Why Trump’s Protectionism Is Futile

The president is wrong to attribute industrial decline to foreign competition, and the rising dollar is likely to cause the trade deficit to rise

Tunku Varadarajan interviews Douglas Irwin. From The WSJ. Excerpts: 

"what Mr. Irwin finds most frustrating about him is that “he never really defines what a ‘better’ trade deal is. His judgment of trade comes down to the trade balance, which he uses as a sort of ledger, as a businessman would, rather than think more broadly about the national economic impact of trade.” It is impossible for every country to run a trade surplus, but “Trump thinks about trade in these zero-sum terms, about whether there’s profits or losses, and he views exports as good and imports as bad.”"

"He fails to see that in international trade, imbalances “aren’t an indication that one country is beating another, or that one is ‘winning’ and the other’s ‘losing.’ ” Mr. Trump’s rhetoric and vocabulary are “not the way economists think about trade at all.”"

"There is no import surge putting America’s automobile industry at risk, Mr. Irwin says. To the contrary, “the domestic industry is at a high level of capacity utilization.” In 2017, 56% of American-bought light vehicles were domestically produced. The breakdown among imports: 22% from Canada and Mexico, 11% from Japan, and 8% from Germany and South Korea. That adds up to 97% of cars that were either made in America or “came from neighboring countries or those we have an alliance with—not enemies or sources of supply that might be threatened in an emergency.”"

"the steel industry, Mr. Irwin says, isn’t “being decimated by import competition. Imports as a share of domestic consumption are pretty stable—we produce 73% of all the steel we consume."

"The U.S. has lost steel jobs, but Mr. Irwin says that’s because the domestic industry has become more productive. “In 1980, it used to take 10 worker-hours to produce a ton of steel. Today, it takes less than two worker-hours."

"That old newsreel image of workers mixing metals next to furnaces is far from today’s reality, which consists of “one or two engineers who are adjusting dials in a highly mechanized place.” Bringing back those blue-collar jobs “is just not in the cards,”"

"Mr. Navarro, author of a book called “Death By China,” takes a different view. He has spoken of “repatriating the supply chain, bringing it all back home,” in Mr. Irwin’s paraphrase. “While this hasn’t become explicit administration policy, it does reflect Navarro’s broader anti-globalization sentiment. If undertaken, it would tear apart the system of trade the U.S. has sought to create over the past 70 years.”

As for Mr. Ross, Mr. Irwin says he seems to emphasize reciprocity “quite a bit” and he “likes to pick instances in which U.S. tariffs are lower than those in Europe or Asia.” For example, Mr. Ross juxtaposes the 10% European Union tariff on cars with the U.S. tariff of only 2.5%—but neglects to mention the 25% U.S. tariff on trucks. “If he were really concerned about higher foreign tariffs, he’d propose a free-trade agreement with such countries, bringing all tariffs down to zero,”"

"Jagdish Bhagwati was his doctoral adviser. Mr. Bhagwati, 83, still teaches economics at Columbia, and Mr. Irwin points to his “seminal contribution to trade theory, which was to delink free trade from laissez-faire, as well as to point out that countries will grow more rapidly by exporting rather than through import-substitution.”"

"The obsession with reducing the bilateral deficit with China appears to have blinded the administration to the need to address “the real structural problems we should be talking about, like protecting intellectual property, transparency, whether you need to partner with a Chinese firm if you go in as a foreign investor, and the rule of law.”"

"Mr. Trump would like to see the trade deficit go down and U.S. manufacturing revived. But “his macroeconomic policies are almost guaranteed to lead to larger trade deficits, not to a smaller one,” Mr. Irwin says. Since Mr. Trump took office, the U.S. has cut taxes and raised government spending, so that the fiscal deficit is going up. The trade deficit often shadows the fiscal one, because exports get crowded out when the Federal Reserve tightens credit and the dollar appreciates. “We’re then going to get capital inflows from abroad,” Mr. Irwin says, “and the trade deficit is going to go up.”"