Free Trade

President Trump:

Trump did not give details about what his administration would do to protect manufacturers, but he railed against tariffs charged by other countries and unfair trade practices.

“That includes cracking down on the predatory online sales of foreign goods, which is absolutely killing our shoppers and our shopping centers,” he said.

“Killing our shoppers”. Really? Shoppers enjoy shopping online, that’s why they do it. If they didn’t find it beneficial they’d shop in shopping centers. So its up to the shopper where to shop, not politicians. Shopping centers have to step up their game to compete with online. The heavy hand of government will stifle innovation, disadvantage their competitors, and freeze the current situation. Improvements will cease. That’s why the country of Cuba is stuck in the 1950’s.

That’s not sustainable. What is sustainable is free market competition that will continually produce what’s best for consumers and producers. That’s what he and Republicans claim to want in health care, so the same principle applies to retail.



Salena Zito:

The Acosta Deep Mine in Somerset County marks a dramatic upturn for the area. And while President Trump cannot claim that he brought the industry back here personally (this new mine was already being developed before the election), he is an effective cheerleader for folks who’ve been discounted by the political elite.

Instead of trying to kill an industry under piles of regulations and poo-pooing any notions of its survival let along thriving, I think the government should lay off and let the people in the industry configure itself for the economy.

Maybe its smaller than in the past or maybe bigger, maybe more specialized, maybe more dispersed or stays concentrated in a geographic area. How do they compete and serve a customer base? What technologies can they use and invent, and what business processes can they use and invent? How do they attract capital?

These are questions for the people in the industry to figure out from the bottom-up, top-down, and inside-out, not from top-down impositions and elite opinion. And the people in this industry must do so in a free market environment.

The Trump administration has suggested it will impose tariffs on steel to save or revive the steel producing industry.

The steel industry in the US employs 149k workers but the steel consuming industry employs 6 million workers. So, there is a bigger positive impact on the 149k workers, even if temporary, then on the 6 million workers. This is an old political trick: concentrate the benefits on a few and disperse the relatively lower amount of pain on the many. The benefits to these workers and the firms will be fleeting because the higher cost will reduce quantity demanded for their products.

This video continues to explain why this is a dumb idea.

This is typical of politicians. They think they are doing a favor to workers in a particular industry but by doing so hurts the consumers and customers of that industry. Or they are being cynical just to get their support.

A new agreement between the United States and Mexico will be a sweet one for a small handful of American sugar producers – but it will leave a sour taste in the mouth of U.S. packaged food makers, soda producers, restaurants, confectioners, and ultimately consumers.  . . .

The Trump Administration has opted for limiting imports and driving up prices, apparently casting its lot with a few agribusinesses. The heavily subsidized and protected sugar industry got another boost over the people who buy their product when the U.S.-Mexico deal set a floor price by limiting the amount of sugar that Americans can import from south of the Rio Grande.


An open letter to Trump economic advisor Peter Navarro here.


This claim is untrue.  Nothing at all in economic theory says that it’s abnormal for a country to run trade deficits for over a decade, or even for over a century.  Nothing in economic theory implies that years, decades, or even centuries of unbroken annual trade deficits are evidence of ‘unfair’ trade practices by foreigners or of self-destructive economic policies at home.

If investment opportunities available in the United States this year are especially attractive relative to opportunities elsewhere, the U.S. will run a trade deficit this year as global investors use some of their dollars, not to buy American exports but, instead, to invest in America.  If next year the U.S. economy again offers especially attractive investment opportunities, America will run a trade deficit again next year.  Ditto for two years from now if the relative attractiveness of American investment opportunities continues for that year.  For an innovation-filled economy, such as that of the U.S., in a world in which the size of the capital stock can grow, there is no natural limit to the number of attractive investment opportunities that arise each year.  Nor is there a natural limit to the number of consecutive years that a country can, or will, continue to remain a disproportionately attractive destination for investment funds.


In this post, Alan Reynolds takes issue with Billionaire investor Wilbur Ross, a supporter of Donald Trump, for making the following comment:

“It’s Econ 101 that GDP equals the sum of domestic economic activity plus “net exports,” i.e., exports minus imports.  Therefore, when we run massive and chronic trade deficits, it weakens our economy.”

In reality, the last sentence –beginning with “Therefore”– does not follow from the first.

By that logic, we should expect to see the economy weaken when trade deficits get larger and strengthen when trade deficits shrink or become surpluses. The data show the exact opposite (see chart and text here).

The main reason trade deficits are inversely related economic growth, contrary to elementary accounting, is that U.S. industry needs more imported parts and raw materials when the economy expands, and consumers can afford more imported luxuries when their incomes and investments are rising. A secondary reason is that whenever the United States is growing faster than the economies of major trading partners (such as Japan, EU, Canada), their demand for U.S. exports is likely to lag our demand for their exports.

Thanks for clearing that up.

Here’s an example of how politicians screw up the economy.

The steel producing industry is part of the primary metal manufacturing which includes nonferrous metals, such as copper, aluminum, magnesium, lead, tin, silver, and gold. Value added for that entire industry totaled $59.7 billion and employed 400,000 people in 2014. The steel industry employs somewhere in the range of 100,000 – 150,000 people.

By contrast, downstream industries that use steel as an input generate value added of $990 billion and employed 6.5 million people in 2014. Think cars, home appliances, things you as a consumer buy.

By “protecting” the steel-producing industry the government is harming the much larger steel-consuming industries and its customers. A bad deal.




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