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“Nobody Wins A Trade War”: Donald Trump And Bernie Sanders Are Promoting Dangerous Protectionism

As different as Donald Trump and independent Vermont Sen. Bernie Sanders are, they have one important policy goal in common. It’s a dangerous goal, one that elites in both parties must counter, before a new public consensus is formed and grave damage is done to the economy.

Both Trump and Sanders are, at their heart, protectionists. They both believe in tariffs and other obstacles to prevent foreign-made goods from competing with American-made goods, and keep foreign worker salaries from driving down Americans’ pay. Trump is the most direct and vocal about it, calling for tariffs as high as 45 percent against China. Sanders has yet to call for a specific tariff, but he’s called for repealing the North American Free Trade Agreement with Canada and Mexico. Eliminating NAFTA would restore tariffs that ranged up to 25 percent and lead to other measures that hinder trade between countries.

At first glance, it seems like a great idea to raise tariffs to protect American workers from globalization. But nearly all economists say that protectionism is a beast that will gore us if set loose. Protectionist measures by the U.S. will lead to reprisals by other countries and the tit-for-tat escalation of tariffs in a trade war will likely lead to a global depression (as it did in the 1930s). And even when protectionism is successful in boosting wages, it boosts consumer prices even faster, so most workers are no better off.

All this is generally accepted by leaders and advisers in both the Democratic and Republican parties. But the downside of protectionism is complicated and not well understood by the public, whereas the call for tariffs and border-closings (Trump’s Mexican wall) is simple and emotionally resonant. Hence the problem: In political communications, it’s well known that if a falsehood is not promptly and effectively countered by respected senior public figures, it tends to become accepted as true by the public at large, regardless of the damage it may cause.

This time, the public will not accept that so-called free trade alone will restore rising standards of living and breathe new life into the American dream. Most working Americans, all except those at the top, have seen their standard of living erode over the past 30 years, and “trust me” is no longer an adequate response. That’s why insider candidates – former Secretary of State Hillary Clinton, former Florida Gov. Jeb Bush and others associated with the failed status quo – are doing poorly, and outsider candidates are drawing far more support than expected.

To prevent a protectionist insurgency from wrecking the economy, the candidates who represent mainstream economic thinking need to do better. They need to offer more than a reminder of the Smoot-Hawley Tariff Act of 1930. Unfortunately neither party is well positioned to do this. Clinton has the albatross of NAFTA hung firmly around her neck, since her husband championed it while president. And until very recently, she’s been a strong supporter of the latest proposed trade treaty, the Trans-Pacific Partnership – which is pushed by President Barack Obama and supported by a wide range of Democrat-aligned pundits.

At the same time, those in the Republican mainstream have either ignored stagnant wages, or they’ve blamed them on excessive taxes and red tape. That has convinced enough voters to date. But Americans have been tugging on their boot straps for several decades now without effect, and they are not inclined to believe that if they only tug a little longer or a little harder they will be themselves lifted up. Just as Clinton is not well positioned to be credible on this issue, neither is former Massachusetts Gov. Mitt Romney, who has made much of his fortune by eliminating American jobs. The public senses this. That’s part of the reason Romney’s broadside against Trump had so little effect.

If Democrat and Republican elites intend to stave off a wave of protectionism, it’s time for some serious public discussion of alternatives that can meaningfully help ordinary working Americans and their families. The possibilities fall into three categories: The first involves investments that boost American productivity directly, like education and infrastructure. The second category requires steps that boost American incomes directly like radically expanding the earned income tax credit or strengthening unions. The third category involves measures that reduce what workers have to pay out-of-pocket in order to live, so that stagnant wages go further. These measures include tax-shifting (reducing the employee share of the payroll tax, for example), making higher education free (as it is in of the developed countries we compete against) and government-matching of employee contributions to retirement plans, so employees don’t need to save as much of their income.

Most of these ideas are anathema to conservatives, and many are considered outside the range of legitimate ideas that serious Democratic thought leaders can safely discuss in public. But a trade war and the jingoism that goes with it might be even more distasteful and is almost certainly more damaging. It’s time for elites of both parties to begin discussing the undiscussable, if for no other reason than to avoid worse.

 

By: David Brodwin, Cofounder and Board Member of American Sustainable Business Council; U. S. News and World Report, March 14, 2016

March 15, 2016 - Posted by | Bernie Sanders, Donald Trump, Protectionism, Trade Agreements | , , , , , , , ,

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