Monday, March 27, 2017

A cut in India’s tariffs on Harleys is not remotely guaranteed to lead to a decrease the U.S. trade deficit

See Peter Navarro Knows Not About What He Writes by Don Boudreaux.

"Here’s a letter to the Wall Street Journal:
The headline is promising: “Peter Navarro Responds to His Trade Critics” (March 22).  So I eagerly anticipated reading Navarro’s substantive defense, against knowledgeable critics, of his reasons for fearing trade deficits.  Alas, disappointment.  Navarro offers not a single relevant argument.
Typical is his contemptuous treatment of Dan Ikenson.  To establish that Mr. Ikenson has an “Alice-in-Wonderland worldview,” Navarro merely lists some of Mr. Ikenson’s policy positions without offering as much as a syllable to inform us why these positions are untenable.  (Each of Mr. Ikenson’s positions strikes me as quite reasonable.)
The closest Navarro comes to making a relevant argument is when he writes, responding to Desmond Lachman, that “if India agrees to lower its tariffs on Harley Davidson motorcycles, Indian consumers will buy more Harleys and save less while Harley will sell more Harleys and invest more.”
Well, no one has ever denied that Indians would buy, and Harley would sell, more Harleys if India reduces its tariff on these bikes.  But it doesn’t follow that Indians would necessarily, as a result, save less.  (Does Navarro always save less when his cost of living falls?)  And while more resources would indeed likely be invested in Harley’s operations, these resources would have to come from foreigners if Americans don’t increase their savings.  Contrary, therefore, to the conclusion that Navarro wants us to draw from what he pretentiously (if inaccurately) calls “obvious general equilibrium effects,” a cut in India’s tariffs on Harleys is not remotely guaranteed to lead to a decrease the U.S. trade deficit.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030"

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