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Article Artículo

Trump on Trade, Closer to the Mark than CNN

It's a sad day when the Republican Presidential nominee is closer to the mark on an issue than a major news outlet, but that appears to be the case when it comes to CNN and trade. CNN managed to get badly confused as it confronted Trump's "myths" with "reality. It rightly criticized the idea that trade is a zero sum game, trade is typically mutually beneficial so that both parties gain, but the situation is still not quite as CNN presents it.

Its myth #1 is that "America is losing money to Mexico, China, and others." The piece then gives us the "reality," which it claims is:

"There's no proof that a trade deficit is bad for an advanced economy like the United States."

While a trade deficit is not necessarily bad for an advanced country (actually, trade deficits are likely to be worse for advanced countries, in theory fast-growing developing countries should be the ones running deficits), it certainly is bad in a context where an economy is operating below its full employment level of output. The trade deficit means that spending in the United States is creating demand in other countries rather than the United States. In a context of secular stagnation, which many economists believe the U.S. is now experiencing, the trade deficit is making the lack of demand worse than it would otherwise be.

It's true that the demand lost to a trade deficit could be offset by a larger government budget deficit, but at the moment there is little explicit support in either political party for larger budget deficits. This means that there is nothing to offset the demand lost to trade deficit, therefore the trade deficit means slower growth and higher unemployment.

CEPR / October 05, 2016

Article Artículo

Mike Pence's Regressive Economic Policy Agenda

During tonight’s vice-presidential debate, Republican candidate Mike Pence will likely discuss his track record as governor of Indiana. However, Pence will likely leave out a few important facts about that record — including unsuccessful healthcare, tax, and labor market policies. Let’s look at each of these in turn.

CEPR and Nicolas Buffie / October 04, 2016

Article Artículo

NYT Pulls Out the Stops in Pushing NAFTA

The NYT is bending over backwards to promote the protectionist pattern of trade policies of recent presidents. Yes folks, it is protectionist even if they call them "free trade" deals. Patent and copyright protection are protectionism, even if your friends benefit from them. And when we spend an extra $100 billion a year on doctors, compared with pay in Canada and Western Europe, because doctors who don't complete a U.S. residency program are not allowed to practice in the United States, that is protectionism.

So the story is what happens if we try to bring back some of the barriers to trade in manufacturing, the area where our political leaders have gone farthest to reduce barriers. In discussing NAFTA the NYT goes to great lengths to tell us any rollback would be a disaster. It explains how our industry has become closely integrated with Mexico's then warns:

"What we do know is that even relatively small tariffs can stand in the way of the kind of supply networks on which many modern industries are based. With these networks, goods can cross back and forth across national borders multiple times as part of the pipeline that leads to a finished automobile or a computer or even a side of beef. It’s not that companies couldn’t adjust; over time they could. It’s that the networks evolved this way for a reason, and readjusting would come at a considerable cost."

Really? Even small tariffs would upset everything. Let's see, suppose the U.S. imposed a five percent tariff on everything imported from Mexico. As a first approximation, everything we bought from Mexico would cost five percent more than it did previously. In reality, this price increase would not be passed on in full, but this is a good starting point. The NYT tells us that this would be really bad news.

Okay, suppose the dollar falls by five percent against the Mexican peso. As a first approximation, everything we bought from Mexico would cost five percent more than it did previously. In reality, this price increase would not be passed on in full, but this is a good starting point.

CEPR / October 04, 2016