Friday, May 26, 2017

David Henderson Corrects Larry Summers On Trade (gains to consumers matter)

See Larry Summers Trumps Trump at EconLog.
"On agriculture, China reiterated a promise that it has broken in the past to let in more beef. Previously, we, as reciprocity, had been withholding publication of a permissive rule on Chinese poultry, but we have now relented. Advantage China.
This is from Larry Summers, "Trump's 'China Deal' is only a good deal for China," May 24.

HT2 Mark Thoma.

In estimating "advantage," what factor is Larry missing? U.S. consumers who like poultry. There are a lot of us. When you see someone forgetting even to point out that our consumers gain when foreign producers send us cheaper products, what prominent U.S. politician does that sound like? That's right: Trump. Thus the titled of this post: Larry Summers, in his rhetoric, is starting to imitate Donald Trump.

Back in May 2000, I wrote an article in Fortune titled "What Clinton and Gore Don't Say." In it, I pointed out that U.S. trade negotiators rarely point out the benefits to consumers from free trade. I ended by writing:

In the negotiation process, the U.S. treats cuts in its trade restrictions as concessions rather than as the benefits they are. That's why the consumers' gains get lost in the shuffle. Economists like U.S. Treasury Secretary Lawrence Summers understand that. But U.S. Trade Negotiator Charlene Barshefsky and Vice President Gore? I'm not so sure.

Now, I'm no longer sure about Larry. And, in a way, he's even worse than Trump. He writes:

In addition to the leverage we sacrificed by committing to issue the poultry rule, we made other meaningful concessions. First, we agreed to allow exports of liquefied natural gas from the US to China. To at least a small extent that would mean higher heating costs for U.S. consumers and higher energy costs for U.S. producers.

Get it? Normally, even the Trumps and Summers of the world will at least regard as a gain an increase in U.S. exports due to declines in trade barriers. But because this particular gain in U.S. exports is due to a decline in a U.S. trade barrier, Larry counts it as a loss. It is a loss for U.S. consumers, but it's not hard to show that it's a net gain to the United States when we include the gains to LNG producers."

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