trump administration to enact more bad trade policy." Essentially, they agree that tariffs would have a negative effect on employment, but perhaps not as big as some Cassandras have suggested, and that this 'bad protectionist' policies would continue. A similar argument can be found in Brad DeLong's op-ed, another progressive economist, in which he argues that the tariff is a tax hike for consumers. Brad, I should note, has recently published a very good book in which he praises the Hamiltonian system, that is, the use of managed trade to promote industrial development (I discussed it here).*
It should not be a surprise that American corporations continue to thrive in international trade (it's the American working class that is in trouble). Manufacturing is doing well, with the support of what Fred Block has termed the hidden developmental state in the US. So the problem is not that tariffs could not work. In all fairness, tariffs together with significant expansion of domestic spending on infrastructure (and more steel demand), with a vigorous defense of trade unions, with higher minimum wages, with policies to improve income distribution, like progressive taxes on the wealthy, to strengthen the domestic market might actually be part of a Hamiltonian strategy of economic growth. Note also that the whole point of imposing tariffs is to depend less on exports and more on domestic markets, so that to some extent retaliation should matter less. A more closed (not closed, but more so, like Keynes suggested in his National Self-Sufficiency piece of 1933) international economic order, to role back of some of the excesses of the neoliberal, pro-corporate globalization process, used to be be, and should be, on the agenda of the left.
The problem, then is less the tariffs per se, and more the fact that the Trumpian agenda is empty, and has nothing for the working class. That was my biggest concern reading the progressive economists complaints about Trump's trade views. Their solutions are to stop protecting patents and professionals, that is more 'free trade,' and a more depreciated currency (I'll leave my skepticism about this one for another post, at any rate I discussed this before). While I'm more sympathetic to the skepticism on property rights, note that China, in part, thrives, exactly because they do explicitly infringe the rules on patents (the first Geely car was a knock off of a Mercedes, and they bought Volvo to have access to foreign technology; there are many examples; it's worth noticing that the US did that in the past too). That would not necessarily be good for American corporations. To weaken doctors, lawyers and other middle (and upper middle) class professionals is certainly not the way out of the hole for the American working class.
I'm afraid that his trade policies, and the Dems position that effectively are to his right (like Hillary, but not Bernie) would make it more likely (hopefully not enough) for a longer period of Trumponomics than is acceptable. This suggests that a good chunk of Dems are stuck in the model that Mark Lilla has referred to as identity liberalism (see his book here), and have become vulnerable to right wing populism. It's getting increasingly difficult to have hope in the dark.
PS: For discussions of trade policy see this two previous entries which provide a simple discussion of the Ricardian and neoclassical models of trade and its limitations. I would also recommend the paper by Robert Wade linked here.
* There are many others that have written on this in the last couple of days. Paul Krugman could, arguably enter the list of progressives here, but he has been consistently more of a free trade guy. Krugman complain is more macro than the others. In his view, the Fed would hike rates, since we are close enough to full employment and any additional gains from the tariffs will be eroded, even without retaliation from other countries. In part, that would happen because higher interest rates would lead to inflows and an appreciation of the dollar (see here).
I've long hoped, probably naïvely, that one of the benefits of team Trump's promotion of generally ineffective (or worse) solutions to the downsides of trade could engender a debate about better ideas. Of course, the debate will also generate some really bad arguments, like this one from economist David Boudreaux in this AM's NYT.
Boudreaux argues that trade (and, implicitly, anything else) can't be a problem for jobs because the US economy creates and destroys tons of jobs all the time. The nub of his case comes down to:
"…estimates of jobs destroyed by trade sound big, but they're actually tiny. Relative to overall routine job destruction and creation — "job churn" — the number of American jobs destroyed by trade is minuscule.
In January alone, the number of American workers who were laid off or dismissed from their jobs was 1.8 million. The number of workers who quit their jobs that month was 3.3 million. Adding in workers who left their jobs for other reasons, such as retirement and disability, the number of job separations in January was 5.4 million. But there were 5.6 million hires in January, too. Those numbers are typical of most months.
