Archive for the Category Trade


Don’t tell Trump that border taxes are not protectionist

Here’s the Washington Post:

The leaks coming out of the Trump White House cast the president as a clueless child

All White Houses leak. Sometimes the leaks are big, sometimes small. But there are always people willing to talk to reporters about the “real” story or about why the chief executive made a mistake in regards to some decision he made.

That said, I’ve never seen so much leaking so quickly — and with such disdain for the president — as I have in the first six days of Donald Trump’s presidency. . . .

Time and again, the image of Trump pushed by his “aides” is one of a clueless child — someone who acts on impulse, disregarding the better advice of people who know better. We know he needs to be managed or else he will say and do stupid things, the message seems to be. We’re working on it.  .  .  .

Trump has shown that his tendency to obsessively consume media — especially cable television — is unchanged in the six days since he has become president. He appears to be making policy decisions via things he watches or reads. (Remember Trump’s famous/infamous statement that he got his military information and advice “mostly from the shows.”)

At odds with all of this, however, is the fact that Trump is both deeply proud and hugely image-conscious. Having to read and watch allegedly loyal “aides” casting him as a sort of feckless child constantly in need of guidance wouldn’t seem to be the sort of thing that would sit well with him. . . .

The frequency — and nature — of these leaks are yet another reminder that the Trump presidency is nothing like anything that’s come before it. There is no blueprint. We’re through the looking glass.

But my educated guess is that these leaks must be driving Trump absolutely crazy. And when he gets mad, history suggests he will try to get even. And quickly.

Of course I warned people of this a year ago, but was told I was “deranged” and that Trump is perfectly fine.  I look forward to the scene where our Furher discovers that his aides have sold him a bill of goods on how the border tax/subsidy would “protect” America.

Dear God!  I never realized that life could be so much fun.

Do current account deficits costs jobs?

Over at Econlog I have a post that suggests the answer is no, CA deficits do not cost jobs.

But suppose I’m wrong, and suppose they do cost jobs.  In that case, trade has been a major net contributor to American jobs during the 21st century, as our deficit was about 4% of GDP during the 2000 tech boom, and as large as 6% of GDP during the 2006 housing boom.  Today it is only 2.6% of GDP.  So if you really believe that rising trade deficits cost jobs, you’d be forced to believe that the shrinking deficits since 2000 have created jobs.

screen-shot-2016-12-22-at-11-53-25-amSo why have manufacturing jobs plummeted since 2000?  One answer is that the current account deficit is the wrong figure, since it also includes our surplus in trade in services.  If you just look at goods, the deficit is closer to 4.2% of GDP.

But even that doesn’t really explain very much, because it’s slightly lower than the 4.35% of GDP trade deficit in goods back in 2000.  So again, the big loss of manufacturing jobs is something of a mystery.  Yes, we import more goods than we used to, but exports of goods have risen at about the same rate since 2000.  So why does it seem like trade has devastated our manufacturing sector?

Perhaps because trade interacts with automation.  Not only do we lose jobs in manufacturing to automation, but trade leads us to re-orient our production toward goods that use relatively less labor (tech, aircraft, chemicals, farm produces, etc.), while we import goods like clothing, furniture and autos.

So trade and automation are both parts of a bigger trend, Schumpeterian creative destruction, which is transforming big areas of our economy.  It’s especially painful as during the earlier period of automation (say 1950-2000) the physical output of goods was still rising fast.  So the blow of automation was partly cushioned by a rise in output.  (Although not in the coal and steel industries!)  Since 2000, however, we’ve seen slower growth in physical output for a number of reasons, including slower workforce growth, a shift to a service economy, and a home building recession (which normally absorbs manufactured goods like home appliances, carpet, etc.)  We are producing more goods than ever, but with dramatically fewer workers.

screen-shot-2016-12-22-at-12-08-01-pmUpdate:  Steve Cicala sent me a very interesting piece on coal that he had published in Forbes.  Ironically, environmental regulations actually helped West Virginia miners, by forcing utilities to install scrubbers that cleaned up emissions from the dirtier West Virginia coal.  (Wyoming coal has less sulfur.)  He also discusses the issue of competition from natural gas.

