Book Review - No Trade Is Free - Wall Street Journal

[johnkarls]

.
https://www.wsj.com/politics/no-trade-i ... nt-e89a275


‘No Trade Is Free’ Review: A ‘Common Good’ That Isn’t -
Robert Lighthizer, President Trump’s trade representative, claims the trade deals of the mid-1990s led to economic ruin. He’s wrong.

Review by Pat Toomey - a Republican U.S. senator from Pennsylvania in 2011-23.
Sept. 20, 2023


Robert Lighthizer, U.S. trade representative under President Trump, believes that America’s persistent trade deficits—imports exceeding exports—arise ultimately from unfair trade policies, were exacerbated by the post-1990s trade agreements, and are leading to economic ruin. In “No Trade Is Free,” he defends the Trump administration’s protectionist policies that were meant to restore balance.

Mr. Lighthizer acknowledges that free trade enables greater economic efficiency and lower consumer costs, but he argues that those benefits are outweighed by persistent, large trade deficits and the dislocation of workers whose jobs moved overseas. He denies the existence of genuinely free trade, seeing government interference everywhere. Mr. Lighthizer views trade deficits as wealth transfers to countries that run consistent trade surpluses. He dismisses the huge American trade surpluses in services and the benefits of capital-account surpluses—money flowing into, instead of out of, a country—that always accompany trade deficits. In general Mr. Lighthizer takes an almost dystopian view of the modern American economy, clearly influenced by nostalgia for his 1950s, small-town Ohio childhood.

He condemns America’s pre-Trump trade policy as one in which “corporate profits soared for a select group of importers and retailers” while “many of America’s manufacturing companies were hollowed out—forced either into bankruptcy or into moving their factories abroad.” In fact, total American manufacturing output has grown steadily, even since the trade deals of the ’90s, reaching a record high in 2021 despite trade deficits. Technology and trade together drove productivity gains, reducing the need for manufacturing workers—similar to America’s earlier agricultural transformation—and resulting in job increases in other sectors. Despite our supposed job-killing trade agreements, America reached record low unemployment immediately prior to the pandemic, surpassing that last January.

Mr. Lighthizer laments “fifty straight years of trade deficits with Japan, annual deficits of more than $300 billion with China for years, and enormous and sharply growing deficits with Europe.” Yet later he observes that the Japanese economy went from 72% of ours in 1995 to less than 25% of ours today. He attributes Japan’s decline, in part, to “inefficient policies” but doesn’t reconcile that claim with his thesis that large, persistent trade imbalances should have caused the opposite relative performance. Among the points he ignores: U.S. per capita national income is more than five times that of China, and our economy was 10% smaller than the European Union’s in 2008 and is now 50% larger. Working-class Americans enjoy a higher standard of living than workers in any of the countries or regions with which we have trade deficits.

Despite strong growth, record manufacturing output, full employment and a rising standard of living, Mr. Trump launched multiple trade wars and forced the renegotiation of the North American Free Trade Agreement. Mr. Lighthizer claims the administration embraced “the common good. The goal was increasing the number of high-quality jobs paying higher wages.” But his policies lost far more downstream jobs than they saved or created, as is usually the case with protectionism. Consider the steel and aluminum tariffs.

In 2018, Mr. Trump imposed legally dubious “national security” tariffs on foreign steel and aluminum, including from Mexico and Canada. Mr. Lighthizer defends the tariffs as necessary to combat globally depressed steel prices that he claims threatened the survival of the steel industry and jobs. But according to estimates from Peterson Institute economists, for every steel-worker job saved by those tariffs—at a cost of $650,000 per job—more than eight were destroyed in the downstream industries that use steel and aluminum. So much for the “common good.”

Mr. Lighthizer considers the U.S.-Mexico-Canada Agreement—the renegotiated version of Nafta—the “gold standard” of trade agreements. His intent was to reduce trade with Mexico—especially in autos—in order to bring down our trade deficit with that country. He insisted on a new minimum-wage mandate for vehicle manufacturing, an automatic sunset provision, a special dispute settlement mechanism favoring organized labor, and the elimination of legal protections for American investors abroad. The USMCA is the first trade deal in American history designed to diminish trade.

National security concerns make more sense on the subject of China. Mr. Lighthizer justifiably accuses Beijing of running a mercantilist economy based on central planning, subsidies of domestic business, forced technology transfers, intellectual property theft and protectionist trade policies. He objects to these practices but seems to believe they give China a competitive advantage. Some of them he thinks the U.S. should adopt. This is the same misunderstanding that led protectionists in the 1980s to think Japan was an unstoppable economic hegemon. State control isn’t strengthening the Chinese economy but enervating it.

He is right to see the ruling Chinese Communist Party as a major, long-term threat to U.S. leadership and interests. To weaken China, he advocates a policy he calls “strategic decoupling.” That includes imposing escalating tariffs until they drive the U.S.-China trade deficit to zero. Mr. Lighthizer acknowledges the disruption that such a policy would cause if imposed suddenly. But temporary disruption isn’t the problem. Separating the U.S. and Chinese economies with huge tax increases on American consumers would cause massive job losses, higher prices and a decline in American living standards, however gradual the imposition.

Mr. Lighthizer defends Mr. Trump’s “America First” trade policies despite their failure to achieve their primary goal—dramatically reducing our trade deficits. Our global trade deficit in goods is larger today than when Mr. Trump took office. The former president is now advocating doubling down with a Lighthizer-proposed universal 10% tax on Americans’ consumption of all imported goods—for starters.

Trump-Lighthizer protectionism has gotten some political traction within the GOP. But it’s not clear that promising to raise people’s taxes is the best way to get their votes.