That was then, this is now

From the (early) MR archives

Bush to drop most steel tariffs, Tyler Cowen, on December 1, 2003 at 7:45 am

Bush decided in March 2002 to impose tariffs of 8 to 30 percent on most steel imports from Europe, Asia and South America for three years. Officials acknowledged at the time that the decision was heavily influenced by the desire to help the Rust Belt states, but the departure from Bush’s free-trade principles drew fierce criticism from his conservative supporters. After a blast of international opposition, the administration began approving exemptions.

The WTO’s ruling against the tariffs was finalized three weeks ago, clearing the way for the retaliatory levies, and Bush’s economic team concluded unanimously that the tariffs should be scrapped. The source involved in the negotiations said the consensus in the White House was that “keeping the tariffs in place would cause more economic disruption and pain for the broader economy than repealing them would for the steel industry.”

Here is the full story. The formal decision is expected to be announced later this week. This is the first piece of economic policy good news in some time, but it is sad that it required a WTO ruling and threats of European retaliation to come about.”

I recall visiting the White House with Vernon Smith around this time.  Smith told Bush that he had done the wrong thing with the steel tariffs, and Bush simply snapped back: “You’re the economist…leave the politics to me!”  I wonder how Trump put it to his advisors…

Addendum: Here is Bob Crandall criticizing Reagan steel protectionism from the 1980s.  Here is a 2003 retrospective analysis of the Bush steel tariffs.

Comments

Sorry Tyler but I think someone who has made himself a huge success in Manhattan real estate might know a bit more than an academic economist on how to do trade/business deals. The less the President listens to guys like Vernon Smith and the more he listens to himself the better.

Yep. Looks like Tyler's Trump derangement syndrome hasn't gone away after all.

Well that is weird. If you are going to impersonate me is it too much to ask you try for something funny?

Or did you just forget to use your normal name?

You are all just toy puppets for me to manipulate

This is the econ equivalent of bro-science. "This guy at my gym's totally jacked, and he says you gotta eat 8 small meals a day."

+1

"This is the econ equivalent of bro-science."

No, it is very normal politics & government operation.

If you permit American politicians to strongly intervene in the private economy -- you will get harmful actions based on political & special-interest considerations.

Trump is wrong, but no worse than other Presidents. The problem is dopey Americans giving their government dangerous powers.

>If you permit American politicians to strongly intervene in the private economy — you will get harmful actions based on political & special-interest considerations.

Yeah, like forcing people to buy health insurance.

How stupid was that?

"Trump is wrong, but no worse than other Presidents." Burn the heretic!

Yep. JWatts is one of the better commentors here, but this is not his finest work.

I think Trump fans are half right. Trump got the better end of the deal -- but from his supporters. He's like a slick used car salesman. So good that his voters still don't realize that they've been sold a lemon.

"So good that his voters still don’t realize that they’ve been sold a lemon."

You sound like you spend a lot of time at lemon parties with your Leftwing Dem friends.

I can't recall if I've never voted for a Democrat in my life. So much for jumping to conclusions.

You are wrong.

First, Trump hasn't made himself a huge success in NY real estate. His father gave him a nice boat and he rode the current, somewhat ineptly, but well enough to survive.

Second, if he were the biggest success in the history of real estate that would say absolutely nothing about his understanding of international trade, which appears to be less than zero. Everything he "knows" is wrong.

Third, if you are looking for someone other than an academic economist for an opinion take a look at the market's reaction. Does it look like they think this is a great idea for the US?

Fred Trump passed away in 1999, Donald Trump was already a highly successful real-estate developer by the late 1970s. How do you propose that Donald Trump used his inheritance to get a boost some 20 odd years before gaining it?

You seriously think parents don't help their kids before they literally die?

Weird how many rich kids end up in nice schools without their parents dying...

Your observations are purely academic. Manhattan real-estate is not the kind of business that one gets far in by dint of connections.

Not a question of connections as much as of getting a nice start on owning property, etc.

Besides, I decline to accept that he ever was a "highly successful" developer until we see a bit more about his finances. Highly successful developers don't have lots of projects go into bankruptcy, or find themselves unable to get bank loans. Furthermore, before we call someone a financial genius because they made a lot of money we need to know what baseline we are measuring against.

So stop with the Trump idolatry.

Some of us work with facts, and others with wishful thinking. Trump is a billionaire. The worst criticism someone could come up with is that if he invested all his money in an index fund before index funds even existed and never took any money out to pay for food then he might have made slightly more money than he actually did. So yeah, if that's the strongest criticism out there, then I accept that he was very successful in the real estate business.

Some of us work with facts, and others with wishful thinking. Trump is a billionaire.

Have you seen his financial statements or income tax returns? No? Then what exactly is the source of these "facts" you claim to be relying on?

The worst criticism someone could come up with is that if he invested all his money in an index fund before index funds even existed and never took any money out to pay for food then he might have made slightly more money than he actually did.

The Fortune magazine article linked by wait says he would be worth $13 billion instead of $4 billion. Slightly more? Want to knock out, say, $100 million a year for groceries? OK then. That's $3.1 billion spent. So call it $10 billion instead of $4 billion.

Index funds actually started in the 1970's, and the underlying notion was known earlier, not to mention that the broader idea that portfolio diversification was a sound strategy for reducing risk had already been around for some time.

Some of us work with facts and numbers and others buy a lot of hype and claim to have facts.

Yeah, he's so successful, the most successful, no one else has ever been as successful...

http://fortune.com/2015/08/20/donald-trump-index-funds/

Sad. Cherry-picking a market low and then assuming no spending. You could play this game with anyone.

For an example of how quaint life was in 1985:

http://articles.latimes.com/1985-10-15/business/fi-16339_1_billionaires

"Forbes magazine, that's who, and its 1985 list of the nation's 400 richest people is topped by Sam Moore Walton of Bentonville, Ark., who has made $2.8 billion through his Wal-Mart discount stores.

