"In today’s Wall Street Journal, Commerce Secretary Wilbur Ross presents his pro-producer, pro-export, mercantilist views in an op-ed titled “Free Trade is a Two-Way Street.” Nowhere in Ross’s article does he mention the other side of the international trade equation: the US consumers, including both individual Americans and households, and the US-based companies that buy foreign inputs. Since that important and large group of hundreds of millions of Americans was neglected, let me present their viewpoint below in response to specific statements made by Secretary Ross:
Secretary Ross: Unfortunately, many governments across the globe have pursued policies that put American workers and businesses at a disadvantage. For these governments, President Trump and his administration have a clear message: It is time to rebalance your trade policies so that they are fair, free and reciprocal.
US Consumer: Fortunately for consumers, many governments across the globe have pursued policies that put American consumers at a distinct advantage. By providing Americans with cheap, affordable, low-cost imported goods, our trading partners have saved US consumers hundreds of billions of dollars and significantly improved our standard of living. Low-income and poor Americans have especially benefited from cheap imported clothing, footwear, household supplies, furniture, school supplies, fruits and vegetables, and electronic goods.
Secretary Ross: When it comes to trade in goods, our deficits with China and the EU are $347 billion and $146.8 billion, respectively. China’s tariffs are higher than those of the U.S. in 20 of the 22 major categories of goods. Europe imposes higher tariffs than the U.S. in 17 of 22 categories.
In addition to tariffs, both China and Europe enforce formidable nontariff trade barriers against imports. Examples include onerous and opaque procedures for registering and gaining certification for imports; unscientific sanitary rules, especially with regard to agricultural goods; requirements that companies build local factories; and forced technology transfers. The list goes on.
US Consumer: Unfortunately, it’s true that many of our trading partners erect protectionist trade barriers and tariffs that inflict great harm on their own consumers by raising prices and restricting choices. The US should avoid any “retaliatory” protectionist trade practices that would impose higher prices on Americans, limit competition and restrict our choices to “level the playing field” with our trading partners.
Secretary Ross: Both China and Europe also bankroll their exports through grants, low-cost loans, energy subsidies, special value-added tax refunds, and below-market real-estate sales and leases, among other means. Comparable levels of government support do not exist in the U.S.
US Consumer: While we have some sympathy for the tax burden placed on the foreign citizens of our trading partners, we are thankful to those citizens for subsidizing their domestic producers in ways that reduce the cost that Americans pay for foreign goods exported to the US. The taxpayer-support for foreign producers has saved American consumers and businesses billions of dollars every year through lower prices for imports, and that support has contributed to a higher standard of living for Americans. In the best of all possible world for US consumers, foreign companies would send us products for free. Although that ideal world isn’t realistic, we are still very thankful as consumers for the next best thing – the generous foreign aid that foreign taxpayers in China and Europe provide to the American people in the form of lower prices because of the subsidies and special benefits provided to exporters in those countries.
Secretary Ross: Until we make better deals with our trading partners, we will never know precisely how much of our deficit in goods is due to such trickery. But there can be no question that these barriers are responsible for a significant portion of our current trade imbalance.
US Consumers: We welcome what the Commerce Secretary calls foreign “trickery.” Of course, he is speaking only on behalf of US producers when he uses such a misleading term. For us consumers, the “trickery” that Ross refers to is really a generous form of foreign aid to the American people, and we welcome all of that kind of “trickery” that we can get!
About our “current trade imbalance,” we think the Commerce Secretary could learn something about that misunderstood term from economist Milton Friedman. According to Friedman:
When people talk about a trade imbalance, what is that term taken to mean? It’s taken to mean that we import more than we export. But from the point of view of our economic well-being and our standard of living, that’s a favorable balance. That means we’re getting more goods coming in (imports) and sending out fewer in return (as exports). Each of us in our private households would know that is beneficial. You don’t regard it as a favorable trade imbalance when your household has to send out more goods to get fewer coming in (i.e., a trade surplus). It’s a favorable trade imbalance when you can get more by sending out less (i.e., a trade deficit).Therefore, attempts by Secretary Ross to “improve” our current trade imbalance, e.g., through protectionist trade policies that would increase exports and decrease imports, would certainly be favorable to US producers but would be very unfavorable to US consumers. On net, our country would be worse off, not better off through such action.
