The Donald Trump phenomenon has recently put the issue of trade front and center in public debate. Not surprisingly, some market monetarists have weighed in on the debate, with David Glasner, Scott Sumner and Benjamin Cole among them. Because market monetarism is mostly about monetary theory and policy, naturally the opinions vary from something like free trade everywhere all the time, to tariffs don’t really hurt (much).
For a disclaimer, I am stating upfront that my current employer is a French company that conducts business all across the globe. Prior to working for the French company, I spent most of my career working for a Fortune 500 US firm whose revenue consisted of a large chunk from non-domestic sources, mainly in Europe, South America, northern Asia, the Middle East, and Africa.
As you can probably imagine, from my point of view, it’s a tough sell to convince me that trade is the largest economic problem we have and that solving perceived inequities is some sort of magic bullet.
I suppose that the most important question to ask is, in an economy as complex as the US, if we were given only a year or two to fix what we can, which real or perceived economic problems would we focus on? How would we develop a list of the more serious things that need fixing?
For starters, in developing my list of priorities, it’s nearly impossible to identify a problem that is not even vaguely qualifiable. Most of the data we have on trade, imports, the most debated issue on trade, shows that it is and has been only a fraction of annual GDP. We have been producing and still do produce much more than we import.
If we brought every single job that involved producing imported goods to the US, in the simplest form of analysis, assuming that nothing else about that action would disrupt price and quantity, and that we could manage a one to one employment roster (doubtful that we wouldn’t be more productive), or draw retaliatory effects, we would still have a longer term growth problem. But of course the politics of trade is complex and it’s hard to imagine that solving perceived trade issues would be that easy of a ride, or that it would not prove to have tradeoffs, i.e., more manufacturing jobs in exchange for less technical services; in which case it would not come close to resulting in a wash. And I haven’t even gotten to the part about how the central bank might behave if there were price disruptions involved. ‘Whip inflation now’ is not costless and tends to reduce feelings of wellbeing.
Thus on my hypothetical list of economic problem solving priorities, because trade can be neither quantified nor reasonably qualified as an issue, bringing manufacturing activities that are involved current imports to the US would place nearly dead last… after I’ve run out of paper. This does not mean that I am closed-minded to the point that we may not have the best of all possible circumstances involving trade, or that I am a dyed in wool free-trader regardless of cost. I am saying that there is no proof, however vague, of cost, no golden threads of logic to follow to the conclusion that trade is a net drag or anywhere near being the largest economic problem we have, if it is indeed a problem.
By the way, did I say prove it? After it’s proven that there is a problem, the anti-trade camp would have to develop a reasonable plan to fix it without throwing the baby out with the bathwater. Then they can come back at me again, because I am not in the habit of chasing someone else’s intellectual geese or blindly supporting proposed fixes to issues that are not ranked up there with the greatest problems of our generation.
My guess about what the real problem is, that is being vocalized in terms of trade, is that there’s a lot of nostalgia for the good old days prior to global development and Europe was devastated by wars when the US was nearly the only game in town. We aren’t sending jobs overseas as much as new things are being developed elsewhere as opposed to domestically, which is an entirely different problem that would require an entirely different solution than tariffs and reneging on trade deals. And that problem would rank way up on my list of priorities of economic problems to solve.
I don’t want to trade my IT job for one on an assembly line. No, I want to reduce the impact of job loss if and when it occurs by providing lots of new opportunities, new horizons to explore, going onward and upward.
PS: The real problem of now? Perhaps it has something to do with hoarding…