Trade war and free trade — Michael Strain and Derek Scissors | VIEWPOINT

Trade war and free trade — Michael Strain and Derek Scissors | VIEWPOINT

Derek: But, you know, going beyond the Chinese,
I think it’s justified because we need to do something to change the trade status quo. And I don’t think other countries are gonna
cooperate unless we threaten them. Mike, thanks for doing this. Mike: I’m happy to do it. Derek: So, we agree on a lot on trade, but
I’m gonna focus on what we disagree on. I think the situation for our American workers
who have been made less competitive by globalization is bad enough that we should take trade actions
that don’t make a lot of sense otherwise. We should sometimes impose tariffs or target
other companies or try to threaten bad actors because those workers are in a position where
that’s the best policy for the U.S. right now. Mike: So, I would prefer to use tariffs as
a threat very sparingly. I think you can make a reasonable argument
for imposing tariffs against China, given some of their intellectual property practices
and other bad practices. I think that that has gotten to the point
and, you know, enough time has gone by that extremely aggressive action is warranted. In terms of trying to address the situation
that American workers find themselves in, I don’t think that raising the prices for
the goods that they want to consume is the right solution. I think it may help workers and some, you
know, pockets of the economy over a short-term period. I think it would hurt workers on balance. I think it would hurt upper income households
as well and we should be considering their welfare. And I think that there are other policy tools
we can use besides tariffs to help those workers who are hurt by international trade and we
should be turning to those measures first, and we have not really exhausted those measures
by any stretch as well. So, there’s some low-hanging policy fruit
that I think we can exploit before turning to something like tariffs. Derek: I wanna get to that, but we might agree
on that. And like I said, I wanna focus on where we
disagree. You’re making a standard argument which I…you
know, is fine. I don’t think it’s terrible argument of, let’s
judge how good our partners are and they’re really bad partners and we should act against
them with not ideal trade policies, but they’re pushing us to that way. And then there are better partners and we
should just, you know, go with the status quo in those situations or most of the status
quo. And my point is a little stronger than that. I don’t think your point’s unreasonable at
all, but my point’s a little stronger than that, which is, we…you know, we’ve lost
a lot of manufacturing jobs. We’ve had depressed wages. We have a group of…as you know very well,
we have a group of workers in the countries that don’t have the skill set to hold good
jobs and support their families. That’s caused social problems. It could be linked to the opioid crisis to
some extent. So, I’m not saying it’s fair to pick out decent
partners. I mean, they’re not perfect, but neither are
we. I’m not saying it’s fair to pick out decent
partners. I’m saying that’s what we have to do in the
United States right now. The U.S. in 2018 is not the same as the U.S.
in 1998. And, of course, we should deal with bad partners. You and I agree on that. That’s long overdue. I don’t want us to, like, just threaten the
Canadians because we don’t like their Prime Minister or something silly like that. But I do think that American workers need
more protection. Now, that gets to the second point. You think that there are other options that
we could, you know, go to before we go to trade. Okay. Are those other options gonna help in the
next couple years? Are they gonna help 15-20 years from now and
we improve the education system and so on? Mike: Well, hopefully both. I don’t think American workers need more protection. I think American workers need more opportunity. It certainly is the case that America in 2018
is different than America in 1998. It’s also the case that America in 1998 was
different than America in 1978. And if you take a longer view, the major threat
to workers has not been trade. The major threat to workers has been displacement
due to technology and the changing dynamics of the economy. And we need to do better at providing opportunity
to workers who risk being displaced by whatever changes they’re facing, whether those be trade,
whether those be automation, whether those be institutions in the labor market that are
no longer as strong as they once were or whatever the reason. Derek: Right. I agree with that. I just think it ca be used in…and I’m not
saying you’re doing it, but it can be used as an easy excuse, which is, “Hey, you know,
trade’s not even 50% of the problem. You know, if you’re gonna take a realistic
view of the U.S. economy, trade’s not that important except when it gets quite extreme
conditions. So, let’s not focus on trade.” All right, but we’re not doing the other things. And, you know, one of the opportunities that
we would create for American workers is to export more and we’ve given our…you know,