Walton, who danced a hula on Wall Street last year when profit goals were met, replaced Gordon Getty, the front-runner for the past two years. Getty dropped to 15th. Getty's fortune was $4.1 billion last year, but he agreed to divide the family oil trust with other family members, leaving him barely $950 million.

Second place went to Henry Ross Perot of Dallas, founder of Electronic Data Systems, who was $1 billion behind Walton."

"Trump, Donald John, 39, New York, real estate, $600 million"

No idea if this is the real Watts, but this is solid parody.

Straight from Trump:

"When a country Taxes our products coming in at, say, 50%, and we Tax the same product coming into our country at ZERO, not fair or smart. We will soon be starting RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!"

To be honest, that doesn't sound hard to game. Mexico sets their tariff on our avocado at 0% and our computers at 100%. Trump matches, and we all stop buying Mexican computers.

Has Trump cleared video 2 in "online trade university?"

The study cited by Tyler, http://www.tradepartnership.com/pdf_files/2002jobstudy.pdf completely refutes Watts' opinion. When Bush disastrously did it, 200,000 Americans working in industries that use steel lost their jobs. There were only 187,500 workers in the steel industry. I used to work at the FTC and saw other studies of tariffs like this. The deal making in the real estate industry means nothing in international trade. Watts should actually read some of these critiques before showing his ignorance about economics.

Right, so someone who worked as a federal bureaucrat knows more about real-world business than someone who has spent decades in one of the world's most competitive business spheres - because you read some....reports????!!!

Why is the DOW down 800 points JWatts? Fund managers don't know anything about real-world business?

Industrials hardest hit. Take that, WWC!

Oh man, you're serious... Well, let's play this game:

So I have a neighbor who has a catering business. He has 30 employees. That's real world business. Does he now know more about the international economic order than people who study it or actually work in it (like people working at the FTC or WTO)?

This can't really be JWatts...some troll has you guys in a tizzy

I can confirm that this is a troll.

No. Because you understand international trade, having studies it and been involved in trade deals.

WTF does collecting rent teach you about that? Nothing.

If it's such brilliant policy , why are the markets freaking out?

There is zero doubt that other countries are dumping steel and aluminum on us. There is zero doubt that other countries are "taxing" us out of their steel and aluminum market. Our domestic steel and aluminum market is a disaster and without some help will probably simply disappear. Should we do nothing?

Probably more important is that there is a compelling strategic reason for us to have a strong steel and aluminum industry. Without regard to any of the other factors our position in an unstable world and the necessity to be prepared to survive the many real threats demands that we have a strong domestic steel and aluminum industry.

I do not believe these argument cans be countered and for the president to do any less than what Trump did would be incredibly foolish and risky.

You do understand that anyone with cheap electricity (Canada:hydro, Iceland:thermo) will have a natural cost advantage in making steel or aluminum?

When we can't buy at that lower natural price, our costs (as Hazel says) on cars and planes go up.

Costs go up by how much? a penny? $35 for a car or truck?

But you forget the more convincing strategic issue? For that reason alone at a minimum our yearly production of steel and aluminum should be about half or more of our needs and our total capacity (including a potential reserve capacity) should be 100% of our needs.

Are we planning on going to war with Canada?

If not, we can probably safely assume that Canadian steel will be available to us going forward.

Even if you exclude Canadian steel, we still produce plenty of steel at home to meet all foreseeable military needs. We know this because we ask the Pentagon to study this issue and they routinely conclude that domestic steel capacity is far in excess of what they need.

"A recent Department of Defense memo related to the proposed tariffs, the U.S. military requirements for steel and aluminum each represent only 3 percent of U.S. production. Since national security is not affected by our current acquisition of steel and aluminum, the administration should consider the broader economic impact of tariffs or quotas and take care not to inflict unintended consequences on users of these raw materials. "https://www.commerce.gov/sites/commerce.gov/files/department_of_defense_memo_response_to_steel_and_aluminum_policy_recommendations.pdf

If Canada can produce steel and sell it here WHY not produce our own and have the jobs HERE??? Your argument makes no sense. It would appear that your argument is Please offshore all our jobs because countries like Canada are really nice guys and they deserve our jobs. WHY? If Canada can make steel and sell it here at a profit THEN we could as well so why not?

Re: Our steel making capacity. The U.S. does not even have one companny in the top 20 producers of steel. NOT ONE! China has 12!!! At the very least we should have a couple of producers in the top 20. But even more importantly we should at the very least produce at least half of all the products and raw materials we depend on. To not do so is suicide. Why would we want to be dependent on foreign countries ESPECIALLY when it means we lose jobs in the bargain.

If there is a lot of cheap steel and aluminum on the international market, should we allow American auto, appliance, and aircraft manufacturers to take advantage and buy it? Or should we force them to buy more expensive domestic steel and aluminum? If we force them to buy the pricey local stuff, what does that do to the international competitiveness of our steel and aluminum using industries? How does it affect Boeing's decision to build aircraft components in the U.S. vs elsewhere (keep in mind that they already have production around the world)? How does it affect GM and Ford's decisions about building cars in the U.S. vs Mexico or Whirlpool's allocation of production to their U.S. vs Mexican plants?

Name your industry and it can be acquired cheaper offshore. Does that mean we should dump all American companies and only become consumers? Is that even possible?

If an American company directly and indirectly (through employees) contributes revenues to government and benefits to their communities and the country should a foreign company providing the same product or service be able to sell into our country and avoid all of those costs? Perhaps simply assessing everyone who sells goods and services into America perhaps a 50% "tax" to make up for that loss to our economy would fix the problem. BUT, wouldn't it be better to accomplish the same thing by employing American workers?? Why not? So perhaps allow anyone, consumers and manufacturers to buy foreign goods and services but simply require them to purchase at least half of those goods and services from an American company.

The effect of this will be to move more industry to Mexico. They’re apparently more politically stable than the US.

We can’t compete on labor. So that’s already hurting. Now we can’t compete on raw material pricing.

