Take the
25% tariff on light trucks,
please. That tariff makes price of trucks, whether new or used,
substantially higher. Yes, it has caused most truck production for the
U.S. market to move to the United States. But the producers do that to
get around the tariff wall and would likely not do that if there were no
tariff. So, although 25% is almost certainly an overestimate of the
higher price U.S. buyers pay for new trucks, without a tariff they would
certainly pay much less. So a trade deal that cuts tariffs on trucks
would definitely help "average Americans." And here's the thing: the
U.S. government could to that unilaterally without a trade deal. I
choose this example on purpose. When I mentioned to my students, while
teaching about free trade and protectionism, that there is a 25% tariff
on light trucks coming into the United States, that caught their
attention. Many of them have bought new trucks and would have loved to
have paid much less. They are not literally average Americans--their and
their spouses' incomes probably put them in the top 20% of the income
distribution--but next time you talk to an "average American" who owns a
pickup truck, tell him about that 25% tariff and see if he is
indifferent.
Or consider this
recent piece in the
Wall Street Journal
by Harvard economist Martin Feldstein, my boss when I was at the
Council of Economic Advisers. He's trying to defend NAFTA. Good for him.
But how does he defend it? He writes:
During the campaign Mr. Trump promised to tear up the
North American Free Trade Agreement if he could not negotiate a
substantial improvement. Revoking the agreement would put more than $600
billion of U.S. exports to Canada and Mexico in jeopardy. According to
the U.S. Census Bureau, U.S. companies export more to Canada than they
import from Canada. Including Mexico, total Nafta imports exceed exports
by less than $40 billion, an amount equal to just one-quarter of 1% of
GDP.
So Marty's defense is that exports would be put at risk and he mentions
imports only to compare their size to the size of exports. So all that
seems to matter to him, when defending free trade, is gains to producers
(exporters), not gains to consumers (importers).
Mercantilism dies hard.
The misunderstanding is
bipartisan. But also the understanding is bipartisan. Democratic economist Alan Blinder laid out the case for free trade beautifully in "
Free Trade" in
The Concise Encyclopedia of Economics."
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