June 16, 2018
Donald Trump’s trade wars seem to lack any logic and are likely to end up badly for both the United States and our trading partners, but that is not a good reason for serious people to start making up numbers to bolster their arguments. That is the route the NYT took in its latest editorial attacking Trump’s tariffs.
While the piece makes many valid points, it includes many assertions that can at best be called “truthful hyperbole.” For example, the piece tells readers that Trump’s steel tariffs “meant a 40 percent increase since January in the cost of steel for their customers who use it in their finished products, according to the US Chamber of Commerce.”
It’s not clear where the Chamber of Commerce came up with this number, but the Bureau of Labor Statistics (BLS) reports that the price of steel mill products are up 10.4 percent over the last year. BLS is likely a more reliable source on this issue than the Chamber of Commerce which has been known to produce studies showing massive job loss from policies like minimum wage hikes or mandated family leave.
The piece also warns us about the impact of aluminum tariffs on domestic beer producers.
“Brewers are forecasting that they’ll pay $347.7 million more for aluminum cans. That has small craft-beer makers such as Melvin Brewing in Alpine, Wyo., which packages 75 percent of its products in cans, fretting about impending prices rises and the risks of passing them along to consumers.”
It would have been useful to put this $347.7 million figure in context. Beer sales in the U.S. were over $34 billion in 2016, which means that the increased cost of aluminum is equal to roughly 1.0 percent of what the public spends on beer. We are supposed to believe that people paying $10 a six-pack for their craft beer, will get seriously bent out of shape if the six-pack now costs $10.10? (I actually would have thought most craft-beer is sold in bottles, but whatever.)
And we again get the complaint that the US actually has a trade surplus with Canada, not the deficit alleged by Trump.
“When you tote up the goods and services traded between the two nations in 2017, the United States counted a $8.4 billion surplus.”
This is not really true when you subtract out the value of re-exports. A re-export would be something that is just shipped through the United States to Canada. For example, German cars that are offloaded in New York and then sold in Canada would count in the NYT’s trade balance, but these are not really exports from the United States.
It is bizarre that people who have so often pointed out that much of the value in China’s exports to the United States comes from third countries insist on ignoring the same issue in much more blatant form in US trade with Canada. (And no, it doesn’t matter that we have a trade deficit with Canada.)
The piece also tells us that we have a great job market so we shouldn’t worry about lost manufacturing jobs anyhow.
“And as for protecting American workers, with a 3.8 percent unemployment rate, the number of job openings now exceeds the number of people who are unemployed, according to The Wall Street Journal.”
If the NYT’s editorial writers read its economic pages it would know that wage growth has been very weak in spite of the low unemployment rate. Manufacturing jobs tend to pay better than service sector jobs. If we replace 1–2 million low-paying service sector jobs with higher paying manufacturing jobs this would be an important boost to wages.
And, we get a lesson in really bad macroeconomics:
“As any number of Nobel economists have tried to explain, a trade deficit by itself is neither good nor bad. American citizens benefit from being able to buy competitively priced Mexican produce, Japanese cars and Canadian steel. And foreign countries use the earnings from those sales to invest in American stocks, bonds and industries. Our currency stays strong without our making our export products too expensive. Japan ran trade surpluses for 30 consecutive years until 2011, but that did not prevent its economy from sputtering.”
There is a huge difference between a situation where foreigners invest directly in the United States, say in building factories or developing new software, and buying US government bonds and other financial assets. The former creates jobs, the latter pushes up the value of the dollar. The purchase of massive amounts of government bonds and other financial assets is how countries “manipulate” their currency. These purchases prevent the dollar from falling, which would be the free market response to a large trade deficit. Instead, by keeping the dollar over-valued they allow a large U.S. trade deficit to persist indefinitely.
The line about Japan’s trade surplus should be thought of as being analogous to arguing against the merits of brushing your teeth, as in the sentence:
“The Japanese have been brushing their teeth every day for more than 30 consecutive years, but that did not prevent the country’s economy from sputtering.”
It’s a true statement that has nothing to do with anything.
The US does have legitimate complaints with our trading partners, most importantly with countries like China and South Korea who have deliberately acted to keep down the value of their currency against the dollar. Although Trump constantly raised this issue (“currency manipulation” as he called it) currency values seem to have completely disappeared from his trade agenda as he goes into his war. That is unfortunate, since this is an issue where we almost certainly could have won.
There is one final point worth mentioning in the context of this trade war. As part of the effort to redistribute income upward, US trade policy has been focused on requiring longer and stronger patent and copyright protection for US companies in the rest of the world. This is a big part of the effort to redistribute money from ordinary workers to folks like Bill Gates. If the reaction to Trump’s tariffs leads to a weakening of these protections it could be a great win-win for people in other countries and the United States. We would end up with cheap drugs, medical equipment, software, and a wide range of other goods and services.
That obviously is not Trump’s intention, but wars can have unpredictable outcomes. This scenario gives us something we can all hope for as an outcome of this war.
Comments