This means nothing without a follow on tariff of products MADE WITH FOREIGN STEEL. This is incredibly stupid even for an incredibly stupid old man.

"Name your industry and it can be acquired cheaper offshore."

Not true -- at least if we mean assume 'cheaper' means 'better value'. Labor is cheaper (in dollars per hours) in many places obviously. So many people naively assume that it companies could save money and earn more profits by moving their operations out of the U.S. But those places with cheap labor tend to have a variety of problems. Transportation and infrastructure may be poor, there may be significant language and cultural barriers, educational standards may be low, officials may be corrupt and the rule of law unsure, intellectual property theft may be rampant, violent crime rates may be high. There may be tariffs that artificially raise the cost of inputs. Oops.. And all those things, in fact, are the very reasons that labor is cheap -- because operating in those places imposes so many other costs.

"Does that mean we should dump all American companies and only become consumers? Is that even possible?"

No, and no. And there is no 'we' deciding collectively to 'dump' anything. But there is a collective 'we' deciding how attractive we want to make it for businesses to operate here by the policies we support and the politicians we elect. And steel and aluminum tariffs have the opposite effect of making the U.S. attractive for business.

"The effect of this will be to move more industry to Mexico."

Not at all. Apply it to everyone. We need to renegotiate NAFTA and end the special break we gave Mexico years ago. This would do the opposite of what you claim and those jobs would come back from Mexico.

What you don't understand is the supposed "free trade" is a huge scam that is stealing jobs and revenue from our country. Our negotiators sold us out and by pure coincidence became millionaires in the process. Our trade agreements are by intent anti-American. Make them pro-MAGA.

"There is zero doubt that other countries are dumping steel and aluminum on us. There is zero doubt that other countries are “taxing” us out of their steel and aluminum market. Our domestic steel and aluminum market is a disaster and without some help will probably simply disappear."

Our domestic *primary* aluminum industry will disappear. It's just a question of when. We have no bauxite ore. We have little hydroelectricity. So our primary aluminum industry *should* disappear.

https://thebauxiteindex.com/en/cbix/industry-101/bauxite-101/bauxite-reserves

There is absolutely no reason our *secondary* aluminum industry will disappear.

Our situation with steel is that most of our primary steel plants are very old. They use yesteryear's technology. But again, there's no reason why our secondary steel industry should disappear.

"Without regard to any of the other factors our position in an unstable world and the necessity to be prepared to survive the many real threats demands that we have a strong domestic steel and aluminum industry."

Our military takes an absolutely trivial amount of steel and aluminum compared to our country's total consumption. And the "strong domestic steel and aluminum industry" created by protective tariffs *weakens* all our industries that use steel and aluminum (e.g. the automobile industry, the aircraft manufacturing industry, construction, etc.

"I do not believe these argument cans be countered and for the president to do any less than what Trump did would be incredibly foolish and risky."

The market apparently disagrees.

"The market apparently disagrees."

That is where you see it and where the elite want you to see it but it is the large multinational companies and the rich elite that disagrees. The U.S. is a rich market. So rich that it by itself consumes more than the entire rest of the world together does. In the last 50 years or so multinational companies have cornered this market. Their goal is to maximize profit and that means moving our jobs offshore and avoiding paying taxes into our government. They have bought our politicians and spun this "free trade mantra" to fool the masses. They have become fabulously rich doing this and they do not want to give it up. To that end they will spin it and propagandize it to keep their stranglehold on our market. I think it is time we take our market back.

"The U.S. is a rich market. So rich that it by itself consumes more than the entire rest of the world together does."

That isn't even close to true for steel and aluminum. China consumes far more steel than the U.S. China also consumes far more aluminum than the U.S.

"I think it is time we take our market back."

How does Donald Trump imposing tariffs on imports of steel and aluminum constitute us "taking our market back"?

Your comment is satire, right? Do you really think that being good at Manhattan real estate makes someone an expert at international trade deals? Seriously? So does this mean the head of the WTO could have made billions like Trump in Manhattan Real Estate, cause if you're good at business in one area you must be good at it in all areas? It that how that works? And let's be honest, Trump was actually really good at branding his name, which is why those taking over his failing casinos didn't bankrupt him -- they knew the property was more valuable, though still in the red, with Trump's name on it.

"The less the President listens to guys like Vernon Smith and the more he listens to himself the better."

So now he's talking to himself? This is even worse than I thought...

Legit.

https://www.nbcnews.com/politics/white-house/trump-was-angry-unglued-when-he-started-trade-war-officials-n852641

"History repeats itself, first as tragedy, second as farce."

That's a quote by Marx. I like this name dropping, back when TC was up-and-coming instead of established: "I recall visiting the White House with Vernon Smith around this time".

I'm grateful to see Tyler's critical take. I half expected to see a link to a new Tyler article on Bloomberg View on why tariffs might not be such a bad thing.

@Pearl Y - don't count that out, see my comment below. I can read TC's mind, he's itching to make this type comment! It will be like his recent "No Fascism in the USA post" - or like the move 1.c4 in chess.... explosive!

So that is it: America must kowtow before the Chinese and other aggressors and follow foreign diktats. Unconditional surrender writ large.
https://en.m.wikipedia.org/wiki/None_Dare_Call_It_Treason

Bonus trivia: Elizabethan Sir John Harington is the author of the epigraph "None Dare Call It Treason", and he's also the inventor of the first flush toilet (hence the term "John" for toilet).

Far better to stab ourselves in the gut to placate those who demand the appearance of strength. Amirite?

So that is it. Unconditional surrender, then. There were a time where we would be throwing Chinese steel into the Potomac. Soon or later, we will have to ask Mr. Reagan's question about fifth-columnists: "Do they mean peace, or do they mean we just want to be left in peace?". Also: "We cannot buy our security, our freedom from the threat of the bomb by committing an immorality so great as saying to a billion now in slavery behind the Iron Curtain, 'Give up your dreams of freedom because to save our own skin, we are willing to make a deal with your slave masters.'"
http://www.presidency.ucsb.edu/ws/index.php?pid=76121
A time for choosing, indeed.

