October 04, 2016
The NYT is bending over backwards to promote the protectionist pattern of trade policies of recent presidents. Yes folks, it is protectionist even if they call them “free trade” deals. Patent and copyright protection are protectionism, even if your friends benefit from them. And when we spend an extra $100 billion a year on doctors, compared with pay in Canada and Western Europe, because doctors who don’t complete a U.S. residency program are not allowed to practice in the United States, that is protectionism.
So the story is what happens if we try to bring back some of the barriers to trade in manufacturing, the area where our political leaders have gone farthest to reduce barriers. In discussing NAFTA the NYT goes to great lengths to tell us any rollback would be a disaster. It explains how our industry has become closely integrated with Mexico’s then warns:
“What we do know is that even relatively small tariffs can stand in the way of the kind of supply networks on which many modern industries are based. With these networks, goods can cross back and forth across national borders multiple times as part of the pipeline that leads to a finished automobile or a computer or even a side of beef. It’s not that companies couldn’t adjust; over time they could. It’s that the networks evolved this way for a reason, and readjusting would come at a considerable cost.”
Really? Even small tariffs would upset everything. Let’s see, suppose the U.S. imposed a five percent tariff on everything imported from Mexico. As a first approximation, everything we bought from Mexico would cost five percent more than it did previously. In reality, this price increase would not be passed on in full, but this is a good starting point. The NYT tells us that this would be really bad news.
Okay, suppose the dollar falls by five percent against the Mexican peso. As a first approximation, everything we bought from Mexico would cost five percent more than it did previously. In reality, this price increase would not be passed on in full, but this is a good starting point.
Yeah, it’s the same story as with a tariff. We have fluctuations in currency of this magnitude all the time. It doesn’t lead to disaster for our industry. The NYT is obviously trying to crush any thought that we might want to tamper with our current trade policy.
It also misrepresents another important issue in the process. It tells readers:
“Since the 1990s, major automakers based outside the United States have built American factories to gain access to these local supply networks and get closer to American consumers. That has to do with a lot more than Nafta, but the connections between North American parts suppliers across borders surely helped speed the process.”
Actually foreign auto manufacturers first began locating in the U.S. in the 1980s. The proximate cause was the voluntary export restraints that Reagan administration forced Japan to accept. In other words, protectionist measures were an important factor in getting foreign manufacturers to start producing in the United States. A full assessment of trade relations would point this out.
This is not to say that trying to reverse NAFTA would be a good idea, just that it may not be as bad as advertised. For my part, I would go the route of fully free trade. Our doctors, dentists, and lawyers should benefit from the same sort of competition from low-paid workers in the developing world as our auto workers and textile workers. (Don’t let the racists tell you that people in the developing world lack the capabilities to work in these high-paying occupations in the United States.)
Also, we should move away from patent and copyright protection and turn to more modern and efficient mechanisms for promoting innovation and creative work. Trade does not have to lead to inequality. It did so because we designed it that way, which is of course the point of my forthcoming book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.
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