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Friday, March 9, 2018

Free Trade?

Has trade ever been free?  I’m serious.  I farmed the first 26 years of my life and read extensively about Ag tariffs.  Seems that Europeans and Japanese (whose farmers aren’t efficient as Americans—no big tractors and large farms—have a lot of people still on the land, hence many voters) get squeamish about lowering Ag tariffs while we beg for it.  In the end, we charge no taxes and they continued to load taxes on.  That ain’t fair!  Taxes on autos are 2.5% incoming into USA.  They are about 25% on average on US cars going to foreign ports. Trump knows this chicanery well and embedded in his tax on aluminum and steel was the proviso that if any other country would simply adjust tariffs down to equal US (level the playing field) they’d be exempt on exporting to us.  Or bring your plants to this country.  Or lower your trade surplus. Exemptions can be had in a variety of ways.

            But here’s the reality.  The Economist, a European mag, has been seething with Trump-hate long before he was elected.  Why?  Many in this country were pointing out that he is more of a moderate than an arch-conservative. Wuropeans should love this!  But they hated him passionately because he spoke about the trade deficit and unfair trade that he vowed to change.  Scared them spitless.  Importing into Uncle Suckerville with no taxes while protecting your own products in Lower Slobovia is the heart of their game. 

            So will Trump create a trade war and sink our economy?  Not likely since trading partners can still get an exemption by simply playing fair. Mexico and Canada may get exemption simply by making some other adjustments.  But don’t trade wars hurt us?  Time for a personal story.  When I went to college in the 60s, you could ask econ profs what caused the Great Depression.  Why did 12 pitiful years happen here but recession was soon over in Europe/Orient.  You couldn’t get a similar answer from any two profs.  That, for a 19-yr-old, was a red flag that adults didn’t know Jack.  But beginning with the Monetarist School of Economics in the 80s, it was proven that the G.D. largely happened because a normal recession was turned into a long-term depression when USA killed off international trade.  Congress passed the Hawley-Smoot tariff that rocketed tariffs from 17% to 68%.  Fast forward to the 1990s when I was teaching elderhostels for OU.  We had a class on the 20s and 30s.  One day I noted the recent proofs that FDR’s tariff caused, not alleviated, the Depression. The class of 70 and 80-aged people, many of whom thought FDR was God, couldn’t believe it!  Even when I invited a guest lecturer from OSU to talk about the evidence, they refused to believe. 

            The short answer: If we quadruple or even double tariffs on All Goods, we risk economic troubles.  But simply demanding fair trade is a much smaller game. And consider, what if Trump wins? Then USA will come out a big winner.  Those R’s who steadfastly defend Free Trade must be reading a different financial report than the ones Trump and I do.  Or they are just standing up for a theoretical free trade while having approved many trade deals which are anything but. They mean to change nothing.  Since I’ve come to appreciate just how entrenched the Swamp is, I suspect this later.

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