Nafta 2.0: What’s the point?

There seems to be a tentative Nafta agreement between Trump and the House Democrats. The fact that Trump and the “progressive” Dems agree on the trade deal while the congressional GOP is skeptical is itself a pretty good indicator of what’s in the package.

The former ambassador to Canada is a big fan of the deal:

Bruce Heyman, the former U.S. ambassador to Canada from 2014 to 2017, went even further.

“It’s one of those rare circumstances we’ve seen now for the last few years, where you have a win-win-win,” Heyman said on Yahoo Finance’s On the Move. “You have a win for not only the administration, but also Congress. You have a win for American workers, farmers, and the environment. You have a win for Canada and Mexico. And so altogether, I think that this should be a day to celebrate our trading relationship.”

He added that while his preference was that the aborted Trans-Pacific Partnership (TPP) would have served as the replacement to NAFTA, the new deal will have a similar effect.

“Lo and behold, the president said the TPP was bad and NAFTA was bad,” Heyman said. “But what did we get? 65% to 70% of the exact language in this new USMCA is TPP. They lifted it right out of TPP. The rest is pretty much the structure of NAFTA with the exception of these auto provisions that were put in.”

I’m not going to dispute the facts here, but I have a very different interpretation of the deal.

Unfortunately, much of the media doesn’t understand international economics, and hence has no framework for analyzing this sort of agreement.  I’ll start by trying to provide a framework.

There are basically two types of “trade policies”.  One set of policies influences the overall current account balance.  Those are macro policies affecting saving and investment.  Another set of policies impact the composition of trade, favoring one industry over another, without having any impact on the overall trade balance.  That’s clearly what we have with the new Nafta agreement.

The current account balance (by definition) is domestic saving minus domestic investment.  Trump’s macro trade policies are likely to boost the deficit, as they discourage domestic saving and encourage domestic investment.  Thus Trump’s huge fiscal deficits would be expected to result in a larger current account deficit, which is what has occurred. Indeed it might be even “worse” than the official figures show, as the new tax bill could lead to accounting changes that disguise the increase in the trade deficit.  (I use scare quotes for “worse”, as trade deficits aren’t actually bad, although the fiscal stimulus that is boosting the trade deficit is bad for other reasons.)

The new Nafta agreement has some bizarre provisions, such as the US telling Mexico how to run its labor unions, which are stupid but relatively meaningless.  More importantly, there a few provisions that favor specific US industries, such as auto parts and steel.  The effect on auto manufacturing is ambiguous, as the higher cost of auto parts and steel will make US cars less competitive against German, Japanese and Korean imports.

Most importantly, this is a zero sum game for the trade balance.  Because the new Nafta won’t impact the overall trade balance, it will hurt those sectors of manufacturing not explicitly aided by the agreement.  This is the “general equilibrium” perspective that non-economists often miss.  Thus areas of manufacturing outside steel and auto parts will suffer a loss of sales and employment.

The simple way to evaluate political actions is to look at what the policymakers claim they are trying to do.  The supposedly more sophisticated method is to look at who gains and loses, and then assume that the policymakers are motivated by special interest politics.  In this case, I don’t believe that either approach works.

I don’t see a shred of evidence that either Trump or the congressional Dems have any idea as to what they are doing here.  The new Nafta is similar to the old Nafta, with slightly less free trade.  But what’s the motivation for that?  If you think free trade is good, then why revise the original agreement?  If you think free trade is bad, then why not just let Nafta expire?  Treat Mexico and Canada like any other trading partner.  What’s the motivation for a new Nafta that’s slightly more protectionist than the old Nafta?

There is a lot of evidence that politicians have no understanding of basic trade theory.  Trump is known to be a fan of the views of Peter Navarro, who is one of his key advisors on trade issues.  But Navarro is unaware of even the most basic concepts in trade theory.  He believes that the famous expenditure identity (GDP = C + I + G + (X-M)) somehow shows that trade deficits reduce GDP. It is possible that trade deficits reduce GDP (I doubt it), but that equation certainly doesn’t show that.

Instead of looking at who gains and who loses, I would focus on the mistaken views of Trump and congressional Democrats.  I doubt that either group set out to punish manufacturing firms that do not produce auto parts and steel, but that’s the effect of their actions.