You misunderstand me. "Surrender" is doing something self-harming in order to satisfy peoples' desire for ostensible strength. "Winning" is resisting those demands and doing what's actually best for the country. Which, I would posit, includes free(ish) trade.

I see. So you want to fight Americans. I favor fighting foreigners and protecting Americans. We must show tenacity and strenght. They are destroying our jobs and manufacturing power. They are laughting at us in Beijing.

"I favor fighting foreigners and protecting Americans."

Only that's not what you're doing. You're improving the fortunes of some Americans in exchange for damaging the fortunes of many more Americans. If they're laughing at us in Beijing, it's because our president is utterly laughable.

"If they’re laughing at us in Beijing, it’s because our president is utterly laughable."
They are laughing because they are totalitarians. Let us nuke Beijing and see if they still laugh.

Wait, are you opposed to these tariffs Thiago? Seems like the kind of thing you want, for the US to fight with other nations in a trade war. By the way China is not even on the top 5 list of steel exporters to the US.

1) I know no Thiago (and Brazil, since you so much about those things, is actuallya big steel supplier to America than China - yer, I doubt nefarious Brazilians are the ones attcking Trump).
2) I believe in defending America's jobs and mnufacture power. Americans are now expected to survive but cutting one another's hairs and selling one another apps. It is ridiculous. If heavy tariffs are needed to defend America, so be it.

I suspect Cowen's larger point is that the Republicans are supposed to be the economics party, the party with the expertise to pursue the most efficient economic policy. Yet, the Bush administration implemented tariffs and a budget and a large tax cut that caused deficits to soar, and now the Trump administration is repeating the exercise. Einstein said that repeating the same thing over and over and expecting a different result is the definition of insanity. He must have been speaking to Republicans. The "retrospective analysis" linked by Cowen concluded that more American workers lost their jobs due to higher steel prices from the tariffs than the total number employed in the steel industry, and that the tariffs had a depressing effect on the overall American economy. Of course, everyone knows that Republicans hyperventilate about deficits during a Democratic administration but then after inheriting a growing economy with declining deficits and declining unemployment and economic growth, Republican administrations adopt budgets and tax cuts that cause deficits to soar. Cheney, a deficit hawk during the Clinton administration, famously said deficits don't matter when he became VP and the Bush administration adopted budget and tax policies that caused deficits to soar. Bush assured his economic advisers that he was the expert on politics and to follow his lead on the economics. That did not end well for either Republicans or Americans generally. Is Republican amnesia about deficits and tariffs and financial collapse more evidence of insanity?

Back in the days of Tammany Hall, the Republicans were the party of protectionism, which is how 'infant industries' in the Yankee NE got established.

Indeed. It was the Democratic Party's preferred narrative that the Civil War was all the work of those nasty Republicans and their demands for higher tariffs. Now of course the Democratic Party's preferred narrative is prohibit any mention of tariffs and to imply that all the slaves were owned by Republicans until the heroic Democrat Abraham Lincoln freed them.

So Trump is re-orienting the Republicans to some extent. To what extent we do not know. But it is just a return to their roots.

Its true. I think Salmon P. Chase, one of the preeminent early Republicans, was the official Know-Nothing candidate for gov. in Ohio in the mid-50s. Trump is taking the Republicans back to its roots as the successor to the American Party.

DIdn't Abraham Lincoln famously say something like he loved the Know-Nothings because if he favored limiting civil rights for blacks then he certainly favored taking away the rights of white people (Germans, Catholics, etc.) too?

No, those tarriffs hurt development. Please go read some Doug Irwin.

How are those industries doing these days?

This crystallizes my main criticism of the president, his unwillingness to learn. We are "doomed to repeat" the travesties of the past. Immigration, trade, etc. But the narcissist says, "This time will be different because I alone can bring about change." I hope he is right for America's sake.

Because immigration policy has worked out so well since 1965. If anyone is refusing to learn it is the Never Trumpers. At least the Democrats have the excuse that while they are piling the country deeper in trouble they are guaranteeing power by importing the illegal Chavezista voting base they depend on. But they know their policies have been tried and failed and yet they oppose any change.

In what sense has immigration policy worked out badly?

Your Trump-worship blinds you.

In the sense that immigrants even four generations later have much worse outcomes than natives. In places like Canada and Australia with better systems, that is not the case.

Those so-called steel tariffs would mostly hit harder America's best and most loyal allies. https://www.voanews.com/a/top-us-import-sources-steel-aluminum/4277212.html

Maybe Americans should think long and hard if that is really what it wants. That betrayal may alienate Eurooe and hand the American continent to Red China, a country that, for all genocide and unbearable religious persecution, is ruled by professional tyrants, not rich dilettantes.

Brazil's Central Bank President has urged America to resist the protectionism temptation and iffered the example of Brazil's sucessful liberalizarion measures.

http://www.jb.com.br/economia/noticias/2018/03/01/meirelles-sobretaxa-de-aco-nos-eua-confirma-protecionismo-do-governo-trump/

America is at a crossroads. One way leads to freedom and shared prosperity. The other one leds to slavery and misery.

I'd like to start a thread on this topic:

Thesis: first, long-term, free trade does not matter, only technology matters (Solow Equation), as long-term, tradable goods and services will eventually find their markets; second, even assuming free trade matters, due to monopoly concentration you can argue the assumption of free trade helping a lot is flawed; third, even if you assume all the tenets of free trade, like no monopoly power; labor is mobile; gains from free trade flow to all, not just the top 20%; tradeable goods being much more important than un-tradable services; and national security and infant industry arguments are wrong; and the USA is not a monopolist buyer (which, if it is, would mean other countries are less likely to retaliate if the USA imposes quotas, meaning the USA would, from game theory, benefit from quotas), you could still say that the USA is "rich enough" to afford no free trade?

