Protectionism is Here to Stay, For Better or Worse

The Trump administration hit the ground running this week and began chipping away at their campaign promises.  But what are these reforms and what impacts do they have on the domestic and global economy?

Withdraw from Trans Pacific Partnership

The TPP was a 12 nation trade deal of Pacific Rim countries (making up 40% of global GDP) that would reduce tariffs and set rules resolving trade and patent disputes.  Awaiting congressional approval for quite some time now, it was unclear whether it would even pass.  Mr. Trump took no chances and shut it down.

Supporters of the bill claim that, by not including China, it allows the U.S. to secure economic and geopolitical interests in the region and set the standard for the future.  Opponents believe the bill would have hurt American workers at the expense of corporate interests.

Withdraw from TPP is a microcosm of the overall pushback against globalism.  While the global economy has surely made more people better off than ever before (browse humanprogress.org for more info), some have felt scorned.  Individuals who have had wages reduced, experienced industry loss, lost jobs etc. have made their voices heard loud and clear in recent elections and referendums around the world.  I’ll discuss the economic aspects of protectionism in the next section.

Threatening to Impose Tariffs on Mexico and China

The administration has since pulled back, stating the Mexican tariff is just one option to fund the 12-15 billion required for the wall.  It should be dismissed, and here’s why:

A tariff (tax on imports) effectively raises consumer prices.  In order to continue exporting, a firm in Mexico would require a higher selling price to compensate for the 20% tariff.  An American importer from Mexico would also require higher prices to maintain their bottom lines.  With a complex supply chain in which goods are frequently shipped back and forth across the border before they are completed, one can easily understand how quickly the higher required price at each stage would add up.

To expand on that point, roughly 6 million American jobs depend on trade with Mexico.  Also, about 40% of the parts in a typical import from Mexico originate in the United States.  Our complex trade network with Mexico is in jeopardy.

Much of the same is in order for China, except the fact that President Obama imposed a 35% tariff on Chinese tires in 2009, claiming the tariffs had saved 1,200 American jobs.  The tariff hurt Americans in other ways, however.

A study (https://piie.com/sites/default/files/publications/pb/pb12-9.pdf) from the Peterson Institute of International Economics determined the following effects:  Chinese-made tires cost as much as 26% more and U.S. tire makers raised prices 3.2% because they were facing less competition.  The model concludes that the tariff cost 1.1 billion dollars, translating to a loss of 3,731 retail positions.  China fought back by placing their own tariff on U.S. chicken imports, costing America another $1 billion in sales, and most likely resulting in layoffs.

Tariffs clearly have adverse effects, so I personally am against their implementation.  With all of the proposed tariff revenues going towards the wall, what will the new administration do with the newly unemployed as a result?  Trump voters seem to be getting what they wished for.  Will they be able to afford the consequences?

“Extreme Vetting” of Immigrants from the Middle East

We are faced with a trade off between security and individual liberty.  If the TSA is any indicator, we have neither.  The TSA, frequently accused of profiling, had a success rate of 5% in stopping undercover investigators attempting to smuggle banned weapons and explosives (http://abcnews.go.com/US/exclusive-undercover-dhs-tests-find-widespread-security-failures/story?id=31434881).  Combine these results with domestic (even foreign) acts of terrorism in recent history and flaws in the vetting system of western nations are apparent.

I personally support vetting prospective citizens.  But we should be wise not to confuse vetting prospective citizens with discriminating against current citizens.  Recall Newt Gingrich’s proposal to test and deport Muslims for belief in sharia law.  I vehemently oppose such actions on a constitutional basis, as they blatantly violate the 1st and 14th amendments.  They also violate a Supreme Court decision, Afroyim v. Rusk, ruling that congress has no authority to remove U.S. citizenship unless voluntarily renounced.  I do not and will not support measures of “extreme vetting” that so grossly violate the individual liberties that are guaranteed with an American citizenship.

Many studies, such as “Trillion Dollar Bills on the Sidewalk” (http://www.cgdev.org/files/1425376_file_Clemens_Economics_and_Emigration_FINAL.pdf), find incredible benefits to allowing free flow of labor.  This is something to be cognizant of when assessing immigration policy.

Concerning the Aforementioned Issues

Consistent with anything in life, trade offs are present.  We must ask ourselves what vision we have for the future of America on a global and domestic scale.  What scope should the American government possess?  These questions are critically important to determine where you stand on policy implications so keep them in mind moving forward!

Edit:  A reader thought I could be more clear on the vetting topic.  I encourage intense vetting of prospective immigrants, which I think we already do despite some mishaps along the way.  They do not yet have the privileges that come with American citizenship so jumping through a few hoops should be a small sacrifice if they wish to reap the benefits.

 


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