While this is a bad agreement, it’s also not very important.  Indeed in some respects it’s very good news.  Trump’s ignorance of trade theory makes it more likely that he’ll settle for a similarly meaningless deal with China, one that doesn’t accomplish what he seems to want to accomplish.

Some commenters suggest that I don’t care about how our trade deficit hurts blue collar workers in America.  It’s true that I don’t care about our trade deficit, but I do favor policies that would reduce our trade deficit (albeit not because they would reduce our trade deficit.)  Most notably, I favor policies that would dramatically boost domestic saving, making us more like Germany and Japan.  I’m an outlier here, most economists and pundits favor going in the opposite direction.

So if you were to line up all economists, financial reporters, politicians, and other pundits, my policy views are clearly at the extreme “pro-saving” end of the spectrum, and hence most conducive to a smaller trade deficit.  Trump’s views are at the opposite extreme.  My policy views are effectively “pro-American manufacturing”.

Motivations are one thing, but in the end it’s results that matter.

PS.  It’s funny that the language for the new deal was lifted right out of the supposedly awful TPP agreement.

PPS.  My claim that fiscal deficits increase current account deficits does not mean that other factors are not important.  It’s a “ceteris paribus” claim.  I realize that the two variables are only very loosely correlated over time.  Thus the current account deficit fell even as the budget deficit rose during the Great Recession.  The recent increase in the budget deficit is more unusual, occurring during a period of economic boom.  I suspect this has had a causal impact on the current account.


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33 Responses to “Nafta 2.0: What’s the point?”

  1. Gravatar of Gordon Gordon
    11. December 2019 at 14:57

    Given the number of people who misunderstand the last term in the GDP accounting identity I wonder if it would be better to also say

    GDP=C-M(C)+I-M(I)+G-M(G)+X-M(X) and M=M(C)+M(I)+M(G)+M(X)

    Then maybe more people would understand that imports are being subtracted not because imports reduce GDP but because you need to subtract imports as a correction factor to cover only domestic production in all the components of GDP.

  2. Gravatar of John Hall John Hall
    11. December 2019 at 15:04

    The trade deficit has actually narrowed quite a bit the past few months (due to falling imports).

  3. Gravatar of Skeptical Skeptical
    11. December 2019 at 15:25

    Well said, Dr Sumner. Navarro is a joke.

    I also care about our fabled blue collar workers, but my sympathies lie (ten times!) more with the automotive workers in Mexico working for $2 an hour than the $28 an hour American UAW employees.

    Having worked in this industry and in LAmerica, the most probable result is the inexorable trend in Mexico of impossibly Nordic-style labor regulation rules causing a larger and larger percentage of the Mexican labor force to be off the books. This fuels corruption in an already corrupt Narco failed state. Mexican bureaucrats are licking their chops at the opportunity here.

    Off topic:
    Buttigieg seems smart and not insane
    Yang seems smart and actually correct about almost everything
    My general theory of politicians understanding the world being unelectable will prove to be true with both Yang and Buttigieg

  4. Gravatar of David R Henderson David R Henderson
    11. December 2019 at 15:39

    Excellent post. What upsets me most is using the deal to impose a high minimum wage, by Mexican standards, in the Mexican auto industry.

  5. Gravatar of Benjamin Cole Benjamin Cole
    11. December 2019 at 17:30

    Still, why have populations worldwide come to distrust free-trade theologies?

    Take South Korea, a very successful nation. Housing costs have exploded, and the average woman has about one baby.

    A couple generations ago young couples would move to California to raise a family. That thought is laughable, actually lamentable, today.

    In America, people look at the Rust Belt and any amount of economic dislocations, and yet they are told that the answers to high housing costs, and $25,000 a year in medical insurance for a family of four, is more immigration and more “free trade.” Americans have stopped having babies too.

    Michael Pettis says the way for a nation to compete in a globalized economy is to decrease labor share of income, as Germany did in the 1990s.

    The globalists say if the domestic population stops reproducing, that is not a problem as you can always import a new labor class.

    The globalists are glib, but they have no answers to what is ailing populations in developed economies.