Awareness of job churn should calm Americans' fears about imports [good luck with that–JB]…Compared with the number of total annual job losses…job losses from trade shrink into insignificance."
He then cites some estimates of trade-induced job losses:
"Ms. Wallach's estimate that Nafta destroyed one million jobs in its first 20 years means that it took freer trade with Mexico two decades to destroy as many American jobs as are now destroyed every 18 days on average. Mr. Autor, Mr. Dorn and Mr. Hanson's calculation that 2.4 million American jobs were ended by trade with China from 1999 through 2011 implies that the 13-year "China shock," as the paper called it, eliminated as many jobs as are eliminated, on average, every 41 days."
By this measure, almost any amount of job loss attributed to any cause will be insignificant. Boudreaux has taken Panglossian economics ("don't worry—be happy!") to a new high. His trick, if you didn't notice, is a) conflating gross with net flows, and b) not giving a crap about the pain of job loss, dislocation, and the damage done to whole communities that found themselves on the wrong side of these global dynamics.
I asked David Autor—he's one of the economists whose work Boudreaux critically cites—what he thought about this argument that job churn somehow negates job loss. His response follows:
"It's unfortunate that a Ph.D. economist would not recognize the crucial difference between gross and net job losses. By Boudreaux's logic, since "in a normal year, then, the number of workers laid off or dismissed averages 21 million," the U.S. Great Recession was a negligible event: the U.S. lost fewer than 4 million jobs in the first year (a mere one-quarter's worth of job losses) and no more than another 2 million in the second year (only a month's worth). It's remarkable that we even noticed!
Yes, when the U.S. loses and gains 21 million jobs in a year, this is the normal ebb and flow of the labor market. Large gross job flows need not imply any net loss of employment. But when sharp changes in world trading conditions cause the U.S. manufacturing sector to close up shop on 14 percent of its base employment level (2.4 million of 17.3 million manufacturing jobs) in the space of a few years, and many of these displaced workers leave the labor force, that's a huge rise in concentrated net job loss that is not part of the normal ebb and flow. (By the way, 2.4 million is the conservatively estimated trade-induced fall. U.S. manufacturing jobs plummeted from 17.3 million in 1999 to 13.8 million in 2007, a net reduction of 3.5 million, followed by another 1.9 million net fall between 2007 and 2010)."
So, if you happen to read Boudreaux's oped and it seemed inconceivable to you that millions of net job losses magically "shrink into insignificance," be assured that you were right and he was very wrong.
As I've tried to stress in much recent work, this moment does, at least it should, create a moment to talk about what we should do for those hurt by trade.
I've argued:
–Much better work supports for job losers, including direct job creation in places with persistently weak labor demand.
–Improve the quality of existing jobs through much better labor standards (see Heidi Shierholz's recent work on this). Though there are definitely pockets of weak labor demand, even today, broadly speaking, our labor market problem is less job quantity than quality.
–Help our smaller manufacturers by expanding the Manufacturing Extension Partnership (it's a small but venerable part of the solution—I've got a piece coming out soon on this with the details).
–Push back on currency intervention by trading partners with "countervailing currency purchases" (see Gagnon/Bergsten on this). Trump's new South Korean trade deal relegated currency rules to a toothless side agreement.
–See Lori Wallach and my agenda for more inclusive trade deals, including taking ISDS out of these agreements, putting a currency chapter in the deal with enforceable disciplines, and ensuring a much more balanced set of interests around the table when these deals are cast.
Cross-posted at Social Europe.
Thomas Carothers has recently written an article in Foreign Affairs, the prestigious elite journal published by the US-based Council on Foreign Relations. The article asks: is the US hypocritical for criticizing Russian election meddling?
Given the place of publication, the unsurprising conclusion is that it is not. The problem is the US is a champion meddler. Consequently, the argument crumbles every time Carothers reaches for substance.