even our friends, plenty of opportunity to be better trade partners. We don’t owe the world by far the largest
current account deficit. We don’t owe the world American excess demand. So, one of the opportunities we would create
for our workers is exporting more which, you know, everybody wants, but it doesn’t happen. And then the other opportunities, I don’t
want them to get in the way of the right trade policy. You know, is there something about what you
wanna do on the domestic side that would conflict with a more aggressive trade policy? I mean, why can’t we do them both at the same
time? Mike: Well, I think it gets to the question
of what the right trade policy is. And I think the right trade policy is free
trade. Again, I think you can, you know, point to
China and say, “Okay, you know, China is violating international norms. China is engaging in outright theft of our
intellectual property. And, you know, we have to take some punitive
measures that we wouldn’t otherwise want to take.” But I think with respect to, you know, the
countries that are in question and current policy debates — the EU countries, Canada,
Mexico — we should have a posture of free trade, in my view, towards those countries. We should be working on taking down any remaining
protectionist barriers, not erecting new ones. Derek: Okay. Let me come at you at it from that perspective. Our colleague, Marc Thiessen, recently called
the president a radical free trader, which I don’t think is true. Mike: I noticed that. Derek: But it fits with what you just said,
to some extent, which is, can we threaten people…decent partners, they’re not necessarily
perfect. Sometimes there are countries in Asia that
manipulate their currency. There are countries that use, you know, domestic
politics to erect non-tariff barriers by geographic indicators, various things that block American
goods and make American goods and services less competitive for poor reasons. Can we threaten them to get to a zero-tariff
outcome? Can we say, we’re gonna threaten pretty much
everyone? And a lot of people think that’s what the
Trump administration is doing on trade. And then we’re gonna…oh, look. Mexico’s responding right now. So, let’s make a deal with Mexico. The EU may be responding right now. Let’s make a deal with the EU. In Japan, if they’re not responding, well,
you know, then they’re gonna get the ugly side. They’re gonna get the stick instead of the
carrot. Would you, you know, win the goal, which the
president may or may not have, of really reducing trade barriers and creating more opportunities
for American workers? Would you then think that threatening our
partners, even our decent partners, is a good idea? Mike: No. I would be very surprised if… Well, first of all, I would be surprised if
I encountered evidence that this were an organized strategy. I think that the president…I think a better
explanation for the president’s behavior is that he has clearly protectionist instincts
that he really does believe that if we import more from one country then we export to that
specific country that we’re somehow, you know, losing in a zero-sum sense as opposed to just
engaging in trade for mutual benefit. So, my sense is that that is not what the
president is attempting to do. But if it were, I would be very surprised
if it would work. It’s very difficult to create these trade
agreements as we saw with TPP for perhaps the most recent example. It is the case that countries that are engaged
in these agreements are under tremendous pressure domestically to protect certain industries,
and that’s why there are some, you know, remaining high tariff raise that the president has been
able to point out. You know, tariffs on dairy products from Canada,
for example. The United States has similar issues — tariffs
that we impose on tobacco imports and things like that. And the idea that some kind of bellicose rhetoric
or some tweets would be enough to overcome the domestic/political situation in those
countries and would be enough to actually take a trade negotiation from the start to
the finish line, strikes me as wildly unrealistic. I think we saw some evidence of that with
President Trump’s meeting with the president of the EU Commission where, you know, the
president thought, at least according to his public rhetoric, that he’d really made some
progress. But people who actually follow these issues,
I think, have concluded that he really didn’t. And so, I think it’s wildly inaccurate to
suggest that the president is a radical pro free trader. I don’t see any evidence that his behavior
is strategic. And I think even if his behavior were strategic,
it wouldn’t work. Derek: Okay. I don’t think the president’s a radical free
trader either. I do see evidence his behavior is strategic
because we’ve got autos in China under the gun and that’s basically the whole trade deficit. That kinda fits in with your “He’s a strategic
protectionist, he’s not a strategic free trader.” He’s going after the trade deficit which you
and I agree is not the right measure. Having said all that, there is an area where
we disagree, which is you’ve just given…and I know you didn’t mean it entirely this way