Lots of ideas above, but the basic gist is that perhaps free trade for a rich country like the USA, which is arguably a monopoly buyer (monopsonist), and where natural or otherwise monopolies exist, and where tradeable goods are just a small part of the largely service sector economy, where workers are immobile and complacent, and the gains from free trade flow to the top say 20% while the drawbacks hit the bottom 80%, that free trade is 'overrated'? What would Douglas A. Irwin say?

See more here: Free Trade Doesn't Work: What Should Replace It and Why, 2011 Edition Paperback – February 17, 2011
by Ian Fletcher (Author) - He was previously a Research Fellow with the U.S. Business and Industry Council, a Washington think tank. Before that, he was an economist in private practice, mostly serving hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco.

Where one chooses to live, in a world that allows one to choose, is a form of free trade. Thus, one might choose to live in, to pick a country at random, the Philippines because housing is cheap, as is the labor to clean the house. But allowing one to move to the Philippines comes with a cost: if all MR readers were to move to the Philippines, housing would become more expensive (there are millions of MR readers), "punishing" Filipinos. Free trade in housing doesn't work, at least it doesn't work for everybody. Indeed, there are many desirable places that don't allow free trade in housing, Bermuda being one of them. As between the Philippines and Bermuda, I'd pick Bermuda, but it's a choice I'm not allowed to make because of the "tariff" on trade in housing.

@rayward - non responsive, but thanks for the note counselor. As I said, assume labor is not mobile (which is the modern "Complacency" trend). As for your counterfactual, assuming "free trade works" assumptions, if you do the "P vs Q" supply and demand curves, you'll find indeed price goes up with free trade in people (hence your "housing would become more expensive") but also Q, the quantity supplied, goes way up even more, and the final product, P*Q, is much bigger than before, making for everybody (American and Filipino) better off (some of those Filipinos will get rich selling their house to Americans), even with higher prices in the Philippines, after free trade in people. Trillion dollar bills on the sidewalk as AlexT has said. And FYI the reason real estate in PH is so cheap is that they have, like in Mexico, foreign ownership restrictions (you cannot, as a foreigner, own more than 50% of any business or real estate in the Philippines, but must have a PH citizen majority owner).

What if neither free trade not technology matter this week, only the DOW? How much of a market drop would it take for Don to blink?

On the first point, technology is not independent of free trade. In the long run, the biggest tail risk of cutting off free trade is that your economy will grow complacent and fall behind in innovation and technology. That is what happened to China, which went from the world’s leading economy to an impoverished colonial backwater after it closed itself to European trade and thereby failed to adopt superior European technologies. That is an extreme example, but reducing free trade could cause more minor technological stagnation today for the same reason.

Second, there is little evidence of monopoly concentration internationally. Another major benefit of free trade is that it reduces monopoly concentration by allowing foreign companies to compete with domestic monopolies. One only need to compare prices and quality on US domestic vs. international flights to see how foreign competition can alleviate the power of domestic monopolies and thereby improve consumer welfare.

Third, most advocates of free trade also support greater mobility of labor, and the idea that the benefits of free trade flow mostly to the top 20% is wrong. The biggest beneficiaries have been developing country workers who are clearly not in the top 20%. Even within the US, trade disproportionately benefits lower-income people because they spend a higher percentage of their income on tradeable goods and therefore benefit most from better prices and quality on those goods.

Regarding the US as monopsonist buyer, a country is not a buyer—companies and individuals are. And the US acting as monopsonist buyer would require a massive degree of control over the economy and not be good for US citizens—just like powerful health insurance companies’ ability to act as monopsonist buyers does not usually translate into better care for consumers.

@Zaua - yes, that's the traditional narrative, but I'm suggesting that it's negotiable given the USA's wealth. Your first point: with the Ming dynasty closing of tech borders, it took several hundred years to achieve China tech stagnation, which is much greater than Trump's expected presidency (even assuming he becomes a dictator). Second point: "there is little evidence of monopoly concentration internationally" - I doubt this. If you assume steel companies act as "horizontal integration" competitors, there's only a handful of companies in most industries. For example in steel: in the USA, it's US Steel and Nucor, in China, the top 10 producers account for 34% of production, and you know the must coordinate with one another (BTW China exports hardly any steel to the USA, it's in 11th place, most US imported steel comes from Canada). In meat, Cargill supplies over 20% of the US meat market; in autos, it's the Big Three plus Toyota, and so on. At the US DOJ I think when concentration is above 33% they prima facie assume a monopoly. Third point: "most advocates of free trade also support greater mobility of labor" is non-responsive, as it assumes the fact being proved. I'm saying due to TC's thesis of "complacency" there's less mobility today in the USA, which I think statistics bear out. Re gains going to poor as well as rich, I doubt this, since when a poor person loses their job, it's a much greater impact than having to pay a few dimes less on redundant household goods. And also a study once showed the gains of lower prices for tradeable goods like fancy new cars, fine wine, new clothes, etc flow mainly to the middle and upper class, more so than to the poor. Re your last point, it's pretty obvious that the USA, collectively and individually, is a monopoly buyer, as US GDP is a full 25% of world GDP (and been that way for generations), which is again at the "33%" DOJ threshold of being a prima facie monopoly.

I'm for free trade, but I'm saying the case for it is not that strong as people assume.

"your economy will grow complacent and fall behind in innovation and technology" - the most sophisticated technology in a particular economy is not really the outcome of free trade (technology production moves to the lowest cost producer, or producer most willing to bear the cost).

Free trade offers no guarantees any participant will become competitive in the absence of the right factor conditions, and protection from international competition or embrace of competition can provide the correct stimulus at different stages.

A gun controller, protectionist, big spender, and critic of due process. If I didn't know any better I'd think you Trump voters elected yourselves a New York Democrat. But hey, he's just playing 4-D chess, right?

"But hey, he’s just playing 4-D chess, right?"

I do not know what he is playing, but he is winning. America is losing.

I just think it's hilarious that no Trump supporter, ever, has used the phrase "4-D chess," but it's all the Hillaristas can come up with.