  6. Gravatar of Gene Frenkle Gene Frenkle
    11. December 2019 at 18:28

    According to Bernanke in his Global Savings Glut theory trade deficits do matter. However, I believe his theory put too much emphasis on trade deficits with China and not enough emphasis on our trade deficits with Middle East oil exporters. So if trade deficits with China were such a bad thing then we would be headed for another financial meltdown…but we are not. So the problem with trade deficits with ME oil exporters were myriad. Obviously one problem is that we are a consumer spending economy and our economy could not function with such high prices for the most important commodity. Another problem is that the oil profits could not properly be invested by global capital markets because the obvious thing to invest in with $100 a barrel oil is more oil production…and yet oil production plateaued from 2000-2008.

  7. Gravatar of ssumner ssumner
    11. December 2019 at 19:38

    Gordon, Good point.

    John, Monthly data is noisy.

    Skeptical, We think alike.

    David, I agree.

    Ben, You said:

    “Still, why have populations worldwide come to distrust free-trade theologies?”

    You do know that support for trade among Americans is increasing rapidly, don’t you?

    Gene, I doubt Bernanke ever claimed our deficit with China was a problem.

  8. Gravatar of Gene Frenkle Gene Frenkle
    11. December 2019 at 20:05

    Some years ago I discussed the macroeconomic implications of global flows of saving and investment under the rubric of the “global savings glut”. My conclusion was that a global excess of desired saving over desired investment, emanating in large part from China and other Asian emerging market economies and oil producers like Saudi Arabia, was a major reason for low global interest rates. I argued that the flow of global saving into the United States helped to explain the “conundrum” (to use Alan Greenspan’s term) of persistently low longer-term interest rates in the mid-2000’s while the Fed was raising short-term rates.

    https://www.google.com/amp/s/www.brookings.edu/blog/ben-bernanke/2015/04/01/why-are-interest-rates-so-low-part-3-the-global-savings-glut/amp/

  9. Gravatar of Benjamin Cole Benjamin Cole
    11. December 2019 at 20:30

    Scoot Sumner said

    “Ben, You said:

    “Still, why have populations worldwide come to distrust free-trade theologies?”

    You do know that support for trade among Americans is increasing rapidly, don’t you?”

    —-30—-

    Actually, I think we are one recession away from a Bernie Sanders or Elizabeth Warren in the White House, or maybe (in time, she is young) an AOC. None of those candidates is for “free trade,” or maybe even “free enterprise” (although AOC says she is for open borders for immigration).

    I gather an “anti-Trump” sentiment is being expressed in the always-dubious public opinion polls. As you know, we can word a poll to get any results we want.

    I suppose the question, “Are you for “free trade” as long as it is fair trade also?” would get a high approval rating.

    I never heard anyone say that moving US auto factories to Mexico is a good idea, except for someone in Washington DC, or a PhD economist.

    Anyway, I restate my point: We can say living standards are rising in South Korea, Hong Kong, Sydney, Vancouver, Great Britain or the West Coast of the US, but I think living standards are falling.

    The macroeconomics profession has dropped the ball. It is obsessed with “free trade” and inflation, and not housing and medical costs.

    In the developed world for 40 years we have successfully fought inflation and globalized the economy, but the real-world results are unaffordable housing and medical care, and sub-replacement birth rates.

    II will say this: there are benefits to declining populations, and people in Japan are already reaping them, especially if they live outside Tokyo.

    A one-bedroom apartment in Sapporo, Japan (they say, a nice place) is about 20% of the cost of a one-bedroom apartment in Los Angeles. About $500 vs. $2500. The Sapporo renter has another $2000 a month in post-rent income.

    https://www.numbeo.com/cost-of-living/in/Sapporo

    https://www.rentjungle.com/average-rent-in-los-angeles-rent-trends/

    If my guess is right, real wages will rise in Japan in the years ahead (with proper monetary policies). It may not be measurable, what with voodoo hedonics and bona fide difficult comparisons.

    But the family living in Sapporo is miles ahead of the family in Los Angeles.

  10. Gravatar of Todd Kreider Todd Kreider
    11. December 2019 at 22:30

    “But the family living in Sapporo is miles ahead of the family in Los Angeles.”

    It’s now 70 degrees in L.A. and 32 degrees in Sapporo. Next month, the average low will be 17 degrees in Sapporo.

  11. Gravatar of Benjamin Cole Benjamin Cole
    11. December 2019 at 22:41

    I won’t say “Foreign Affairs magazine is the world,” but this is a teaser that came in today’s email to me, from Foreign Affairs:

    —-30—-

    Dear Reader,

    Two and a half centuries after the emergence of capitalism, countries around the world are still trying to figure out how to reap the upsides of markets while protecting themselves from the downsides. But the more the system seems to work only for those at the top, the more it will have trouble sustaining democratic legitimacy.