but it ends up this way. A pretty good defense for, “Hey, we can’t
do anything.” Right? It’s not gonna work. But that to me is not an acceptable outcome. We can do better with our own trade policies,
but we’re more open than most countries and almost all of the large economies. We certainly can do better with our partner
trade policies. We need, as we said, that opportunity for
American workers. So, I feel like, you know, that fear of a
problem, which we agree on, is undermining our attempt. Like, what…taking your point to the extreme,
we end up doing nothing. But, you know, we’ve tried to talk people
into things. We try to negotiate, you know, nicely with
a number of countries. We haven’t been perfect on that. But it hasn’t worked. The trade status quo isn’t working for me
and I would argue it’s not working politically in this country, not just with President Trump,
but with Democrats as well. And we might disagree on this to some extent,
I don’t think it’s working well economically in this country. I think we need a different trade outcome
and I don’t think we get there by yapping about it. I think we get there by being more aggressive. So, speech over, I know you don’t…you know,
we may not agree, but is there one thing…not talking about China. We agree on China. The Chinese need to be dealt with. They’re an economic predator. But with partners that are valuable partners
to the United States, but they’re not perfect, obviously, is there one thing we can do to
put pressure on them? I mean, do we…because otherwise, we’re just
stuck saying, “God, I wish things were different,” but they’re not. Mike: I think I’d question those premises. I mean our average tariff rate is about the
same as the average tariff rate of the EU, the average tariff rate of Canada. So, I don’t think that the United States is
significantly, you know, more free trade than our major trading partners. I also don’t think it’s…I would not characterize
our progress on free trade as unimpressive. I think we’ve made considerable progress,
especially if you zoom out, you know, 60-70 years or something like that in liberalizing
trade, I think that that has accrued to the benefit of the people of the United States. It’s accrued to the benefit of our trading
partners as well. Global GDP has soared since World War II along
with the global volume of exports, for example. Those two are related. So, I see that the United States is, you know,
roughly where our partners are. And I see trade liberalization as largely
a success story. I think are certainly things we can do to
improve our trade agreements and to improve our terms of trade and to better manage the
international trading system that we’re a part of. And I think that, you know, those sorts of
negotiations and deals are often imperfect and they’re very difficult to couple together,
which is why I think it requires, you know, more care and more deliberativeness than kind
of impulsive aggressiveness. I think when the dust settles, we’ll look
back on that and think it was counterproductive. Derek: I have two questions for you. One’s nerdy and one’s pretty clear. The pretty clear question is, do you think
income inequality has risen since the financial crisis? Mike: Well, I think it depends on the measure
you look at. But the most recent metrics I’ve looked at
suggested it has not. Derek: Okay. I mean, I feel like it has and I could be
wrong, because I feel like I see a rising stock market, I see rising housing prices
and I don’t see rising wages. And I feel like there’s a group of people
who have done a lot better since 2009. They got hurt in 2009, no question. Done a lot better than 2009. There’s another group of people who are seeing
them do better and just watching them float away in terms of income, wealth and lifestyle. Mike: I mean, certainly, I think the rate
of increase of income inequality has slowed. You can make an argument that income inequality
has, you know, stabilized or even declined. But it’s certainly growing more slowly than
it was before the crisis. Derek: Okay. So, if that’s the case, then maybe what we’re
seeing is a lagged effect, right? People are responding to problems in…politically,
now, to problems in income inequality before. Mike: Or maybe they’re responding to a 10%
unemployment rate. Derek: You mean back then? Mike: I mean, now. Derek: Do you think there’s a 10% unemployment
rate now? Mike: No. Maybe they’re responding to the more real
macroeconomic consequences of the recession. Derek: Okay. I mean, I think income inequality is a real
macroeconomic consequence. Let me ask you the nerdy question. Do you agree that productivity growth is slowing
or stagnant right now? Mike: Certainly growing more slowly than it
has in previous expansions. Derek: Okay. We get that point. And this is economics, but it’s also philosophy. What’s the responsibility of American policymakers? When the U.S. is really productive and really
competitive, free trade is good for the U.S. I mean, right? We’re gonna compete anywhere except for the
cheaters like China. We’re gonna compete anywhere. But when U.S. productivity growth is slowing,
should the U.S. start thinking, “Look, it would be great if productivity growth is fast
