international trade

In Defense of Freer Trade

March 13, 2019

by D.J. McGuire

As we careen towards another presidential election, one of the issues that has been once again shunted to the side is international trade. This is a mistake, especially for Democrats looking to expand their coalition (or hold the expansions achieved in last year’s Congressional election). Before we get to that, however, we must revisit why protectionism is wrong, and freer trade is better for Americans and for everyone else.

America has had a conflicted history when it comes to trade. One would presume that protectionism had an advantage when tariffs were our primary source of revenue. In fact, protectionists in the nineteenth century preferred tariff rates so high that revenue would fallbecause imports would so low. Indeed, it was just such an economic platform that enabled the Republicans to win the election of 1888 (despite losing the popular vote) and enact the McKinley Tariff. It is the most common historical marker Donald Trump uses in his own speeches when he defends his protectionist outlook.

Here’s what he doesn’t mention: the tariff was so unpopular that the Republicans lost half their House seats in the election of 1890 (including McKinley’s) and the Democrats took back the White House in 1892. By the time McKinley returned to national politics (as the Republican nominee for President in 1896), he had remade himself as a defender of the gold standard.

A generation later, the Republicans once again forgot the economics of freer trade – and the rest of us suffered the consequences. The Smoot-Hawley tariff of 1929 is still mentioned in Economics classes today as an example of short-sighted policy. It either caused or exacerbated the Great Depression (depending upon which economist is talking). The political effects were also acute: the Republicans were denied a Congressional majority for the over a decade and a half, and after Hoover’s defeat in 1932 they would be out of the White House for twenty years. Congress became so mired in self-doubt that it handed the presidency de facto legislative authority to reduce tariffs (before taking it back under Trade Promotion Authority in the 1970s).

Thus was the “free trade” consensus established, a consensus that started fraying when the Democrats began flirting with protectionism in the late 20th century (before the Clinton era), and is now in serious trouble due to the populist takeover of the GOP. While I prefer to use the term “freer trade” (fully “free trade” is an impossible absolute), I am deeply concerned about the protectionist retaking control of the Republican Party, for reasons both economic and political.

Economically, freer trade means more options for Americans and more efficient markets for them. Please note, I did not limit those benefits to America “consumers” – and for good reason. The first tariffs Trump imposed in 2018 were on steel and aluminum, which hits firms across the country with higher production costs. Those costs led to jobs unfilled, products unmade, services not offered, and prices increased.

Those are the direct impacts of tariffs on inputs, but tariffs on goods and services also damage economies indirectly. Higher prices on these goods and services lowers both Americans’ standards of living and their savings balances. Less money saved means fewer funds available for business to invest in themselves. Once again, that leads to jobs unfilled, products unmade, and services not offered.

So why does protectionism still seem so popular among the populist right and the American left? Status quo bias is certainly a part of it. The opportunity cost of protectionism is the loss of jobs and growth not yet seen, compared to disruptions that are easily seen. Trump’s behavior on the “Carrier deal” before he took office is a class example. As I noted at the time, “saving” jobs in one area costs jobs in another (and worse), but those costs are less visible.

Or at least they wereless visible. In the social media era, with access to information much easier, we are seeing more discussion of the overall effects of tariffs. What once required the ability to follow several academic journals now requires little more than following Scott Lincicome. Meanwhile, Boeing’s recent problems have been another revelation on the advantages of freer trade: greater choice of products, services, and inputs – or, as Jane McManusput it: “Was never so relieved to see ‘Airbus’ on my upcoming booking.”

As for the politics of trade, that, too is changing. As Trump increasing rebrands the GOP as the protectionist party it once was in the 1880s and in the 1920s, supporters of freer trade are finding Democratic voters far more receptive to their ideas than certain Democratic elected officials (Pew Research). Even in 2016, a majority of Democratic voters approved of free trade agreements, despite neither of the two major contenders for their nomination openly supporting them. Indeed, the 45% of Americans who supported freer trade agreements only found one November candidate who agreed with them on that issue – and that was Gary Johnson. Democrats looking to be the nominee in 2020 should take note of what the party’s voters actually believe on trade – rather than what protectionists in the party are telling them.

First and foremost, though, those of us who know the damage protectionism can do must speak out against it and ensure the arguments for freer trade are heard – and that is why this post is here.

D.J. McGuire – a self-described progressive conservative – has been part of the More Perfect Union Podcast since 2015. He is also a contributor to Bearing Drift.

