FacebookTwitterGoogle+RedditEmail

What Would a Good Trade Policy Look Like?

Tariffs of 25 percent and 10 percent on all steel and aluminum imports, respectively, are, as has been widely reported, likely to do more harm than good. They may help protect the minority of workers in the targeted industries, but at some cost to the majority in others.

The costs of the tariffs themselves may hardly be noticeable to consumers. Journalist Neil Irwin is correct when he reports that Sen. Mike Lee’s claim that the tariffs constitute a “huge job-killing tax hike on American consumers” is true “in terms of direction” but misleading “in terms of magnitude.”

The bigger dangers to our economy are twofold. One, that our trading partners will retaliate by taxing our exports to them, thus hurting a broad swath of our exporting industries, and two, by leading an emboldened, reckless Trump administration to enact more bad trade policy.

It is here that the outcry against these tariffs, while sensible in the ways just noted, is woefully incomplete. Nobody seems to have any ideas about what better trade policy would look like. There’s a huge status quo bias implicit in virtually every critical take we’ve seen, as if the genie that President Trump let out of the bottle — globalization creates losers as well as winners, and those losers can be a potent political force — has evaporated into the ether. Such denial helped elevate Trump in the first place.

It is thus clearly insufficient to yell “higher prices!” or even “trade war!” and call it a day. Critics of the tariffs need to tell us what they think better, more inclusive trade policy looks like. Here are some of our ideas.

Use the benefits of trade to help those hurt by it.

Trade boosts growth and thus raises gross domestic product and tax revenue. Yet, our politics and tax policies have blocked fiscal policies that could help those whose jobs, earnings and communities have been hit by foreign competition. Such policies include sectoral employment training (training workers for existing or future jobs in their communities), apprenticeships (earn while you learn) and, perhaps most important, direct job creation. Regarding the latter, even as we close in on full employment, we know there are parts of the country that have too few gainful opportunities. To address this labor market failure, a movement is building for job creation policies that include subsidizing employers to hire those left behind as well as directly creating decent quality jobs.

Stop protecting professionals and patents.

Over the past four decades, we have designed a trade policy that removes virtually all barriers to trade in goods. Although this has the benefit of allowing us to get imported goods at lower prices (while also putting downward pressure on the wages of U.S. workers who produce these goods), we have not made the same effort to remove protectionist barriers in other areas.

For example, doctors in the United States are highly protected from foreign competition, including highly accomplished doctors in other wealthy countries. As a result, our doctors earn about twice as much on average as doctors in other wealthy countries. If we paid our doctors the same as doctors in countries such as Canada, France and Germany, the savings would be about $90 billion a year, more than six times the estimates of the cost to consumers from the steel tariffs.

Another important area where the country would gain enormously from trade liberalization is reducing the importance of government-granted patent and copyright monopolies. Yet, trade policy over the past four decades has made these monopolies longer and stronger, and sought to apply them worldwide.

The amount at stake is enormous. Many drugs that sell for tens of thousands or even hundreds of thousands of dollars at their protected price would cost just a few hundred dollars at their free-market price. In the case of prescription drugs, we will spend more than $450 billion this year on drugs that would almost certainly cost less than $80 billion in a free market. The difference of $370 billion is more than 30 times the amount that is at stake with the steel tariffs.

The potential gains from removing barriers to trade in professional services and patents are thus both economically large, and, unlike much past trade liberalization, inequality reducing. How rich would Bill Gates be if there were no copyrights or patents on Microsoft software so that everyone could copy them at no cost? The usual counterargument is that these protections are needed to boost innovation, but there are alternative approaches that are much more efficient and far less inequitable.

Currency management and capital flows. 

It is widely recognized that some countries game the trading system, not by dumping metals below cost onto global markets, but by suppressing the value of their currencies, making our exports to them more expensive and their imports to us, cheaper. These nations run large trade surpluses that they use to finance large purchases of U.S. currencies and assets, generating capital flows that pump up both the dollar and our trade deficit. Tariffs will not help in this regard (Paul Krugman of the New York Times worries that given current conditions, they could strengthen the dollar). One pushback idea is Joseph E. Gagnon and C. Fred Bergsten’s “countervailing currency intervention” plan, wherein the United States makes it clear that we will “offset the effects of currency manipulation through equal purchases of the intervening country’s currency.”