Innumeracy drives me nuts

One thing that frustrates me is that I have to go through life listening to tiresome arguments from the 99.9% of people who are innumerate.  Here are a few recent examples:

1.  “The polls were wrong about the election.”  That’s true of some of the state polls, but the national polls were roughly correct.  They predicted that Hillary would gain about 4.5 million more votes than Trump.  We still don’t know where it will end up (her margin widens daily), but it looks like she’ll end up nearly 3 million ahead. If you had told most pundits that Hillary would have won 3 million more votes than Trump, most would have assumed that she would win the election.  The mistake was not so much the polls, but rather the assumption that a comfortable margin in the popular vote would be enough.  That’s not an unreasonable mistake; in the past 120 years there was only one other split decision (in 2000), and in that case the popular vote was exceedingly close.  It’s like the housing price collapse of 2006-09; we all knew it was theoretically possible for someone with a multi-million popular vote margin to lose the electoral college, but didn’t expect it because we had not seen it in modern times.

2.  “If elections were determined by popular vote, Trump would have campaigned differently and most likely would have won the popular vote.” Of course that’s theoretically possible, but the odds are overwhelmingly against.  First, because the new strategy for both candidates would have involved more emphasis on getting out the vote in the non-swing states.  But the non-swing states went for Hillary by nearly 4%.  So if increased campaigning had boosted the turnout in places like California, then Hillary would have very likely won by even more.  Thus the big popular vote margin actually understates what that margin would have been in a direct election of the President.  And second, people don’t seem to understand how massive a popular vote margin of nearly 3 million actually is.  It would be extremely hard to generate another 3 million votes for Trump, or more precisely an amount of additional votes that’s 3 million more than the other campaign generated.  Face facts: Hillary didn’t lose because people didn’t like her; she was more popular than Trump on Election Day.  Trump won because the election was rigged by the Founding Fathers.

3.  “Neoliberal economists who promoted free trade are to blame for Trump.”  This is wrong for all sorts of reasons.  First of all, the direct loss of jobs due to imports is largely offset by jobs created in other sectors like exports and construction. Furthermore, automation costs far more jobs than trade.  And finally, the actual loss of jobs due to neoliberal policies like Nafta and GATT are only a tiny fraction of jobs lost to imports in general. Even if we had not liberalized trade in recent decades, we’d still be importing lots of cheap manufactured goods from East Asia and Mexico, and have a huge CA deficit.  If you take 10% of 10% of 10%, you end up with a really tiny number, and yet a commenter recently sent me an article by Notre Dame economist David Ruccio claiming that neoliberal economists were to blame for Trump:

Are mainstream economists responsible for electing Donald Trump?

I think they deserve at least part of the blame. So, as it turns out, does Dani Rodrick

My argument is that, when mainstream economists in the United States embraced and celebrated neoliberalism—both the conservative and “left” versions—they created the conditions for Trump’s victory in the U.S. presidential election.

We are 0.001% to blame, at most.  If economists don’t have a sense about what sort of numerical claims are plausible, who will?

4.  I could cite many other examples.  The claim that greater infrastructure spending would significantly boost US economic growth is absurd.  It might boost it, but the US economy is far too large and diverse for a $550 billion infrastructure package to make much difference, especially during a period of 4.6% unemployment and monetary offset.  Tax reform and deregulation are more promising, but even here the claims of 4% to 6% RGDP growth are ridiculous, at least over an extended period of time (I suppose one or two quarters are possible.) Trend RGDP growth during the 20th century averaged about 3%, under wildly different policy environments.  I’m not saying policy had no impact (I’m a moderate supply-sider), but people tend to overrate the impact.

To give a sense of how hard it is to dramatically impact the macro economy, consider that the Trump people (wrongly) claim their Carrier victory will directly save 1000 jobs.  Obama “created” about 6000 or 7000 jobs every single day over the past 7 years.  A thousand jobs is not a drop in a bucket, it’s a particle of water vapor in a bucket.  If Trump had that sort of “victory” every single day of his 8-year presidency, he’d still probably create far fewer jobs than Obama.  James Pethokoukis had this to say about the banana republic-like Carrier deal:

American Enterprise Institute scholar Jimmy Pethokoukis told CNBC on Thursday that President-elect Donald Trump’s speech about his deal to keep Carrier jobs in the United States was “absolutely the worst speech by an American politician since 1984 when Walter Mondale promised to reverse Reaganomics.”