    —-30—-

    Well, that i what the fusty, globalist FA said.

    The US orthodox macroeconomic profession has been doing intellectual gymnastics for years, insisting that everything is better than ever.

    But then this: “Median US Homebuyers Age in 1981 was 31. Today it is 47.”

    So, young Americans don’t buy houses anymore, and they don’t have families.

    The globalists say fine and dandy, we can import an employee class.

    This is better than before!

    Like I said, your choices may be Sanders or Trump in 2020. The DC-establishment crowd is pulling for Biden, an evident half-wit.

    Interesting times.

  12. Gravatar of P Burgos P Burgos
    11. December 2019 at 22:48

    It seems like a lot of political theater. As does the China “trade war”. However, I suspect that this theater makes the US a less attractive place to build a factory. Political uncertainty has its costs.

  13. Gravatar of ChrisA ChrisA
    12. December 2019 at 01:46

    Ben – is the high cost of housing in LA vs Japan really the result of free markets and capitalism and unrestricted immigration? I would rather think the high cost of housing in LA is due to restrictive local regulations on new housing. Houston, despite high immigration, for instance manages to build large amounts of new high quality houses at relatively low costs and no-one would argue that their system is doing this thanks to more Government regulations, they would argue that it is due to a lack of regulatory burden.

    Similarly, I don’t read the Foreign Affairs magazine, as I have mentioned on here before I have discovered that not reading newspapers now keeps you better informed than reading them; this is a new development which perhaps boomers like ourselves don’t fully appreciate. But their point that capitalism is not perfect is of course true. The question though is whether we are better off overall in a free market capitalist society rather than some kind of authoritarian one (which you have said in the past you favor). The evidence is clear, from multiple experiments, that the chance is that an authoritarian state will be very bad for the vast majority of the people in that system, even if they are more “equal”. So we already have the answer to that and do not need to debate it further.

  14. Gravatar of Benjamin Cole Benjamin Cole
    12. December 2019 at 02:49

    ChrisA–

    Yes, you get a gold star! Housing is expensive due to property zoning.

    Housing may be additionally expensive in nations that run current-account trade deficits, as offshore capital needs a home, and so bids up domestic property prices. The Fed has issued studies to this effect, but some disagree. In any event, Americans are trading limited housing stock for foreign goods.

    But everywhere in developed nations you have property zoning, and you have official deference to property owners and financiers. Property owners know they will lose value in free markets, and financiers would have their loans go sour. This is seen most clearly in Hong Kong where developers take the lead in deciding how the city will be redeveloped.

    So, we have urbanizing job markets and frozen housing supplies in much of the world—a far larger structural impediment than Trump’s trade wrinkles.

    Well, an interesting topic.

    Solutions?

  15. Gravatar of Arilando Arilando
    12. December 2019 at 06:09

    Why is fiscal stimulus bad?

  16. Gravatar of ssumner ssumner
    12. December 2019 at 08:57

    Gene, That quotation contains no discussion of our bilateral deficit, nor does it suggest that China’s surplus is a problem.

    Ben, You said:

    “Actually, I think we are one recession away from a Bernie Sanders or Elizabeth Warren in the White House, or maybe (in time, she is young) an AOC. None of those candidates is for “free trade,” or maybe even “free enterprise” (although AOC says she is for open borders for immigration).”

    Sometimes your lack of logic almost takes my breath away. After I point out that support for free trade is rising fast, you say that a politician who opposes free trade might someday be elected. Proving what? Are we to believe that any view held by any politician who has some chance of being elected at some future date is, ipso facto, the majority view of voters? Really?

    Arilando, Because it has positive costs (future tax burden) and zero benefits.

  17. Gravatar of Gene Frenkle Gene Frenkle
    12. December 2019 at 09:46

    Considering we had a Housing Bubble followed by a Financial Meltdown followed by a Great Recession I would argue the fact the Fed couldn’t stop low longer-term interest rates was a negative thing. And the glowing obituaries for Volker highlight how people believe the Fed did positively impact the economy although it doesn’t explain why the S&L Crisis occurred. Here is the rest of the paragraph from Bernanke’s blog,

    Strong capital inflows also pushed up the value of the dollar and helped create the very large US trade deficit of the time, nearly 6 percent of US gross domestic product in 2006. The diversion of 6 percent of domestic demand to imports provides an alternative explanation to secular stagnation for the failure of the US economy to overheat in the early 2000’s, despite the presence of a growing bubble in housing (see Hamilton, Harris, Hatzius, and West (2015) for a quantitative analysis).