I wonder how her book tour is going?

To be fair, it is a 3-D chess board. http://blog.dilbert.com/2015/08/13/clown-genius/
So he is like Mr. Spock. https://www.google.com.br/search?q=3d+chess&oq=3d+chess&aqs=chrome..69i57j69i61l3j69i65l2.1593j0j7&client=tablet-android-samsung&sourceid=chrome-mobile&ie=UTF-8#imgrc=Dq6TAxctwZ1KHM:

Ever consider the possibility that a person could dislike both Trump and Hillary? Guess not.

Yeah the Team Red idiots aren't very bright. I mean, neither are the Team Blue ones, but there's far fewer of them here. Not only does Team Red fail to understand how one could have no interested in being Team Anything, they are still obsessed with Hillary Clinton, unemployed, gone from politics forever Hillary.

I ask again, of Trump voters, how can you not take the position that now that Trump has defeated her, which was important to you, now that it's done, why do you still support the guy? What is he doing that can't be done by President Pence, but with less bullshit?

One man's bullshit is another man's treasure

That man is getting a lot of treasure from Trump then.

Here is kind of a joke but maybe the truth:

This is all because Hope Hicks is leaving.

Never discount the stupid, especially in this administration. And "let's pretend a quick exit after Senate testimony has nothing to do with Senate testimony." More likely she wants some distance, as the one thing to keep her out of jail.

With that backdrop "everybody talk tariffs!"

Ha! Hope Hicks kept a diary, and has been offered a $10 million advance for a tell-all. Everybody drink!

Ok, it is too early for that. Talk tariffs until 5pm.

Trump is terrible at his job, and is surrounded by people he picked for White House positions who are terrible at their jobs.

Bush was right about the politics. The 2002 steel tariffs were all about the 2002 elections. The Republicans picked up a seat in Pennsylvania steel country and held a freshman seat in West Virginia. The same is probably happening here. Manchin is weak. He could either lose or flip. This move might allow the GOP to hold the Senate.

No thinking person favors tariffs. Econ 101.

But are there not game-theoretic issues surrounding trade negotiations?

Perhaps Trump is a complete moron on this, but it's not obvious to me. Let's see how it shakes out.

TDS! Only crazy people oppose Trump!

So that is it.
Well, I say, "We cannot negotiate with people who say what's mine is mine and what's yours is negotiable." If America betrays its loyal allies, there will be consequences.

Trump has been beating the tariff drum since the '80's. I think that he is sincere in supporting them.

It's quite possible, and this could well be a serious blunder for Trump.

Free trade seems like the lowest bar for economics to defend, but A LOT of people, maybe a majority, view any kind of swap as zero sum. This is expressed in mercantilist attitudes toward balance of trade issues - there are winners and losers.

Does Trump think this way? Quite possibly. But you know who else thinks this way? Every export-geared economy out there, including giants like Germany and Japan.

If these companies adopt a mercantilist/ zero sum approach to trade, perhaps a unilateralist no tariffs approach is suboptimal. Right or wrong, it seems like this is what Trump's instincts are telling him, and the field of play is negotiations, not economics, so there is limited value in chanting the banal truths of Econ 101 here.

Trump in his own words:

"When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!"

Bear,

Trump is a buffoon. We all know this. I support a hands off approach, comparative advantage is what it is.

However, liberals clearly disagree with this and believe we should actively intervene. I find it curious that they choose now to object.

But you know who else thinks this way? Every export-geared economy out there, including giants like Germany and Japan.

So what? Just because they're willing to shoot themselves in the foot to spite us, doesn't mean we should shoot our own feet to spite them back.

I wouldn't think that Germany and Japan have any state policy to maximize trade surpluses. Anyway, their average import tariffs are similar to the US's level:

Tariff rate, weighted mean (WB):

Germany - 1.6%
Japan ----- 1.4%
US --------- 1.6%

Germany and Japan have trade surpluses because their populations are net savers and so they accumulate credit relative to the rest of the world. The US is a net borrower: borrowing more and more, hence it's domestic absorption is higher than GDP while in Germany and Japan it is lower.

My guess is that this has nothing to do with steel or aluminum. Trump is negotiating with China over NK.

What, so that Kim Jung Un can extend Jared a loan?

That's the best you can do? 'My guess'

How about some facts:

US steel production up 5% last yr (90M tons), steady since 2010; profits/stocks up
US already has 160+ special duties on steel imports
Most imports come from US allies (China = 11th)
DoD needs only 3% of US production
Consumer co workers outnumber steelworkers 45:1
#TariffTantrum

As for 'free trade', the USA is already there: https://twitter.com/JustinWolfers/status/969011695434780672

Last, I would like to see the calculations behind the 'proclamation' of 200,000 jobs lost due to Bush II's 2002 tariff on foreign steel imports. I don't believe it.

I'm appalled at the low level of economic knowledge in the comments here. Is is political trolling? It sure isn't reasoned analysis.

Read the reports before you speak.

Stock market is down 800 points since the announcement. Boy, am I glad I liquidated my 401(k) (to do a rollover) on Tuesday.

Seriously, never go all the way to cash. Adjust your allocation, but everyone needs some equity exposure. As Mandelbrot showed mathematically.

It's temporary. I'm in the middle of a rollover. I had to cash out so they could write me a check for the balance. Maybe the market will be down 30% by the time it gets to my IRA account. Then I will laugh, and laugh, and laugh.

(Well, not write *me* a check, but TDAmeritrade FBO Me. I'm not paying a tax penalty)

Ah, maybe lucky timing then.

Not entirely luck. I know a dead cat bounce when I see one.

Ok, we will find out.
Everyone gets one free crow card to use when they are lucky enough to sell right before the market drops.

You can't use it unless you get back in before it goes back up. If you get out, it drops, you celebrate, but then it goes back to where you sold before you get back in, you're just another rube.

S&P closed up 0.5% today. I hope HM invested her cash yesterday.