“The idea that American corporations are going to have to make business decisions, not based on the fact that we’ve created an ideal environment for economic growth in the United States, but out of fear of punitive actions based on who knows what criteria exactly from a presidential administration. I think that’s absolutely chilling,” he said.

He continued: “[Companies should not make decisions] based on fear that there are going to be tariffs, that they are going to have contracts taken away from them, or the president will attack an American corporation for trying to create a valuable product.”

He also suggested that if the Democrats had done something similar, the GOP would have freaked out.  I can imagine Republicans complaining about this being a left-wing anti-business abuse of power, if Obama had done it.

Commenters often wrongly claim that I equated Trump and Hitler.  Now “analysts” are indirectly comparing Trump and Hitler:

A source who has advised Trump’s transition team on security policy told Reuters last week the president-elect would start a “clean slate” with Duterte, and analysts see some similarities in their blunt style. . . .

Sometimes called the “Trump of the East” because of his mercurial ways, Duterte has threatened repeatedly to sever U.S. defense ties, saying he “hates” having foreign soldiers in his country.

Here’s an example of Duterte’s blunt style:

Philippines President Rodrigo Duterte on Friday compared his campaign to kill criminals to the Holocaust, saying he would like to “slaughter” millions of addicts just like Adolf Hitler “massacred” millions of Jewish people.

“Hitler massacred three million Jews. Now, there are 3 million drug addicts. … I’d be happy to slaughter them,” he told reporters early Friday, according to GMA News.

“You know my victims, I would like to be, all criminals, to finish the problem of my country and save the next generation from perdition,” he said.

No wonder Trump is anxious for Duterte to be one of the first heads of state to visit the White House:

U.S. President-elect Donald Trump invited Philippines leader Rodrigo Duterte to the White House next year during a “very engaging, animated” phone conversation, a Duterte aide said on Friday, amid rocky relations between their two countries.

They have so much in common.  Trump likes reading books of Hitler’s speeches and says:

You know I’m proud to have that German blood, there’s no question about it. Great stuff.

And Duterte sees mass murder as the “final solution” to the drug problem.

PS.  But I’m not equating Trump and Hitler-loving dictators; I leave that to the “analysts”.

PPS.  Last time I mentioned the Duterte quotation, a commenter defended him by pointing to his high approval rating in polls.  And he didn’t seem to be kidding.

Steel jobs are gone forever

CNN has an interesting article on Trump supporters in Youngstown, Ohio. Trump fans will like what they read (even 18 Democratic precinct captains voted for Trump).  But what struck me was the interview with voters.  I don’t know what makes me sadder, the fact that they think Trump sincerely wants to help them, or their belief that he could bring back steel jobs if he were sincere. Contrarian intellectuals tell us regular intellectuals that we need to “listen” to what the working class voters are saying.  But when I listen all I hear are pathetic fairy tales.

Back in 1967, the US steel industry employed about 780,000 workers, and produced about 115 million tons of steel.  By 2015, employment had fallen to 90,000, producing about 79 million tons of steel.  In both years the US consumed about 130 million tons of steel.  (I’m not sure these figures are exactly right, but I think they are close enough.)

The bottom line is that even if we still produced 115 million tons, or even upped it to 130 million, the level of employment in steel would be in the 120,000 to 150,000 range.  The vast majority of those 780,000 steel jobs were lost to automation, and they aren’t coming back.

Back in the late 1800s, William Jennings Bryan told farmers their problems were caused by eastern bankers, whereas the real problem was that rapid productivity improvements were relentlessly lowering relative food prices and driving farmers into the cities. Trump blames Mexico and China for problems that are actually caused by automation.

PS.  I’m not certain about the 780,000 figure, which was derived by multiplying 4.4% times 17.9 million manufacturing workers in 1967.  This source reports 521,000 steel employees in 1974, and another source listed 680,000 in 1953.  So I’m not sure the peak employment level.  There may be definitional issues from different sources.

Update:  A helpful reader sent me the following:

The Statistical Abstract of the US seems a fair choice, and the 1968 release provides numbers for workers in “Blast furnace and basic steel products” and “Iron and steel foundries” on page 59 of the PDF linked below (page 221 of the original publication).

All workers In Blast furnace / basic steel products: 631K

All workers in Iron and steel foundries:  225K

Total = 856K

Production Workers In Blast furnace / basic steel products: 506K

Production workers in Iron and steel foundries:  190K

Total: 696K

Statistical Abstract of the US 1968

Your estimate of 780K is just about the midpoint between the 2 totals.