  18. Gravatar of Carl Carl
    12. December 2019 at 11:58

    Are the “extreme” pro-saving policies you refer to consumption taxes?

  19. Gravatar of Gene Frenkle Gene Frenkle
    12. December 2019 at 12:41

    I think I agree with you about being “pro-saving” if you mean savings gets all Americans invested in the stock market which would result in even more support for free trade.

    I would get there by creating a privatized aspect of Social Security invested in an S&P index fund. So I wouldn’t touch SS, but when every child is born they get a SS account with $2000 and every month they are alive an extra $8 goes into it and it grows tax free. This would be funded by their parents’ tax return depending on their parents’ income, or companies could fund it for employees with pre-tax revenue, or for the poor the federal government would fund it. So this account could not be touched until 65 at which it point it supplements SS. So this gives all Americans an investment in the stock market and every American will enjoy the benefits of corporations maximizing shareholder value. This would have the added benefit of reducing food stamps and housing support for the elderly, and maybe even allow Medicare to have higher premiums and copays.

  20. Gravatar of Christian List Christian List
    12. December 2019 at 14:54

    Benjamin Cole is much more right than Scott of course. The mood towards free trade has deteriorated in recent years, both in the US and in Europe. Scott is putting lipstick on the pig. He’s known for that, it’s kind of his style, true to form.

    One only has to look at which politicians have dominated the USA in recent months and years: Trump on the republican side and Warren/Sanders on the democratic side.

    Even Obama had massive problems with TTIP. He wasn’t even convinced of it himself.

    One also has to take a look at the path of dominant economists such as Krugman. Unfortunately a typical example.

    Other example: Brexit.

    Or the whole EU itself: with continents like Africa there is almost no free trade. Anti-free trade parties are getting stronger and stronger in Europe, there is almost no reasonable possibility for African farmers to export to Europe since decades.

    Shall I go over the German parties and their positions? That would be fun. Really amazing for a country whose entire economy is based on free trade.

    Scott bases his assertions on meaningless, butter-soft polls that may ask superficially about free trade, but in reality it’s more about psychological subconscious mechanisms and questions such as “Do you like Trump or not”.

    Maybe democratic voters come to their senses and choose someone like Buttigieg. And then this guy wins over Trump. Then one might reconsider the judgement, but only then.

  21. Gravatar of Benjamin Cole Benjamin Cole
    12. December 2019 at 17:00

    Scott Sumner:

    If I am not logical it is because I am explaining how the public is voting or responding to polls, which is also not logical.

    We might see the public respond to a certain poll, worded in a certain way, that indicates the public supports some version of “free trade.”

    That same public appears willing to put Elizabeth Warren or Bernie Sanders or Donald Trump into the White House in 2020. To my knowledge, there is no leading presidential candidate in 2020 that is thumping for free trade.

    I think the Foreign Affairs magazine teaser summed it up. The developed economies are not delivering higher living standards to domestic populations. The public is losing faith in free trade and free enterprise theologies.

    There are changes that leaders in developed nations could implement to save free enterprise and free trade. Unzoned property for example. Develop a (relatively) low-cost medical care option. Limit in-migration to keep labor markets tight.

    But these solutions are not politically popular or theologically correct.

    Ergo, see AOC in the White House.

  22. Gravatar of Benjamin Cole Benjamin Cole
    12. December 2019 at 17:35

    Scott Sumner:

    Need I mention Boris Johnson? His hairdo is even worse than Donald Trump’s and he ain’t no globalist. He just won big time.

    I am amazed that Italy and Greece want to stay in the EU. Maybe they are just waiting for a man with a bad hairdo.

  23. Gravatar of Benjamin Cole Benjamin Cole
    13. December 2019 at 02:45

    Add on: I guess we now have a partial Sino-US trade deal.

    As with other trade deals, no one will ever read the fine print, and even if they do, actual importers and exporters will dance and weave to sidestep what they can.