There’s a lot more to bring to this table (e.g., see these “new rules of the road” for much more inclusive trade deals). We recognize that no one in the Trump administration is sitting at that table right now, and in this regard, “do less harm” is a perfectly legitimate rationale for opposing their reckless trade policies. But for economic and political reasons, our energies must not be devoted to solely opposing bad trade policies. We must start building the case for much better ones.

Jared Bernstein, a former chief economist to Vice President Joe Biden, is a senior fellow at the Center on Budget and Policy Priorities and author of ‘The Reconnection Agenda: Reuniting Growth and Prosperity‘.

Dean Baker is senior economist at the Center for Economic and Policy Research.

This article originally appeared in the Washington Post.

 

Weekend Edition
November 16, 2018
Friday - Sunday
Jonah Raskin
A California Jew in a Time of Anti-Semitism
Andrew Levine
Whither the Melting Pot?
Joshua Frank
Climate Change and Wildfires: The New Western Travesty
Nick Pemberton
The Revolution’s Here, Please Excuse Me While I Laugh
T.J. Coles
Israel Cannot Use Violent Self-Defense While Occupying Gaza
Rob Urie
Nuclear Weapons are a Nightmare Made in America
Paul Street
Barack von Obamenburg, Herr Donald, and Big Capitalist Hypocrisy: On How Fascism Happens
Jeffrey St. Clair
Roaming Charges: Fire is Sweeping Our Very Streets Today
Aidan O'Brien
Ireland’s New President, Other European Fools and the Abyss 
Pete Dolack
“Winners” in Amazon Sweepstakes Sure to be the Losers
Richard Eskow
Amazon, Go Home! Billions for Working People, But Not One Cent For Tribute
Ramzy Baroud
In Breach of Human Rights, Netanyahu Supports the Death Penalty against Palestinians
Brian Terrell
Ending the War in Yemen- Congressional Resolution is Not Enough!
John Laforge
Woolsey Fire Burns Toxic Santa Susana Reactor Site
Ralph Nader
The War Over Words: Republicans Easily Defeat the Democrats
M. G. Piety
Reading Plato in the Time of the Oligarchs
Rafael Correa
Ecuador’s Soft Coup and Political Persecution
Brian Cloughley
Aid Projects Can Work, But Not “Head-Smacking Stupid Ones”
David Swanson
A Tale of Two Marines
Robert Fantina
Democrats and the Mid-Term Elections
Joseph Flatley
The Fascist Creep: How Conspiracy Theories and an Unhinged President Created an Anti-Semitic Terrorist
Joseph Natoli
Twitter: Fast Track to the Id
William Hawes
Baselines for Activism: Brecht’s Stance, the New Science, and Planting Seeds
Bob Wing
Toward Racial Justice and a Third Reconstruction
Ron Jacobs
Hunter S. Thompson: Chronicling the Republic’s Fall
Oscar Gonzalez
Stan Lee and a Barrio Kid
Jack Rasmus
Election 2018 and the Unraveling of America
Sam Pizzigati
The Democrats Won Big, But Will They Go Bold?
Yves Engler
Canada and Saudi Arabia: Friends or Enemies?
Cesar Chelala
Can El Paso be a Model for Healing?
Mike Ferner
The Tragically Misnamed Paris Peace Conference
Barry Lando
Trump’s Enablers: Appalling Parallels
Ariel Dorfman
The Boy Who Taught Me About War and Peace
Binoy Kampmark
The Disgruntled Former Prime Minister
Faisal Khan
Is Dubai Really a Destination of Choice?
Arnold August
The Importance of Néstor García Iturbe, Cuban Intellectual
James Munson
An Indecisive War To End All Wars, I Mean the Midterm Elections
Nyla Ali Khan
Women as Repositories of Communal Values and Cultural Traditions
Dan Bacher
Judge Orders Moratorium on Offshore Fracking in Federal Waters off California
Christopher Brauchli
When Depravity Wins
Robby Sherwin
Here’s an Idea
Susan Block
Cucks, Cuckolding and Campaign Management
Louis Proyect
The Mafia and the Class Struggle (Part Two)
David Yearsley
Smoke on the Water: Jazz in San Francisco
Elliot Sperber
All of Those Bezos
FacebookTwitterGoogle+RedditEmail