The Trans-Pacific Partnership Begins … Without the United States

January 1, 2019

by D.J. McGuire

Remember the Trans-Pacific Partnership? That was the major trade agreement between 12 nations, including the United States, that most Americans thought had died when Donald Trump pulled America out of it in early 2017.

Well, Trump may have pulled us out of TPP, but he didn’t kill it (Telegraph, emphasis added).

The world’s most radical trade pact has come into force across the Pacific as the US sulks on the sidelines, marking a stunning erosion in American strategic leadership.

…

The White House assumed that the TPP would wither on the vine without US impetus.Instead, long-standing US allies across the Pacific have brushed off pressure from Washington and forged ahead regardless with what is now known as the “anti-Trump pact”.

“America is the biggest loser,” says the Peterson Institute in Washington. The fall in food tariffs under the CPTPP means that US farmers will be undercut by exporters from Australia, Canada, and New Zealand in the lucrative Japanese market. Wheat from Canada will be $70 cheaper per metric tonne by 2020.

Australia, Canada, Japan, Mexico, New Zealand, and Singapore have ratified the agreement (Quartz). They will all soon benefit from the tariff reductions that will take place (Reuters). Those of us old enough to remember when Japan was considered the corporatist and protectionist bete noire of the free world can only marvel as Japan moves into agreement while the United States does not (Japan News and Nikkei Asian Review).

Much of the coverage regarding America’s exclusion is focused on the man who pulled us out – Donald Trump. My opposition to the president – politicallyand personally– are well known to readers here. In this case, however, Trump is far from the only culprit. His opponent – yes, the one for whom I eventually voted – walked away from her support for TPP during the campaign. Indeed, she walked away from freer trade in general – a policy and political mistake that I firmly believe led directly to her defeat in several states where Gary Johnson (the one pro-TPP candidate) won more votes than Trump’s margin of victory (Michigan, Pennsylvania, Wisconsin, Florida, and Arizona).

The two nominees, sadly, reflected political parties that were, at the time, far more interested in emotional tribalism than well-thought-out economics. The Republicans’ weakness was exposed in 2015 when some of them started calling Trade Promotion Authority and TPP “Obamatrade” – paving the policy road for Trump. Democratic politicians long held protectionist views as a sort of tribal signaling to organized labor (although, as the Pew Research Centerrevealed, Democratic votersdidn’t share that view).

That it led to the wife of the man who managed to get NAFTA through Congress in 1993 became a political casualty of all this was painfully ironic (to some – or maybe just to me).

There is, however, cause for optimism. The Democrats are, if anything, even moresupportive of freer trade agreements (see Pew’s link above), while Trump’s tariffs are losing popularity (Pew again).

Republicans, sadly, are following their leader into protectionism – yet another reason to presume Trump will easily be renominated in 2020. However, if Democrats can choose a nominee that can appeal to supporters of freer trade and opponents of tariffs (or, as I’ve started to call us, “trade doves”), not only can the party hold the swing voters who crossed over in 2018 (and win more of them), but they can also ensure that the country moves away from its current protectionist cul-de-sac.

We might even be able to re-enter the TPP.

D.J. McGuire – a self-described progressive conservative – has been part of the More Perfect Union Podcast since 2015. He is also a contributor to Bearing Drift.

The World America Abandons (Before Coming Back to Rescue It)

July 31, 2018

by D.J. McGuire

For understandable reasons, most Americans assume that Donald Trump is a one-man wrecking crew, determined either to destroy or to reshape the current global order. In reality, however, the international order that has held in place in the Atlantic for over 70 years (and in the rest of the world for roughly 30) has been fraying for some time, and Trump is himself as much a symptom as a cause. The regions of the world are turning away from each other, and American frustration has now led to its acceleration under Trump. The result will be a world of regional powers – until one of them tries to assert global dominance, forcing the United States out of its coming stupor to lead the democratic world once more.

The Fall of the Global Order

The chief goals of the “western world” from 1945 through 1990 (and the entire world since 1990) have been greater political and economic freedom, via democracy and freer trade. Even those who were most threatened by these tenets paid lip service to them for roughly a quarter century.

