Trump Should Tread Softly On His New Trade Agenda

Investors Business Daily ^ | 11/28/16 2:03 PM ET | DAVID MCINTOSH and SCOTT LINCICOME

[expat_panama]

President-Elect Donald Trump has released an ambitious to-do list. His plans for cutting individual and corporate taxes, for repealing and replacing ObamaCare, and for regulatory reform all hold great promise. But his threat to dismantle the North American Free Trade Agreement (NAFTA)...

...remember the tremendous benefits of trade, particularly through NAFTA. About one-third of all U.S. merchandise exports are bought by Mexico and Canada, and exports from our service industries and from the agriculture sector have risen dramatically under the agreement.

Thanks to imports, American families effectively stretch their pay check...

...imposition of tariffs punishes all American consumers, and businesses that use cheap imports as raw material in the things they make. The reward for tariffs goes to a select few in a certain politically connected industry that is being protected. It's cronyism that hurts...

...studies by the U.S. International Trade Commission and the Congressional Budget Office find an economic consensus that our trade agreements have produced lower prices, significant national gains in gross domestic product, jobs, and wages...

...exploiting ambiguities in the current web of U.S. trade laws to enact the president's trade priorities by executive fiat could engender opposition from Congress, the U.S. business community and U.S. trading partners, thus leading to court challenges...

...uncertainty surrounding the trade challenges would imperil trillions of dollars worth of goods and services, especially if the courts refused to enjoin the executive branch from acting while any such litigation is pending.

There is a better way. Congress should act quickly to clarify ambiguities in U.S. trade law...

...The alternative could be not only economic catastrophe, but also a potential constitutional crisis.

[Sacajaweau]

Absolutely no reason why Canada and Mexico can't be dealt with separately rather than via NAFTA.

Mexico is a sty. I'm not sure they have ANY kind of regulations or provide any benefits to the Mexicans.

They have sewage in the streets and their unemployment rate is less than ours.

[Sacajaweau]

He’s not the only one who says NAFTA is an unnecessary tool of trade.

[Mr Ramsbotham]

We will ask lower- and middle-class Americans to make a small contribution toward bringing jobs and prosperity back home.

[expat_panama]

Good morning!  Stocks stopped and today's futures won't say 'go' --maybe our Trump rally is turning into a Clinton downturn as the NASDAQ disttribution day count climbs to 8.  Metals futures are off  a half % and the econ report flood begins today:

8:30 AM GDP - Second Estimate
8:30 AM GDP Deflator - Second Estimate
9:00 AM Case-Shiller 20-city Index
10:00 AM Consumer Confidence

Elsewhere:

Just How Bullish Is Stock Market Right Now? - Avi Gilburt, MarketWatch
Stop Spending Based on the Wealth of Other People - Carl Richards, NYT
From Peak Oil to Peak Oil Demand In Just Nine Years - Justin Fox, BBW
After Shunning Him, Tech Tries to Gain Trump's Ear - Jon Swartz, USAT
Lessons for Trump from Supply Sider JFK - Ray Keating, RealClearMarkets
Trump Will Struggle to Keep Job Promise - Ana Swanson, Washington Post
How Trump Fits Into Populist New World Order - Geoff Colvin, Fortune
Infrastructure's Powerful Econ. Boost - Peter Morici, Washington Times
Infrastructure: Welcome to Waste, Fraud, Abuse - Steve Hanke,Globe Asia

[exDemMom]

Thanks to imports, American families effectively stretch their pay check...

The authors are not looking at the big picture. It matters little that imported goods are less expensive, when the method of making them less expensive has been to export the production factories to other countries, putting Americans out of work.

A $50 toaster might seem expensive to a family earning the median income, but a $10 toaster might be out of reach for that same family whose jobs have been exported.

Trade has to be of true mutual benefit. Not for a few power brokers at the top, but for the people.

[spintreebob]

Speak softly, carry a big stick.

Should a great negotiator announce ahead of time what cards he holds and how he plans to play them?

That is what previous trade negotiators did. They got run over by the the special interest, the labor unions, the corporate parasites, the environmentalists, the Carlos Slims.

[ari-freedom]

Trump’s economic advisers Wilbur Ross and Peter Navarro explain the trade problem:

Here is the key unequal tax treatment issue:
While the US operates primarily on an income tax system, all of America’s major trading partners depend heavily on a “value-added tax” or VAT system.

Under current rules, the WTO allows
America’s trading partners to effectively create backdoor tariffs to block American exports and backdoor subsidies to penetrate US markets.

Here’s how this exploitation works:

VAT rates are typically between 15% and 25%. For example, the VAT rate is 25% in Denmark, 19% in Germany, 17% in China and 16% in Mexico.

Under WTO rules, any foreign company that
manufactures domestically and exports goods to America
(or elsewhere) receives a rebate on the VAT it has paid. This turns the VAT into an implicit export subsidy.
At the same time, the VAT is imposed on all goods that are imported and consumed domestically so that a product exported by the US to a VAT country is subject to the VAT. This turns the VAT into an implicit tariff on US exporters over and above the US corporate income taxes they must pay.

Thus, under the WTO system, American corporations suffer a “triple whammy”: foreign exports into the US market get VAT relief, US exports into foreign markets must pay the
VAT, and US exporters get no relief on any US income taxes paid.

The practical effect of the WTO’s unequal treatment
of America’s income tax system is to give our major trading partners a 15% to 25% unfair tax advantage in international transactions.

(While in principle, exchange rates should adjust over time to offset border adjustment, in the near term, exchange rate manipulation leads to major effects on trade flows)

It is thus not surprising that US corporations want to move their factories offshore and then export their products back to the US and to the rest of the world.