Trump is wrong on trade. Making American industries more competitive through tax and regulatory reform is the correct path. Tariffs will not achieve the goal of a stronger more competitive America.

The world has excess capacity for steel production. There are too many steel producers given the demand for steel. Using tariffs to keep out foreign steel will just keep high-cost producers in the US in production, making the worldwide glut in steel production continue or even worsen.

Given that the steel industry has high fixed costs and relatively low variable costs, with large capital expenditurers at the outset, steel plants often operate for a long time making negative economic profits. A surplus of steel in the world will lead to a fall in prices given world demand, and that excess production and falling prices will continue for a rather long time.

The US will be an island of high steel prices while the rest of the world will see drops in steel prices. i.e., again forgein steel producers will continue to operate even as they are forced to cut prices because of their cost structure.

What will that mean for America? American manufacturers will be paying higher prices for steel while the rest of the world will see be seeing falling prices. This situation will put American manufacturers who use steel at a price disadvantage compared to foreign manufacturers.

Simply, stated in a way that might appeal to Trump, the tariff will have the same effect as a tax increase on the users of steel in America. A tax on firms that might be able to compete in international markets to protect an industry that can not compete.

I can only hope that Trump is using a threat to use tariffs as a way to get foreign governments to stop subsidizing steel production and contributing to the worldwide glut. But it is a bit like threatening to shoot yourself if an opponent won't do what you want.

I think free trade has hurt many Americans. Economists are too quick to brush aside the negative consequences of free trade. And talk about compensating the losers with job retraining or government assistance is just nonsense and a throwaway line.

I think the path to making America Great Again is through tax reform and regulatory reform. Not by imposing a steel tax on American manufacturers who can compete in international markets. It is not in America's interest or the world's interest to get in a contest of taxing their populations to protect this or that favored domestic group.

I think Trump's heart is in the right place. I think Trump is smarter then most seem to think. But on balance, this time, he is wrong.

Here's the very funny part: It doesn't do anything to make US steel more competitive in international markets. We can't stop Mexico or Canada from buying steel from China. It only make US steel more competitive in the US. Which means that American companies that make products from steel (for instance automobiles), become less competitive in international markets, since we've just increased the cost of their imports. We basically just put a tax on American made cars and airplanes, and American workers who make cars and airplanes, for the benefit of steelworkers.

And all of Trump's supporters are going to be "He's playing 4 dimensional chess! He doesn't mean it!"
No, you fools, he means it. And the tax on car imports will be next.

BTW as Ray Lopez mentions above China is not even a top ten source of steel for America and has been declining. America's top three sources of foreign steel are Canada, Brazil, and South Korea. Why do we want to start a trade war with them?

The top 10 source countries for U.S. steel imports represented 81 percent of the total steel import volume in 2016 at 24.3 million metrics tons (mmt). Canada accounted for the largest share of U.S. imports by source country at 17 percent (5.2 mmt), followed by Brazil at 13 percent (3.9 mmt), South Korea at 12 percent (3.5 mmt), Mexico at 9 percent (2.7 mmt), and Turkey at 7 percent (2.2 mmt). While the rankings of the top 10 source countries for U.S. imports has fluctuated over time, Canada has retained the top spot.

http://americastradepolicy.com/steel-imports-report-united-states/#.Wplq0WaZPgE

Steel workers are the ultimate burly men with hammers, which is our new national iconography.

I agree very dumb economic move from Trump. Pandering to his voters most likely. There are maybe 150k workers in the still industries but we’ve got to raise costs the industries that use steel and employ millions ! It will both generate inflation and lower growth and in the end make the trade deficit worse. The stock market is seeing it correctly. You were doing good Trump, up to now, why spoil it? say it ain’t so.

I entirely agree with the analysis on a theoretical level.
My only concern is that I lived through the Bush tarrifs and was in a steel-related industry: we used steel in our products.

What was really weird was that steel prices were super low before the tarrifs, which makes sense as to why American steel producers were angry.

But after the tarrifs, instead of Asian domestic prices plunging, they went up. They in fact went up a lot.

I almost want to say that the steel industry was desperate for some signal to raise prices and the tarrifs were that signal.

Yes, I know economics should be a further lowering of prices in Asia, but it didn't happen.

I was quote bewildered as I was hoping steel stayed nice and low...swiftly rising prices is horrible when you sell for export...US retailers don't accept price increases so you have to eat the cost and then try to re-design product lines to reduce steel use. It sucks.

Oh, I should mention this is from the perspective of steel tube furniture manufacturing and export from Taiwan.

We didn't make it in the USA, and the tariffs didn't affect us, except we were hoping DanC's scenario would mean we had lower costs.

It did not happen. My theory is that steel pricing is a bit political: major state-owned industries in Taiwan, Korea, and China. They had a price war and we desperate to end it, and Bush gave them an excuse.

Probably the most interesting comment in this chain!

I not usually into "distraction" theories of Trump, but if ever there was a week for it. From dodging gun control, to new Kushner allegations, to Mueller moving to the actual email hacking, to pushing McMasters out, to Hicks abandoning ship ..

Everyone talk tariffs!

The tarriffs are actually what we *should* be paying attention to. Kushner is the distraction.

I think it works like this. We have a kakistocracy. That is the reason a list of the week's bad news is so easy to write.

So, should kakistocracy on trade distract from kakistocracy in general?

I think not, there is an underlying problem.

The only decent argument for the 2002 steel tariffs is that they were a necessary part of a political deal to get Congress to pass Trade Promotion Authority ("fast track.") I'm still not entirely sure that they were worth it, but for the sake of the discussion the argument should be brought up.

The current Trump action doesn't even have that fig leaf.

Econ 101, meet Business 101, more cynically, Politics 101.

"Free trade" exists only in economists' heads as part of their idealized friction-free model of exchange. Venice trading actual gold coins for silk from Damascus may be close. In the real world, the manipulated currencies, trade agreements and regulations, and all the associated logrolling and rent-seeking of supra-national bureaucracies are hardly "free." Tariffs have been a government fiscal and policy tool for a long time.