Events of the last decade have challenged this. The Great Recession revealed the dark side of international economic connections. The rise of a revanchist Russia has greatly damaged the democratic world’s confidence in itself. The behavior of the European Union towards Greece and Italy shattered the notion of the EU as a force for democracy and progress. The “Global War on Terror” revealed the apparent limits of American patience with extended military engagements. Xi Jinping’s increasing grip on the Chinese mainland has combined with economic instability to create a dangerous vacuum in justification for his dictatorship. Finally, the dramatic increase in continental sources of American energy has begun shifting America’s view of its interests abroad (especially in the Middle East).

As a result, “It’s a small world after all” has become more a dark warning than a cheery sentiment – and the peoples of said world are acting accordingly. Had this just been the United States experiencing this, the rest of the world would have simply reoriented the system with a new hegemon, and there are eager candidates for the role. Yet none of them are in a position to stake the claim, and they all have regional matters to address.

The Coming Regional Order

As a result, when the present global order falls – likely on a glide path, but falls nonetheless – it will likely be replaced by an unstable mix of regional powers: China, Russia, the EU, and the less engaged United States. The first two will be looking to expand their power without to contain potential dissent within. The European Union will attempt to turn its continental reach into real power via internal reform and centralization. The US will be trying to find a balance between reducing its obligations to the rest of the world and protecting its interests, which time will show to be far more global than the electorate currently realizes.

In theory, the Chinese Communist Party need not concern itself with electorates. In practice, legitimacy can arguably be more tricky for tyrannies than for democracies – which in part is why tyrannies resort to wars, mass incarcerations, huge development projects, etc. For the CCP, greater power abroad combines with stoking resentment of outsiders at home to give it enough legitimacy to stay in power (for now). So long as the US was blocking its regional objectives, the CCP had become (accidentally and ironically) the most likely power to challenge the US on a global scale. A retreating America will open up regional opportunities for the regime – especially in Southeast Asia and Taiwan (whose gutsy, independent democracy won’t survive the new order). While some of this will bring alarm to other capitals, the CCP can use their North Korean puppet regime as leverage until its usefulness expires – at which point Beijing can simply make the problem go away by annexing it.

The Vladimir Putin regime, by contrast, has a slew of international allies and interests left over from the former Soviet Union, and Putin hasn’t been shy about using them (especially in Syria). However, his fixation has largely been with his “near abroad” (i.e., the former Soviet republics), and an America willing to withdraw from the global stage would give him the free hand there he has craved. Like the CCP, Putin has relied upon anti-foreign resentment and increasing power (and, in his case, actual territory) for his regime’s legitimacy. That will likely continue, to the detriment of Ukraine, Georgia, Azerbaijan, and the Baltic states.

For the European Union, the problem is legitimacy – or lack thereof. The transition from trading association to intertwined economy was quite a success, the next step (to full-blown nation-state) has not gone nearly as well. The EU’s challenge will be sorting out what it is, and how it governs itself, so it can be strong enough to reject encroachments from outside. It will arguably be the most inward -looking regional power for some time.

That leaves the United States, which is attempting to become the second global hegemon in history to relinquish the role. The failure of the first (Great Britain in the period between World Wars) had been enough to delay this reckoning through the 1990s and 2000s, but the American people put their foot down in 2016 (whether they were “professionally guided” – to use Sir Arnold’s term – by outside forces will be discussed later). As it will be a Republican Administration beginning the withdrawal, the US is likely to settle in as a regional, hemispheric power. This can be seen from Donald Trump himself, who is loathe to criticize tyrannies in Europe and Asia but eager to criticize them in Latin America. I am also assuming this retreat in part because of the still strong isolationist tendencies within the left wing of the Democratic Party.

Flashpoints

While this regionalist order may seem stable from day-to-day, there will be problems. The Middle East, slowly losing the attention of the rest of the world due to changes in energy markets, will continue to be of interest to the three eastern hemisphere powers (i.e., all but the US), leading to conflict. The same will likely be true of Africa (which already has heavy CCP and EU involvement).

However, the most likely sources of “problems” will be American allies unwilling to accept second-tier status and the end of global democratic aspirations. At present, political power in Great Britain rests with an explosive  coalition of insular and globalist voters united in anti-regionalism. Although it’s likely that the regionalist center will reassert itself, ti’s not guaranteed. Japan has a long history of hostility to China (there is no way that can be written without it being an understatement) and its leaders have used its recent conversion to democracy as a new reason for old geopolitics. Our NATO allies (especially in the Baltics) will be deeply worried about Russia expanding its regional hegemony. Finally, the Republic of India, while friendly with Russia, will hardly be willing to serve as Moscow’s vassal; they also have a long history of problems with the CCP.