An American subsidiary located overseas gets the VAT benefits on its exports back to the US. Of course, such exports to America from the offshored production facility add to the US
trade deficit. Such offshoring of capital investment
also subtracts from GDP growth.

[DoodleDawg]

Trade has to be of true mutual benefit. Not for a few power brokers at the top, but for the people.

The people don't negotiate trade deals, the power brokers do.

[exDemMom]

Yes, that is most unfortunate.

[PrairieLady2]

Growth has to be balanced and steady. It makes no sense for example to hinder imports if you don’t have varieties of domestic product to compete with it.

Taxing the imports can mean some price negotiations stateside which profits domestic business over foreign ones
..but, as said, there have to be choices for the consumer. Naturally, the foreign manufacturers are going to want to pass tjat tax increase to the consumer, but with good competition, the consumer isn’t going to be stuck paying for it.

I personally would love to see imports from Europe, and Israel. I’ve seen some of their fabrics and children’s clothing..wow, what nice quality and fabulous styles! It would be really nice to have something other than China mart.

I went into a pricey store at tje mall. Beautiful clothes, kewl styles. Some of it was retro 60’s/70’s, interesting and appealing prints so i decided to check out some prices. Saw a dress for $150, blouses for around $60, pants closer to 200..then I looked to see where the stuff was made....China. The store didn’t even have a sales rack. At least Dillards has a great sales rack! Yep, competition is needed, badly. Price wars are fun and I don’t even like shopping!

Its been a year since I checked out Van Maurs..I’m not a shopping nut but if Idecide to shop, its a bit more fun when good varoety exists with fun pricing like dessert on tje side lol!

[KittenClaws]

If products from other countries are so great, why won’t “they” place country of origin on all of it?

As for me, I DO NOT buy produce from Mexico, refuse to buy fish from China or any of those nasty places.

It is getting harder to buy USA, because products are not labeled with country of origin. My expenditures increase when I buy the now, more expensive products Made or grown in the USA.

[nathanbedford]

I have long been concerned about the prospects for reforming Obama care and for undertaking reform of our trade relationships. I was in the process of writing a vanity on the subject but here goes a more half-baked version.

If Trump pushes a tax cut, he rewards about everybody and will improve his standing with the electorate. If he cuts regulations he will generally reward a majority of businesses and only marginally distress some large businesses which want the barriers to entry erected by regulations, so Trump will improve his standing with the electorate. If Trump pushes the expansion of the energy sector, he brings down the price of gasoline to consumers and energy to manufacturers and he will improve his standing with the electorate.

However, when Trump monkeys with the trade balances he will do what I have been insisting is inevitable since the primary debates on this issue-he will inevitably favor one sector of the economy over another sector of the economy and he is likely to very materially burden consumers. There are negatives associated with trade policy reform, as necessary as that reform might be in order to preserve our manufacturing base. Even threatening to break rice bowls by reforming trade agreements, will certainly engender blowback.

Similarly, repeal of Obama care sounds great but there are many who enjoy subsidies and supplements from the government who will lose them in a straightforward repeal. If the repeal is accompanied by a replace, all of the problems of Obama care are reintroduced: who is covered and who is not, who pays and who does not etc.

I have toyed with the idea that perhaps Trump should stall on reforming Obama care and not move to save it but let it crash and blame the Democrats and leave the field wide open for an intelligent reform which will be difficult for Democrats to oppose because we will be in a crisis.

In any event, I think Trump should delay action on these two areas until after he takes all the low hanging fruit and enhances his standing with the electorate.

[Former Proud Canadian]

"Absolutely no reason why Canada and Mexico can't be dealt with separately rather than via NAFTA. "

Exactly. The FTA preceded NAFTA. Just kick Mexico out and go back to the FTA.

That won't happen, of course, but to think that a third world hellhole with low wage rates, and no rule of law should be included in the FTA is insane. I could never understand the rationale behind that other than the push for lower production costs. By moving jobs to Mexico are destroying the purchasing power of the workers (consumers) that lose their jobs to the Mexicans. I would like to know what they think the end game is.

[ari-freedom]

The key is to not to allow lobbyists to write the bills. That’s how we ended up with government picking winners and losers.

[trebb]

Funny how they never tie the reduction of manufacturing and the rise of "service industries" to the stagnation of wages vs. inflation.

All these "benefits" are the result of us subsidizing other nations so they can have better economies at our expense.

[nathanbedford]

The key is to not to allow lobbyists to write the bills. That’s how we ended up with government picking winners and losers.

No, my point is that is how you end up with a different set of winners and losers.

[ari-freedom]

Yes, it will be quite dramatic.

Almost everything in his plan, except for maybe the childcare credit, will have that. For example, cracking down on illegals will affect all those companies that rely on them for lots of low wage labor.

There are billionaires because of the Obama policy of restricting fossil fuels and incentivizing green energy. The green companies won’t do very well after we start drilling all over the place.

[pas]

The service industries have been moving off shore for years now as well.

[reformedliberal]

Good luck finding a $10 toaster. Shoddy ones with poor reviews start at around $17.00.

Ours needs replacing. Purchased in 2008 for $20. Comparable quality today is somewhere between $35 and $70. $70 for a toaster!

Everything seems to be up around 20%-25% from just a year ago. Can’t be the value of the dollar, which is at 101+% at the moment.

OTOH, one of my accounts sells is Canada, so I need to file the paperwork (every component of the item made in USA) every 2 years. No one checks, of course. Right now, American items in Canada are just around 25% more expensive based on currency values.

It’s simply nuts. And don’t get me started on food costs.