FLASH
Shkruar nga Daniel J Mitchell
Trump's protectionism is bad news for the global economy, but his mistake will hopefully mark the beginning of a resurgence of pro-trade sentiment. He's giving the world lemons, but maybe other leaders can make lemonade.
In 1930, Herbert Hoover signed the Smoot-Hawley Tariff Act. Combined with many other policy mistakes, that protectionist law led to a dramatic contraction in global trade and contributed to America's decade-long Great Depression.
The good news is that Hoover’s protectionism was a learning experience for American policymakers, producing a largely bipartisan consensus in favor of trade liberalization in the decades after World War II. Under both Republican and Democratic administrations, there were continued efforts to liberalize multilateral trade (GATT, WTO) as well as bilateral and plurilateral free trade agreements. As a result, trade barriers fell dramatically in the post-World War II era and global prosperity increased dramatically.
The president engaged in some protectionism in his first term, but that was a minor downgrade compared to what he has done in recent weeks. His “liberation day” announcement of massive tariff hikes sent financial markets into a tailspin. It got so bad that he announced a 90-day withdrawal, though it doesn’t undo all the damage. Most imports have been hit with 10 percent tariffs, and products from China have been hit with massive new tariffs (though some exemptions have already been granted).
Given the White House's chaotic approach and contradictory explanations, it's impossible to know what will happen tomorrow, let alone when the 90 days are up. There are now widespread concerns about a global economic downturn.
But now let's get to the good news. Donald Trump, like Hoover, is reigniting support for free trade. Here are four signs of this epiphany.
Record US public support for free trade, according to Gallup, with a record low of just 14% seeing cross-border trade as an economic threat.
Despite friendly ties to anti-trade unions, every Democrat in the U.S. Senate voted to reverse Trump's trade tariffs on Canada.
Almost universal expressions of concern from world leaders about Trump's misguided protectionism.
The surreal experience of seeing the Chinese Embassy in Washington sharing speeches by Ronald Reagan in support of free trade.
These are all interesting developments, but what's even more important is that people are witnessing in real time how protectionism does economic damage. They've seen stock markets fall randomly and they've seen interest rates rise in bond markets.
But these are just early warning signs. People will see big price increases over the coming months for various products thanks to protectionist policies that have already been put in place. They will also see job losses pile up as businesses deal with the shock of disrupted supply chains.
For all intents and purposes, Trump is conducting a protectionist experiment, and America’s economy is a test subject. It is inevitable that this experiment will fail, and many people (especially economists, the media, and Democrats) will remind voters that the bad news is because Trump threw a wrench in the gears of the global economy.
As such, it is certain that support for free trade, already at high levels in the United States, will increase even further.
Moreover, support for free trade is likely to grow in other countries as well. This will be in part because people around the world will be able to see how Trump’s trade restrictions are hurting the U.S. economy. But these bad policies will also have a negative impact on the economies of America’s trading partners.
This will have some positive long-term consequences. To offset America’s self-inflicted wound (in fact, the wound inflicted by Trump), countries elsewhere in the world are already seeking to expand trade with each other. Indeed, it is possible that Trump will discredit protectionism so much that there will be a flurry of free trade agreements in the coming years.
However, there are two reasons why the news is not entirely positive.
First, most nations will see the United States as an unreliable partner as long as Trump is in the White House. Yes, they will seek agreements to mitigate the damage he is causing, but they probably won't have confidence that Trump will comply.
Consider Canada and Mexico, which were bullied into signing a new—but not improved—version of NAFTA during Trump’s first term. That didn’t stop Trump from unilaterally imposing heavy tariffs on them even before the Independence Day fiasco.
Second, China will gain more power and influence in global markets – and Beijing has a bad track record of boosting exports by using direct and indirect subsidies to favored businesses.
Dividing a Reagan pro-trade speech into 'X' obviously doesn't mean that China practices free trade. So, even though protectionism is likely to become more unpopular, some countries may give up on free trade because the world's two largest economies are not behaving fairly.
The bottom line is that Trump’s protectionism is bad news for the global economy, but his mistake will hopefully mark the beginning of a resurgence of pro-trade sentiment. He is giving the world lemons, but perhaps other leaders can make lemonade. /Adapted from The Telegraph /
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