Having watched globalism for the past couple of decades, my personal view is we are going to pay welfare for people lower down the food chain at the cash register or we can pay welfare by government transfer payments and tort/comp lawsuits. One of the two is preferable and I incline toward the former.

And lest anyone forget, Obama raised tariffs on certain Chinese steel imports by up to 522%. http://www.nwitimes.com/business/steel/u-s-to-slap-tariffs-as-high-as-percent-on/article_a5941653-b333-5f66-858f-74c839aa5589.html

And according to the Department of Commerce's December 2017 issue of the Global Steel Trade Monitor, the United States already had 152 "trade remedies" in place under the General Agreement on Tariffs and Trade monitored by the Word Trade Organization. Funny how trade agreements are apparently not at all about free trade.

The same source lists Canada, Brazil, South Korea, Mexico, and Russia as largest sources of US steel imports. Protectionism is of course wrong according to all the economic models. In terms of geopolitical strategy, the proof s always in the pudding. Justin Trudea has been threatening to leave NAFTA for a while. Good. Call his bluff. Brazil, the most beautiful country in the world with the most wonderful people, sadly, has an economy built entirely on protectionism. http://www.americasquarterly.org/node/3288 Nevertheless Trump should exempt them from any sanctions simply because I like them and want them to succeed and two wrongs don't make a right. South Korea has been pretty cheeky with the US lately so....why not. Mexico has been filing lawsuits to nullify the Treaty of Guadalupe Hidalgo so I suppose, technically, if they reject the treaty, we are still at war with them. And if we are going to prohibit Russians from expressing political opinions on the internet why not just ban their steel too? So it is difficult to weigh text book economics against the political realities.

No, protective tariffs are not going to help much and will certainly damage US manufacturers who rely on steel imports. Much better would be to eliminate the Department of Commerce altogether, dump the trade agreements, anti-dumping countervailing duties and all that, and impose a simple across the board revenue-raising tariff to finance the operations of the US government.

For what it's worth, I agree with this:

"Much better would be to eliminate the Department of Commerce altogether, dump the trade agreements, anti-dumping countervailing duties and all that, and impose a simple across the board revenue-raising tariff to finance the operations of the US government."

The tariff should be on the value at the dock, iPhone or crude oil. It should be started at the trade volume weighted equivalent of today's tariff schedule, and adjusted very slowly if at all.

"Call his bluff. Brazil, the most beautiful country in the world with the most wonderful people, sadly, has an economy built entirely on protectionism."

Not true, Brazil liberalized its economy in the 90s and, under President Temer, has liberalized it further! The President of Brazil's Central Bank urged Trump to give up protectionist measures and follow Brazil's path.

I've always been persuaded by the case for free trade in a world of liberal economies (liberal in the old sense), or indeed for one liberal economy in any old world. I'm not sure I've ever seen anyone analyse persuasively the pros and cons in a world of welfare states. For example, might tariffs be a preferable means of supporting the poor (by protecting jobs for them) that hand-outs to the unemployed?

You can't do what without (what used to be) the worst crime of right-hand thought: picking winners and losers.

Tarriffs raise the costs of goods that the poor purchase. There might be a net transfer of income from wealthier people to poorer people, but there will be a net loss to the economy overall. A net overall loss means more people will ultimately be on the welfare roles and fewer taxes will be collected. I doubt this would come out as a net positive even for the poor in general. It would help one tiny slice of the population at the expense of nearly everyone else, and the bigger you try to make that slice, the bigger the losses and the more it ends up nullifying itself.

What is it about steel that makes it so subject to tarriff pressures? Is it that it is particularly subsidized in other countries? Is it that the US has more leverage with it?

I mean if tarriffs are so great, why not have a universal tarriff on all imports?

I suspect that this is either being done as symbolic red meat to trumps rust-belt voters, who are expected to ignore the fact that all other items (manufactured goods in particular ) have no/few tarriffs, or as a brinksman-like gesture for future negotiations, to show the US is willing to take some "pain" to enforce fairer trade practices, with the hope that it never really comes to a 'trade war' where more and steeper tarriffs would be needed.

I don't really get this either. I'd probably cite rust-belt politics and labor union influence, but the power of the steel industry and the labor unions associated with it have surely declined drastically in the last 30 years. If anyone has a better explanation for why steel is the focus of the tarriff pressure, I'd be interested to hear it.

Overall, the steel industry has greatly declined, but in certain areas, it still has a major influence, especially when you include mining for coal.

So, yeah, so-called rust belt politics. Remember, there is an election this year, just like in 2002.

What you don't get and Hazel cannot understand is that its not just an "America Bad. America want tarrif" situation.

These other countries build endless capacity and state-run firms lose money. This is the real culprit. Sure, American firms begging for relief are "bad" but keep in mind its their job to compete and its very unfair to do so when your competitor gets subsidies.

In fact, for all the gnashing of teeth about Trump (I agree) but we really should spend some time gnashing about the dumb politicians in Korea, China, Taiwan, Brazil, etc. who over built capacity.

Many of these guys are from the 1950's world of "steel is modern and big industry is best." school.

"These other countries build endless capacity and state-run firms lose money."

What steel and aluminum companies in Canada are state-run?

http://www.canadiansteel.ca/

Why the hell should we object to other countries paying for our steel?

Because it’s not fair. And I want foreigners to be rich too. Why do you hate foreigners hazel?

As if we needed more evidence that Trump is a patent imbecile, he comes out stating that trade wars are "good" and "easy to win". Demonstrating once against the he views all trade as zero sum interactions with a "winner" and a "loser". Nobody should be under any illusion that trade wars have anything except losers. Every voluntary trade is by definition win-win for it's participants, so policies which prevent such win-win trade are by definition lose-lose. Trying to beat someone at trade is like trying to beat your partner in a dance competition.

All told, the comic tragedy of the Trump White House is only exceeded by the comic tragedy of people who seek to find genius within it.

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