and if it gets back to being fast, we’re gonna be more pro-trade.” Mike: Certainly. Derek: But right now, we got workers struggling
in productivity and we need to help them. Mike: Certainly. The solution for productivity is not to raise
the prices that households face when they go to purchase goods. It’s not to raise the prices that businesses
face when they go to purchase intermediate inputs to production like steel and aluminum
and other things. Derek: Okay. The solution for productivity is not…I mean,
prices…the household prices don’t bear on productivity. What I’m saying is, if we have a way to restrict
imports and protect jobs, it’s not intermediate goods. So, you know, it’s not input to production. We’re already doing that by substituting out
oil. But if we have a way to say, “Look, your productivity
isn’t rising. There may be some people coming to take your
jobs overseas because their productivity is rising. It’s slower than yours, but it’s catching
up. And we can protect those workers. Shouldn’t we do that in a low-productivity
environment? Mike: I mean, the extent to which jobs are
going overseas is because those workers are less productive and therefore cheaper. You wanna take advantage of lower-wage labor
markets overseas as opposed to higher-wage labor markets here. Derek: But jobs will go overseas if the productivity
gap between foreign workers and American workers narrows, right? I mean, you want the productivity/wage ratio
to be as good as it can. And if they’re relatively more productive,
it’s more attractive labor force. Mike: Well, sure. What I’m trying to get at is I don’t think
productivity is the best way to think about that. If we wanna improve productivity, then we
need to look at the things that drive productivity and target those. I don’t think that a free and open economy
is one of the things that is hurting productivity growth. Derek: All right. Let me ask you a really poignant question
which I hope is not true and you hope is not true, but I’m just gonna ask it as a case. If you knew that American workers because
of weak education system, because of social problems, whatever it was, bad policy, if
you knew that American workers were gonna become relatively less productive compared
to foreign workers over 20 years, and we were gonna lose jobs because of that, do you think,
even though as a sort of…in basic economics, it’s not rational to defend the unproductive
workers, but do you think American policymakers should defend those workers? Like, if you knew that’s the trajectory we were on,
would you accept protectionism in that case? Mike: I don’t think the premise is correct. The reason…one of the reasons why you want
to have free trade is to allow for the kind of specialization that increases productivity. You know, free trade is not about, you know,
job creation at least to a first approximation. What free trade is about is allowing for American
workers to do the things that they’re best at and the things that they have a comparative
advantage in. That should, over a long enough time period,
increase productivity and increase wages in the United States. So, I don’t see protectionism as the solution
to the problem you’re outlining. I do agree that we have an issue with productivity
right now and in order to address that issue, we should be looking at, you know, the levers
we have to increase productivity growth. You know, largely, that’s a mystery, but there
are some things that, I think, we know that we can do. And I also think that we need to be looking
at policy solutions for workers that are having trouble in this economy, whether or not that’s
from trade or from automation or from declining labor market institutions or whatever. And we need to, you know, push on some policy
levers to help those workers, but I don’t think that building a wall around the United
States will, you know, do much of anything at least in a macro sense to help the American
worker. Derek: Yeah. I understand what you’re saying, of course. I don’t wanna go to the same ground, but it
just seems to me that not just politically but substantively the trade status quo…first
of all, we are allowed to change the trade status quo. The stuff where…it’s always been this way
and it’s been good for the United States. I don’t care. I wanna know if it’s good for the United States
now and in the future. We don’t have an obligation to the world to
pursue the same policies because they’re hooked on sending express production in the United
States. So, I feel like there’s a need to protect
the trade status quo…to break the trade status quo, and it seems like you don’t. Okay. Mike: There’s always room for improvement,
of course. And, you know, we see that in NAFTA. We see that in our trade with the EU. There are things that we can do to improve
the terms of trade and to better manage the system. Derek: The fundamental argument…you can
make a point that…the labor union argument you were talking about before. The fundamental labor union argument isn’t
that they’re opposed to trade. They’re opposed to trade whenever it doesn’t
work for American workers. In other words, they like trade when the U.S.