    Just remember: There is no such thing as “free,” “fair” or “foul” trade.

    Government is usually (actually, almost invariably) the largest aspect of “comparative advantage,” and moreover, Ricardo’s trade theory was developed before liquid capital flows among nations (rendering it outdated).

  24. Gravatar of P Burgos P Burgos
    13. December 2019 at 05:57

    @B Cole

    Alright, I’ll bite; how is it that government is the largest aspect of comparative advantage?

  25. Gravatar of ssumner ssumner
    13. December 2019 at 10:36

    Gene, Again, the new Bernanke quote you provide does not suggest he worries about the bilateral deficit, or indeed any trade deficit.

    Christian, You are just as illogical as Ben, which doesn’t surprise me.

    You said:

    “Other example: Brexit.”

    You do know that Boris Johnson is committed to negotiating a 100% free trade pact (no tariffs and no quotas) with the EU, don’t you? I guess not. He also wants a free trade pact with the USA. So his big defeat of anti-free trade Corbyn is your proof that the UK hates free trade?

    You said:

    “but in reality it’s more about psychological subconscious mechanisms and questions such as “Do you like Trump or not”.”

    Most Americans say they don’t like Trump, and most voted against him. So that’s your evidence?

    I find it comical that you and Ben think you can determine the opinion of Americans on one particular issue by looking at the views of a given politician who might or might not win the popular vote in 2020. Trump is anti-abortion and anti-pot legalization. Is that also, ipso facto, the view of the public?

    The same Trumpistas who say that Trump’s win proves the people believe X, tend to support the Electoral College because of how awful if would be to have the people directly determine who becomes president.

    Burgos, Don’t even bother with Ben, he’s hopeless. He just enjoys typing.

  26. Gravatar of Gene Frenkle Gene Frenkle
    13. December 2019 at 12:00

    Scott Sumner:
    My point was Bernanke discussed trade deficits in his GSG theory, so why would he discuss them if they don’t matter?? I actually don’t believe trade deficits per se matter going forward but only because fracking tamed the global oil market. So I believe the big trade deficits from 2000-2008 were merely a symptom of the real problem—the global economy couldn’t handle high oil prices. Thanks to fracking high oil prices would now lead to investment in more production which didn’t happen from 2000-2008.

  27. Gravatar of Christian List Christian List
    13. December 2019 at 15:28

    So his big defeat of anti-free trade Corbyn is your proof that the UK hates free trade?

    Scott, No our proof is that people like Johnson and Corby were running in the first place and are dominating their parties. The biggest free traders, the Liberals are the big losers of the election, you realize that, right?

    You do know that Boris Johnson is committed to negotiating a 100% free trade pact (no tariffs and no quotas) with the EU, don’t you? I guess not. He also wants a free trade pact with the USA.

    I think Johnson is telling many stories when the day is long enough. He would sell his grandma if he has to. I am in favor of free trade, but I only believe it when it happens. I think Johnson is like Trump a master at addressing different people at different levels: The simple people don’t even know his free trade message, they just hear “Brexit, Brexit” and that’s why they’ve chosen him.

    I find it comical that you and Ben think you can determine the opinion of Americans on one particular issue by looking at the views of a given politician who might or might not win the popular vote in 2020.

    I think we simply believe that decisions in important elections say more than decisions you make on the phone.

    I also think that humans are very contradictory beings and that a lot of people don’t have profound opinions regarding specific political issues. You seem to believe that people have profound views on free trade, and that they suddenly changed those views significantly when Trump became president.

    I think it’s the other way around: a lot of people don’t have any profound political views on specific issues at all; they simply adjust their opinions according to politicians and parties that they like or don’t like. That also explains pretty well the pretty strong swing right after Trump won the election. Nothing really changed, except that Trump got elected.

  28. Gravatar of ChrisA ChrisA
    14. December 2019 at 03:01

    Christian – the Conservative party have already announced unilateral lowering of tariffs to zero on 87% of imports following Brexit from all countries. This is their published policy. So I think Brexit and Boris Johnson are advocates of real free trade. Unfortunately most people are confused about what free trade means, trade agreements and customs unions are the opposite of course of free trade but most people don’t seem to understand that.