At the end of the day, the defense reduces to the claim that we (the US) are good and they are evil, so that our meddling is a net good and theirs bad: "the trends of US and Russian behavior are divergent, not convergent – with Russia on the negative side of the divide."
That is a moral superiority defense which is doubly flawed. First, the US can still be a hypocrite. Second, framing great power international relations in terms of moral superiority quickly promotes crusader thinking, which is a grave menace to all.
The first line of defense is that the US meddles less now than in the Cold war. But exactly the same can be said of the Russians. Moreover, since the US is far wealthier than Russia, its democracy manipulations now dwarf those of Russia measured in financial terms.
On top of that, the recent history of US meddling is of an order of magnitude worse than that of Russia. In the Ukraine, which is a highly sensitive space on Russia's border and historically part of the Motherland, the US helped promote a coup in 2014 three months before scheduled elections.
Moreover, this intervention in the Ukraine came on top of 20 years of the US pushing NATO into former Soviet bloc countries. That has put US forces closer and closer to Russia's borders, and violated the end of Cold War understanding that former Soviet bloc countries would remain outside NATO.
Elsewhere, in 2016, following an illegal and unconstitutional coup in Honduras, the US supported the junta's consolidation of power.
Going back to the previous decade, there was the internationally illegal invasion of Iraq and the promotion of a coup in Venezuela. And before that, in 1996 there was the mother of all interventions when the US intervened to influence Russia's election in favor its preferred candidate, Boris Yeltsin. Carothers fesses up to that, but fessing up does not mean acquittal.
In short, not only has there been a lot of US meddling since the end of the Cold War, it exceeds Russian meddling.
The second line of defense is that the US is different because of its democracy promotion efforts, which are not matched by Russia.
It is absolutely true Russia does not have such programs. But we must be careful to distinguish between rhetoric and reality. Forty years ago, the Soviet Union was dedicated to liberating the workers of the world, but no one except a Soviet apparatchik would have counseled taking this at face value. Similar skepticism is warranted regarding US democracy promotion.
The US is for democracy promotion when it suits its interests, and against it when it does not. Strategically important undemocratic allies are given a free ride, while unfriendly undemocratic countries are subjected to subversive meddling in the name of democracy. Seen in that light, US democracy promotion is the twin of democracy meddling. Both are tactics serving US interests.
The hollowness of the US commitment to democracy promotion is evidenced by how quickly it is dropped when real interests come in to play. That is forever etched in the record by the way the Tiananmen Square protests were conveniently forgotten when trade with China was at stake. Similarly, democracy concerns are always excluded from the room in dealings with Saudi Arabia.
That is exactly how a great power with important interests is expected to behave. But it speaks to being done with the democracy promotion charade, which the US elite pumps up to gain rhetorical advantage in international relations and disingenuously enlist the support of common citizens.
Any honest assessment of US democracy would compel the admission that the real threats to it lie within the US. These threats include fake corporate-produced news, the political power of money and corporations, gerrymandering of congressional districts, voter suppression, built-in representational biases from the electoral college and Senate, and obstruction of change from the first-past-the post electoral system which blocks emergence of new political parties.
Compared to those problems, Russia's Facebook interventions are a small time side-show. Moreover, Russia's actions are par for the course of international relations, as long practiced by both the US and itself.
It is relatively easy to further secure the US voting system, and there is much that can readily be done to make US democracy more competitive and informed. But a high quality democracy is not the real goal. Instead, the US elite's obsession with Russia's election meddling is a circus aimed at distracting the public from domestic problems, and at increasing national security paranoia to justify more military spending and more domestic surveillance.
How we got here, how to address authoritarian Russia's encirclement fears, and how to restrain the US imperial impulse are huge questions. A good starting place is to strip away US hypocrisy regarding democracy meddling and democracy promotion.
Doing so does not imply moral equivalence, but it has two huge benefits. First, it can help avoid getting locked into conflict on grounds of false principle. Second, it can help surface the real concerns and conflicts of interest that must be managed.
All of this is especially important for Europe, where the damaging backwash of US actions are now so often felt.