Washington Insider: State of Play on Trade Policy

Administration experts often argue that trade is simple, and that there is wide support for tougher negotiations. At the same time, Bloomberg reported recently that “some of the biggest voices in U.S. economics” have written to warn of negative impacts about reliance on tariffs.The recent warning was fairly spectacular. More than 1,100 economists, including Nobel laureates and former presidential advisers, wrote to warn the President about his “tariff-heavy” approach to trade. Many of the recent arguments quote directly from another letter sent in 1930, cautioning against protectionist measures proposed at the start of what became the Great Depression.“Congress did not take economists’ advice in 1930, and Americans across the country paid the price,” the economists say in recent letter. “Much has changed since 1930 -- for example, trade is now significantly more important to our economy -- but the fundamental economic principles as explained at the time have not.”The letter, organized by the Washington-based National Taxpayers Union (NTU), came as the Trump administration prepared to travel to China for talks “aimed at averting a trade war, among other issues.” Once again, the trade disputes are clouding the outlook for the U.S. economy, which is now in its second-longest expansion on record. However, the Beijing talks that ended last week without achieve any significant results, press reports indicated.The economists’ letter said that economists are “pretty united in their opposition to protectionist trade policy,” Bryan Riley, director of the NTU’s free-trade initiative, said. “It’s the economic equivalent of flat-earth trade policy.”Still, the administration continues to considering levies on as much as $150 billion worth of Chinese imports on the grounds of alleged intellectual property theft, while Beijing has vowed to respond with tariffs of its own on everything from US soybeans to planes.Playing up the original letter, sent 88 years ago to urge U.S. lawmakers to reject the Smoot-Hawley Tariff Act was something of a gimmick, experts say. It didn’t work then, and the law passed in 1930 and was a key factor in a trade war that deepened the worldwide economic slump. The authors of the current letter -- including last year’s Nobel winner Richard Thaler and Gregory Mankiw, a former chief economic adviser to President George W. Bush -- fear a repeat, since the group is likely to change few minds this time, either.So, the political split remains clear “but confusing,” as administration advisers, using their own criteria, insist that the economics profession is solidly behind the administration’s proposals. But, many, many top economists say, “not so fast.”The truth is, the New York Times says, across the ideological spectrum, trade experts and former top economic advisers go so far as to say Trump is right to highlight issues on which China is widely viewed as an offender, such as intellectual-property theft and access to its domestic market, and other interventions in its industrial system.Still, that doesn’t mean that many of those same experts are pretty sure the administration’s planned tariffs would backfire, according to the New York Times, because it would raise costs to American businesses and consumers and invite retaliation against American exporters.“Many economists have said, yeah, there’s some legitimate issues here,” said Laura Tyson, an economist at the Haas School of Business of the University of California, Berkeley, who headed the Council of Economic Advisers under President Bill Clinton. “I haven’t seen any who have said the appropriate response is a series of tariffs on a bunch of goods, most of which don’t have any real link to the underlying issue.”Tyson and many other economists say it was mistake last year when Trump pulled the United States out of the Trans-Pacific Partnership. Proponents of that agreement say it would have unified a dozen countries against the Chinese on trade issues.“I don’t think the way the administration is going about it is a particularly strategic one,” said David Autor, a Massachusetts Institute of Technology economist whose research suggests that opening trade with China cost the United States two million jobs in the late 1990s and early 2000s. “The first way to go about it should have been to sign TPP, which was set up as a bulwark against China.”Who’s right? The administration advisers uniformly use a metric, “trade deficits” that most economists discount very sharply. They seem to think the current system is far from perfect – but also that dipping deeply into protectionism is almost certain to make things worse for many, many consumers and many producers as well. And, looking back on the Beijing talks, there seems little room for much movement, although he gap is extremely wide, nobody is giving much.So, there is more and more at risk and no clear way out—not even by invoking antique letters. This is a fight producers need to continue to watch very closely as it proceeds, Washington Insider believes.