Indeed, it will be the concept of self-determination in general that poses the greatest threat to this regionalist semi-dystopia, as nations around the world – many of whom freed themselves from colonialism less than a century ago – will be far less likely to accept what they will see (rightly) as imperialism under new names. So long as America is run by Republicans, the US will likely respond with cold indifference. The Democrats are another matter.

How it will end

At some point, Donald Trump will no longer be president. Indeed, a Democrat is all but certain to enter the White House either on 20 January 2029 or before then (I hope). However, given the aforementioned isolationism in the Democratic left (and the laws of political inertia), it is unlikely that a Democratic president will dramatically take aim at the new order (especially if said Democrat doesn’t get to 1600 PA Ave until 2025 or 2029). Said Democrat will, however, likely attempt to protect an old American ally or an African democracy from imperial encroachment. Moreover, time will show the American people that the stable international order currently under threat was a boon for international trade and American commerce.

That will likely lead to a global confrontation of some kind, forcing America out of its regionalist stupor as it relearns the lessons of the mid-20th century. How many casualties are involved in that confrontation, I cannot say.

How this can be reversed

There is no reason that this future is inevitable. Some might note the mere fact that I’m predicting it would make it less likely. More to the point, it can be avoided if the American people in general (and the Democratic Party in particular) recognize the damage to American interests that come with retreating from the world stage.

Ironically, that could come from the most divisive issue in current American politics: the Mueller investigation. The events that Mueller is probing (the Russian regime’s criminal interventions in America’s last presidential election) will be far more likely in this future as regional powers probe each other for weaknesses. If the Democratic Party is willing and able to make the logical connection between the events of 2016 and the rise of anti-American regional powers (and replace the president with one of their own in 2021), they can halt the erosion of American power before it can become permanent. Alliances and trade relationships could still be rebuilt in time; and Putin could be checked in Europe; and the CCP would realize that the US is not yet ready to give them free reign outside of the area under the regime’s control. Democrats have a further interest in challenging Russian revanchism, given Putin’s inspirational support to white supremacy in America.

However, if the Democrats are unwilling to do that, this future is more likely than any other.

D.J. McGuire – a self-described “progressive conservative” – has been part of the More Perfect Union Podcast since 2015

The Trump-EU “Deal”: Far Less Than Meets The Eye

July 25, 2018

by D.J. McGuire

Defenders of Donald Trump are crowing about his “deal” with the EU to hold off future tariff hikes and discuss reducing trade barriers in certain manufacturing goods. Never have so many offered so much praise for so little.

Scott Lincicome of the CATO Institute examined the joint statement on this Twitter thread. To make a long story short, no actual reductions in tariffs were agreed. Instead, the US and the EU have agreed to start talking about future reductions in tariffs. So none of Trump’s tariffs were reversed; nor were any of the EU’s retaliation tariffs. As Lincicome also notes, even the apparent promise to rule out future tariffs against each other is “vague.”

Still, a future trade liberalization agreement would be helpful, yes?

Actually, yes it would. That’s not the problem here.

What is the problem was that talks on US-EU trade liberalization had already been well under way during the Obama Administration. It was known as the Transatlantic Trade and Investment Partnership. Negotiations hadn’t been completed, of course, and it was controversial, but it was also an established framework to discuss freer trade between America and Europe that was far beyond merely “non-auto industrial goods.”

What happened to the TTIP? Donald Trump happened to the TTIP. He railed against it as a candidate, and his election killed the negotiations.

Over a year and a half later, we’re starting all over again with a much more cramped potential agreement, with Trump’s harmful tariffs still in place.

We also have to consider how Trump will react to the wheezing, dysfunctional nature of negotiating with the EU (although that’s the EU’s fault, not his).

This is hardly worth celebrating. At best, we should be relieved that, for now, US-EU trade relations won’t get worse. However, the damage to our economy from the tariffs is not only done, but is still happening as the tariff hikes themselves didn’t go away.

It’s a typical Trump “deal” – nothing of substance behind a list of platitudes not worth the bandwith on which they’re virtually printed. That Trump and his supporters are touting it so loudly is a sign of their desperation. In reality, nothing has been accomplished here.

