By Joseph Solis Mullen*
While the United States had already backtracked on trade liberalization a decade earlier, the election of Donald Trump prompted a programmatic protectionist approach. As president, Joe Biden largely followed Trump’s lead, with polls showing broad support among respondents from both parties for Buy American initiatives and other protectionist measures. Even though the massive disruption to the global economy precipitated by the covid response makes it difficult to say anything too specific, enough data is available to make an informed judgment as to whether or not to pursue these policies.
The answer: no.
First, the United States is losing its trade war of choice with China. Under Trump, the United States has led a greater trade balance deficit with China than in either of the two terms of Barack Obama and George W. Bush. Proponents of policies chosen by Trump, and now by Biden, might object that by the time Trump left office, the deficit was lower than he had inherited. However, appearances can be deceiving because, in the words of Mark Twain, there are three kinds of lies: “Lies, damn lies and statistics”.
So what do the numbers hide?
Frankly, a lot of cheating. Nothing illegal to speak of, but as you might expect, creative ways have been found to circumvent attempts to prevent Chinese imports. As the Economist Reports say these means of avoidance – like exploiting the “de minimis” rule, splitting imports into smaller shipments not subject to import duties – mean the current trade deficit is likely underestimated. by nearly 20%.
As these goods continue to enter the country anyway, it makes particular sense, in an era of already congested supply chains and high inflation, to set aside this ineffective policy, because even if voters express a general level of approval of protectionist policies when asked, they don’t like prices rising even more, and they don’t usually make the connection between the two. As secondary as the impact of these measures is, and as difficult as it is to calculate their significance, there is no doubt that these measures have contributed to worsening inflation and congesting supply chains already congested with unnecessary waste of time and resources devoted to escape.
On that note, rising U.S. prices are unlikely to spur Chinese interest in fulfilling their now belated obligation to purchase an additional $200 billion of U.S. goods under the First phase trade agreement signed by Trump and Xi Jinping. So far, the Chinese have not bought exactly any of them.
Furthermore, the militarization of trade by the Trump and Biden administrations has accelerated China’s efforts to insulate its economy from potential US-induced disruptions. Securing separate and independent relationships supply chains for their critical materials was a dangerous development.
While world trade just before the First World War was the highest in total terms it had ever been – in fact, it would not return to those levels for over half a century – much of this trade produced within essentially mercantilist imperial blocs. The reason for the wars was, in most cases, the literal capture of foreign markets. In contrast, a truly global world trading system, as it has been experienced to varying degrees since the end of the Cold War, is an anomaly of the period that has elapsed since the start of global integration at the late fifteenth century. Even if the advent of nuclear weapons is not enough to prevent war, commercial interdependence should not be seen as irrelevant to attempts to establish a peaceful world.
Protectionism, of course, runs directly counter to this.
However, President Biden’s recent statement State of the Union was filled with American promises to buy! This while he called for lower consumer prices! No attentive student of ECON 101 could have missed the irony: protectionist measures raise the prices all consumers and businesses pay. The difference between this higher price and what consumers and businesses would pay under normal market conditions is pocketed by the favored industry. Protectionism in any form – whether import quotas, tariffs, domestic content requirements or subsidies – is simply a mechanism by which some consumer surplus is transferred to the producer.
Who wins and how much is decided largely out of sight: raising debt, eroding public confidence, raising prices and burdening the economy with interventions – all done, of course, in the name of the public good.
Added to this are now the sanctions against Russia that the United States and its largely European allies have put in place. While Putin’s successful ousting of the Kyiv government will make these sanctions virtually impossible to lift, the lines dividing emerging 21st century trading blocs will harden further.
Make no mistake: we will all lose.
*About the author: A graduate of Spring Arbor University and the University of Illinois, Joseph Solis-Mullen is a political scientist and graduate student in the Department of Economics at the University of Missouri. Writer and blogger, his work can be found at the Ludwig Von Mises Institute, Eurasian review, Libertarian Institute and Sage Advance. You can contact him through his website. http://www.jsmwritings.com or find him on Twitter.
Source: This article was published by the MISES Institute