  29. Gravatar of Michael Rulle Michael Rulle
    14. December 2019 at 08:37

    I get a kick out how you write on your own website versus Econlog. I like both. But if you wrote this one on the more “serious” site it would have been half as long because you would not have had to write all your self corrections and re-explanations. It is like Lincoln’s apology for writing a long letter because he did not have time to write a short one. But I do like your style here——it was easy to see when you would self “correct” (or more clearly explain). It’s really enjoyable.

    As for substance—-who knows. In the end it was a nothing. And is it really surprising that trade and tax policies are designed for votes, even if they often get it wrong relative to what they desire?

    I have commented to you before that I wish you would discuss our fiscal path in greater detail. I almost believe that almost “everything we know is wrong” about deficits—-even though traditional theory seems obviously correct. Maybe it’s just faith in the end—-we can borrow forever (certainly Japan is way ahead of us) as long as we believe the next guy will take us out. But it does impact growth—-or so it seems.

    It is still transfer payments driving the train. In my fantasy world I would have something like an announced 100 year plan where we gradually “pay back” what is owed by promise and eliminate Social Security and Medicare to be replaced by the obvious better private savings system of 401ks and healthcare savings accounts. This would be more consistent with economic theory (a la Bastiat et.al).

    But I still am not ready completely discount “everything we know is wrong”.

  30. Gravatar of ssumner ssumner
    14. December 2019 at 09:29

    Christian, You claim Johnson hates free trade, and when I point out he advocates free trade you respond:

    “I think Johnson is telling many stories when the day is long enough.”

    You must be quite a mindreader.

    So let me get this right. The proof that the UK public hates free trade is that they support a politician who loudly advocates free trade, but somehow know is privately opposed to free trade.

  31. Gravatar of Christian List Christian List
    14. December 2019 at 23:14

    ChrisA

    I looked it up, you misrepresented it. They said they would temporarily cut tariffs to zero on 87 percent of imports in the event of a no-deal Brexit in order to avoid potential price spikes. It’s only an emergency tariff regime that would apply for up to 12 months, and only in the case of a no-deal Brexit.

    Scott,

    “Hating” is a pretty strong word you use there. I would say that most people are not particularly interested in the subject, they do not have a well-founded opinion. But the current basic zeitgeist is rather skeptical, compared to a few years ago, you can safely say that about free trade. Something similar can be said about Johnson: free trade is not his core identity at all.

    So now you want to portray him as a great quasi-freetrader, a man with an almost libertarian plan. You are such a contrarian type, it really is amazing. I remember writing about Johnson’s free trade plans few weeks ago, just to round off the picture about him and draw it fairly. If I remember correctly, and you’ll deny that as usual, you ridiculed him and doubted that he would do something like that, and now a few weeks later a quasi 180-degree turn. Now that’s an amusing but familiar pattern.

  32. Gravatar of ChrisA ChrisA
    15. December 2019 at 04:43

    Christian – I don’t think it is an emergency policy just the initial policy, but even if it were, doesn’t it suggest an appreciation for free trade when their response to leaving the EU is to lower tariffs to lower prices? I mean you can spin a story where the Conservatives are secretly planning to raise tariffs again as soon as they can, but no-one seems to think this is the case, so anybody voting for them would surely have taken them at their word that they would be lowering tariffs and as Scott says, assume they were voting for a free trade party. Most British people I know are thinking the Tories are free trade promotors, quite logically I would say.

  33. Gravatar of msgkings msgkings
    16. December 2019 at 13:14

    This bit from Christian List is spot on:

    “I also think that humans are very contradictory beings and that a lot of people don’t have profound opinions regarding specific political issues. You seem to believe that people have profound views on free trade, and that they suddenly changed those views significantly when Trump became president.

    I think it’s the other way around: a lot of people don’t have any profound political views on specific issues at all; they simply adjust their opinions according to politicians and parties that they like or don’t like. That also explains pretty well the pretty strong swing right after Trump won the election. Nothing really changed, except that Trump got elected.”

    We smarty-pants nerds that like to debate on blogs think policies and nuances and all that stuff matters, when in fact most people simply vote to express tribal solidarity and based on emotional feelings for the candidate.

    Trump won despite being a total clown because he was in the end more charismatic than Clinton. The more charismatic candidate has almost always won the US presidency since TV started to matter in 1960. So combine that with current US polarization, where almost half the electorate will vote D or R no matter who runs, and you get Trump, and probably Trump again next year.

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