was absolutely the dominant producer in the world in the ’50s and in the ’60s. And then, you know, we would export more than
we imported and we were best in manufacturing force, best heavy industry, you name it. They weren’t opposed to trade then. You know, this seems shallow or silly on their
part. They’re opposed to trade when certain parts
of their membership, certain parts of the United States are losing. What I’m asking you, beyond the argument about
who’s a good partner and who’s a bad partner is, when is it okay to decide that, as the
president puts it, you know, fairly nastily sometimes, those parts of the American labor
force shouldn’t lose any more to foreign competition. Mike: I mean I wouldn’t… Derek: It’s not a question of fairness. It’s just a question of what the U.S. interests
are. Mike: I wouldn’t look to labor unions to tell
you about what’s best for American workers. You know, unionization rates for private sector
workers are at historic lows. You know, the overwhelming majority of private
sector workers are not unionized. Unions reduce employment, which is certainly
bad for American workers. I think unions do a pretty good job of representing
what they think are the best interests of their membership, but I don’t think we should
equate that with what’s best for kind of workers in the aggregate. Derek: I know I pushed the union button. Sorry. I know it causes your knee to jerk. But could you get to the trade button? The point is, like, why…if trade doesn’t
work as well for the United States as it did 40 years ago, why do we have to stick with
the same trade policy? Mike: I don’t see the evidence that it’s not
working well for the American economy. I think that China joining the global trading
system certainly was a traumatic event for a lot of local communities in the United States,
for a lot of individual workers. That has, you know, largely worked its way
through the system. Could that have been better managed? Sure. But, you know, there you have it. And on the whole, I think that trade has benefited
workers, you know, both in their capacity as workers but also in their capacity as consumers. Derek, we can sit here and talk about this
all day, but we need to go find more comfortable chairs. You are wise and powerful. Derek: And you are almost as wise and almost
as powerful.

5 comments on “Trade war and free trade — Michael Strain and Derek Scissors | VIEWPOINT

  1. Jasmine Jeanine Post author

    This would be great if the US didn't rely upon China WAY more then the other way around since we only give China raw products and they manufacturer and put together products which the majority of components aren't produced in China. They also have a stable government that can use it's banks to stop companies from being impacted too much and thus just wait out this Trump irregularity. That's why the US has NEVER won when going against world leaders who are DICTATORS since their ppl have NO say and thus they can go WAY more extreme then we can. Of course the next issue is that companies cannot trust Trump and thus they are UNSURE how long tariffs will be in place, and if Trump changes his mind, thus they aren't willing to start the extremely long process of moving production to the US. Since the next issue, is IF they want to escape the tariffs, US companies can move more to Mexico and Canada and thus only pay tariffs ONCE since it's STILL cheaper to do so.

  2. Jasmine Jeanine Post author

    The ONLY thing he will accomplish is getting China to get their raw ingredients for these products elsewhere. This is bc Trump is narcissistic enough to believe that while the US makes up only around 375 million ppl out of the 7 BILLION ppl in the world and 230+ countries, that we're big enough to be SO important that NO country CAN survive without us. He's forgetting the fact that we are the CONSUMERS in this equation NOT the producers and thus we hold WAY less power, since unlike them we CANNOT easily turn to different sources to get our goods since we're buying Iphones from them as well as MANY products that ONLY China produces while they're buying soybeans from us, which can be produced by almost ANY country.


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