A Reckless Optimist Writes
His recent post is on “Clumsy Trade Policy” and it expounds a new theory of ‘safe’ protectionism by weighting tariffs on manufactured goods by an index of the population of a country – the larger a country’s population the more the imposed tariff. It's not difficult to work out who he is aiming at.
His assurances are also predicated on a ‘hope’ and ‘assumption’, but not much more, namely that countries (I see Germany is included!) affected by a substantial fall in their exports to the USA would not retaliate.
History shows that there is no fire-safe way in which imposing tariffs is ‘safe’ from retaliation, and retaliation is more likely when there is economic distress, of which all affected parties are aware. It called a ‘beggar thy neighbour’ strategy. Moreover, all US trading partners will be aware of the aims of the policy – they read the US press, watch Fox News and CNN, and their diplomats keep tabs of Congressional Debates.
The open and obvious aim of such a tariff policy is to improve the fortunes of the US while necessarily worsening the economic performance of those upon which the weighted tariff policy would be applied.
Pete Murphy includes these assertions in his post:
“The problem is that we’ve held fast to our free trade policy for decades, in spite of the mountain of evidence that something is wrong - culminating in global financial collapse, without ever questioning why. We’ve taken the 18th century theories of Adam Smith, David Ricardo and others, fathers of free trade theory, at face value without ever researching factors that may limit their application - like population density, for example. And without an understanding of what makes free trade work in some instances while producing horribly skewed results in others, we then have a tendency to lash out at all trade. At least the blunt force application of protectionism would restore a balance of trade, but the U.S. Chamber of Commerce is correct in warning of backlashes.”
“Any policy that moves us toward a balance of trade and restores manufacturing jobs is better than what we have now, but an elegant approach that’s rooted in logic can avoid the unnecessary collateral damage of a trade war that would only buttress arguments for a pendulum-like swing back to the opposite end of the clumsy trade policy spectrum.”
The trade policies of the US (which are not free trade) are not there because of what Adam Smith wrote in 1776 or David Ricardo wrote in 1817 (that gives far too much credit to them); they take their current forms because it is in the interests of the US to apply such policies.
I should think that international trade policy is the most researched area of economics imaginable, from all sides of the arguments about it, from people of significant standing in the subject, plus not a few ‘scribblers’ who believe they have spotted some missing element the theory and practice of internation trade (I remember as a student almost only having time to read the titles of all the books and articles written on the topic, never mind their contents) backed by endless econometric analyses, in what thousands of these lifetime-scholars did not manage to spot, in two or more hundred years.
International trade is highly political, and has been since medieval times. European countries went to war many times with neighbours over all kinds of issues, including the trivial and the momentous, and trade relations were often the cause of, first ‘jealousy of trade’, then angry resentment, and almost always in the spirit of mere speculation by scribblers about which side would ‘win’ as a result of the contest of arms, or a contest of those surrogate arms, called tariffs and retaliatory prohibitions. Trade wars are not a one round game.
Pete Murphy describes his proposal as “an elegant approach that’s rooted in logic”, which he assures readers “can avoid the unnecessary collateral damage of a trade war”.
It’s a safe bet he is wrong.