Secretary Ross: China is not a market economy. The Chinese government creates national champions and takes other actions that significantly distort markets. Responding to such actions with trade remedies is not protectionist. In fact, the World Trade Organization specifically permits its members to take action when other countries are subsidizing, dumping and engaging in other unfair trade practices.
US Consumers: Again, what Secretary Ross pejoratively calls “subsidizing, dumping and unfair trade practices” are actually extremely beneficial to us consumers, and we welcome such cost-reducing practices of our trading partners. For example, what the Commerce Secretary calls “dumping” we call something else – “getting a great deal.” As consumers, we welcome goods coming into this country at the lowest possible price. If foreign producers are willing to sell us goods at a price below the actual cost of production, that’s GREAT! Why should we complain about those bargains?
Stated differently, what Secretary Ross calls “dumping” we consumers call getting generous foreign aid from foreign producers and foreign taxpayers. In an ideal world, foreign producers would send us products for free. In the next best possible world, foreigners would send us products below their cost of production, and we say the more dumping, the better! If we wouldn’t complain about free goods from foreigners, we shouldn’t complain about getting goods below their cost of production.
Consumers aren’t the ones complaining about low prices, it’s only domestic producers competing against foreign rivals, who complain about low prices, and use the term “dumping.” Please don’t forget about us consumers Mr. Secretary – we love dumping!
Secretary Ross: The WTO should protect free and fair trade among nations, not attack those trade remedies necessary to ensure a level playing field. Defending U.S. workers and businesses against this onslaught should not be mislabeled as protectionism. Insisting on fair trade is the best way to ensure the long-term strength of the international trading system.
The Trump administration believes in free and fair trade and will use every available tool to counter the protectionism of those who pledge allegiance to free trade while violating its core principles. The U.S. is working to restore a level playing field, and under President Trump’s leadership, we will do so. This is a true free-trade agenda.
US Consumers: When we hear the Commerce Secretary say he wants a “level playing field” and “fair trade,” we are worried that he will pursue protectionist trade policies that harm US consumers. It’s clear that consumers of other countries are made worse off by their countries’ protectionist policies. But those protectionist policies frequently make US consumers better off when it lowers prices for Americans. As the Secretary’s comments make clear, he is speaking on behalf only of American producers and their workers and has neglected the impact of his proposed policies on American consumers. We are concerned that pursuing a “true free-trade agenda” will only consider the concerns of American producers and exporters, and that Ross and President Trump will pursue political goals and trade policies that will leave the US consumer worse off, not better off.
In conclusion, there was probably never a better spokesman for the consumer than the French economist Frederic Bastiat, and we consumers ask you Mr. Secretary to consider (and perhaps “import”) his eloquent defense of the interests of the consumer:
There is a fundamental antagonism between the seller and the buyer. The seller wants the goods on the market to be scarce, in short supply, and expensive. The latter wants them abundant, in plentiful supply, and cheap. Our [trade] laws, which should at least be neutral, take the side of the seller against the buyer, of the producer against the consumer, of high prices against low prices, of scarcity against abundance.Mr. Secretary, your article never once mentions us – the US consumer, and we represent mankind at large, according to Bastiat. In your future discussions on trade, and especially as you consider protectionist trade policies in the name of “fair trade” and correcting the “trade imbalance,” we beseech you to consider the viewpoint of the US consumer. That is, please consider the viewpoint of mankind in the future, instead of focusing so exclusively on the narrow viewpoint of America’s special interest groups – the US producers, manufacturers, and exporters that you represented in today’s Wall Street Journal."
It is necessary to view economics from the viewpoint of the consumer. All economic phenomena, whether their effects be good or bad, must be judged by the advantages and disadvantages they bring to the consumer…. for the consumer represents mankind at large.
Wednesday, August 2, 2017
Commerce Secretary Wilbur Ross vs. Frederic Bastiat: The interest of the producer vs. the interest of the consumer
From Mark Perry.