D.J. McGuire – a self-described “progressive conservative” – has been part of the More Perfect Union Podcast since 2015

Defining Progressive Conservatism

March 11, 2018

by D.J. McGuire

I have often said that in the past three years, the political spectrum has thrown me around “like a Martian Congressional Republic Navy vessel dropping into combat maneuvers from a 3g burn with no crash couch.” For those who are not fans of The Expanse, let’s just say I’ve been shaken up – and shaken – since 2015. That said, I do think I can finally place a label (of sorts) on my current political leanings and philosophy: Progressive Conservative.

To most American voters, activists, and politicians, my phrase is an oxymoron, but it was the standard term for the Canadian center-right for decades (and still is used in about half their provinces). More to the point, I simply found it the best way to describe a set of views that simply don’t fall neatly into any political party (major or minor) at present. What I mean by that follows below.

Economic Policies: For the most part, I tend to be somewhere between “classical liberal” and “supply-sider” on economics, which explains much (but not all) of the “conservative” in the label. That said, I’m more willing to accept incremental progress on matters than small-l libertarians are (to say nothing of Capital-L Libertarians). Meanwhile, so many conservatives forgot most of supply-side theory in embracing the dog’s breakfast of last year’s tax cut that I’m afraid a qualifier to my conservatism has become a requirement. This holds even more true in international economics, where my support for freer-trade and for freer-trade areas – but not for customs unions – fails to appeal to any type of libertarians and many conservatives – most of whom conflate FTAs and customs unions. Quite a few conservatives are now reverting to pre-1930 protectionism as well, which I find odious.

Domestic Policies: For the most part, I used to be on “the right” in nearly every cultural issue out there. I will freely acknowledge I’ve shifted “leftward” over the years on more than a few of these: especially on what could be summed up as identity issues (race, gender, sexual identity, etc.) – including my growing concern about white supremacism. I’m also far more skeptical of regulating the poor than I used to be (including changing my mind on work requirements for anti-poverty programs, which I now consider to be a perverse incentive in the labor-devaluing era of automation). This is where the “progressive” part comes in.

Foreign Policy: I suppose this is now my greatest source of departure from… well, from damn near everyone. With each passing day, my fear from 2003 is being realized – I will be one of the last six people on Earth who still considers the liberation of Iraq from Saddam Hussein to be the right thing to do. I am firmly in the camp that was (and in many places, still is) called “neoconservative” – and I have claimed that label for myself more than once; I just don’t think it helps explain my mixture on domestic issues these days. I am still a firm believer in the Democratic Peace theory – and as such, I consider helping the world’s democracies and opposing its tyrannies to be in America’s best interests. That includes the Assad tyranny in Syria, which was what led me to vote for Hillary Clinton – the first Democratic nominee for President for whom I have ever voted, and which puts me in another small minority of Americans – those who do not think the military defeat of ISIS/Daesh is enough to abandon the Syrian people to the bloodthirsty tyrant from Damascus.

With that mixture of views – neoconservative (mostly) abroad, economically conservative (mostly) but culturally progressive (mostly) at home – I just thought it best to take the “progressive” and “conservative” labels and, well, combine them. It seemed the simplest thing to do.

So there you have it.

D.J. McGuire can be heard on the More Perfect Union Podcast. 

Trump’s Trade War: Part III

December 16, 2017

by D.J. McGuire 

A new casualty in Trump’s Trade War has become the most visible. Thankfully (for him, not for us), the victim (Boeing) is hardly sympathetic, but that doesn’t make the damage any less real.

Read More

Trump’s Trade War, Part II

October 7, 2017

by D.J. McGuire

The Trump Administration’s efforts to “renegotiate” the North American Free Trade Agreement (NAFTA) have now created so many hackles that the Chamber of Commerce stepped in.

That Trump is willing to risk a trade war to feed his lust for protectionism is not news (he’s already set off Canada and the United Kingdom), but when the Chamber of Commerce sounds the alarm about a Republican president, we’re in big trouble.

Trump’s Trade War

September 28, 2017

by D.J. McGuire

Over the eight months and change of the Trump Administration, two of his closest allies – both geopolitically and personally – have been Justin Trudeau and Theresa May, Prime Ministers of Canada and the United Kingdom, respectively.

This week, the Trump Administration declared a trade war on both of them – and the Democrats are practically silent. Between Trump’s economic ignorance and the opposition’s political malpractice, we’re in for a very bumpy ride.

More Perfect Union Podcast Blog Talk Radio