PPS.  The Springsteen song “Youngstown” lamented the collapse of a once proud economic dynamo.  It was written in 1995, before Trump scapegoats like NAFTA and China had any significant impact.

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More on China bashing

My recent post on China elicited lots of comments:

1.  Some argued that China steals far more jobs from the US than northern Europe, despite the bigger current account surplus in northern Europe.  This argument seems based on a sort of crude mercantilist model that even Paul Krugman couldn’t stomach.  If there is any respectable argument that CA surpluses steal jobs (and I doubt there is) it is based on the impact on world saving, not whether that particular country happens to sell lots of goods to the US.  I could easily argue the opposite, that if we didn’t buy low tech goods from China, we’d buy them from other Asian countries.  But if Germany didn’t sell turbines to China, the Chinese would buy those turbines from the US.  That argument would also be bogus, despite is superficial plausibility.  Again, in the Keynesian model it’s the impact on world saving that matters, nothing else.

2.  A second argument was that the Chinese surplus reflected government policy decisions.  They did acknowledge this was true of Norway, but suggested that a Sovereign Wealth Fund was a valid way of addressing the oil bonanza.  But as this study of the Nordic countries shows, the high savings rates do reflect government policies:

The fiscal performance of the four leading Scandinavian economies, both prior to and during the Great Recession, has been outstanding. The headline budget deficits for all four economies peaked below three percent of GDP – compared with 11 percent of GDP in the US and the UK. The underlying budget balance – adjusting for the economic cycle – remained in surplus in three of the Scandinavian economies and was only slightly negative in Norway. The comparable US and UK deficits were nearly nine percent of GDP. Much of this success can be attributed to pro-market reforms, such as the introduction of fiscal rules, following the early 1990s Scandinavian economic crisis.

The northern European countries also tax consumption more heavily than savings.  I don’t know all the details, but they have lower corporate taxes than the US, and some have no capital gains taxes, while others have no inheritance taxes.

3.  I also find the rhetoric used by many commenters in the media and/or comment sections to be extremely repulsive.  There’s a sort of  “if we get tough with the Chinese they’ll bend to our will” theme.  Replace ‘Chinese’ with ‘Africans’ and see how that sounds.  In all of American history I can think of only one example where punitive trade barriers against foreign countries were appropriate; Japan and Germany during WWII.  Otherwise sanctions usually make problems worse, not better.  In WWII we wanted sanctions to hurt their economies, but that shouldn’t be our policy in anything but the most dire scenario.

4.  I also got criticism for pulling the race card.  I see a steady stream of criticism directed at East Asia, which is far greater than what’s directed at Europe.  When I was young the rhetoric against Japan was on a completely different level of viciousness from what was directed at Germany, despite the fact that Germany also ran large deficits.  So there is nothing new about the focus on China, despite Northern Europe’s much larger CA surplus.  Many American protectionists claim that countries like Korea “cheated,” that they only got rich via mercantilist trade policies.  This despite the fact that Korea ran persistent trade deficits during its high growth years (1970s and 1980s).  Facts don’t matter, all that matters is that we perceive the East Asians to be untrustworthy, so they must be cheating at trade.  Otherwise how could they be joining the developed world?  Nor does the lack of trade barriers in Hong Kong and Singapore matter, critics will find some obscure way they indirectly intervene in trade, as if Western countries aren’t riddled with similar interventionist policies.

5.  If we are going to put tariffs on countries whose reckless governmental policies are hurting the rest of the world, why not put tariffs on Greece and Italy?  And how about the US?  Doesn’t our global warming policy hurt the world?  How about our decision to launch a war against Iraq?  How about our reckless banking policies, which helped trigger a world-wide financial crisis?  How about the Fed’s tight money policy?  As David Beckworth points out, the Fed is a monetary superpower, whose actions affect the rest of the world much more than the policies of other central banks.  Don’t we need to be “taught a lesson” just like the Chinese?

6.  The only even semi-respectable argument against China’s CA surplus is the Keynesian paradox of thrift argument used by Krugman.  What’s so comical about this situation is that the average “man on the street” China-basher would be totally perplexed by the claim that saving is bad.   “You mean we are attacking the Chinese for being too thrifty, not following the foolhardy low-saving policies of our government?”  Yup.