Posted on 08/27/2015 6:51:48 AM PDT by SeekAndFind
Here’s a historical fact that Donald Trump, and many voters attracted to him, may not know: The last American president who was a trade protectionist was Republican Herbert Hoover. Obviously, Hoover’s economic strategy didn’t turn out so well — either for the nation or for the GOP.
Does Trump aspire to be a 21st-century Hoover, with a modernized platform of the 1930 Smoot-Hawley tariff, which collapsed the banking system and helped send the U.S. and the world economy into a decade-long depression?
We can’t help wondering whether the recent panic in world financial markets is in part a result of the Trump assault on free trade.
Trump is also running full throttle on an anti-immigration platform that could hurt growth as well as alienate the GOP from the ethnic voters it needs to win in 2016.
We call this the Trump Fortress America platform. He clearly sees international trade and immigration as negative-sum games for American workers.
Trump recently announced that as president he would prohibit American companies such as Ford from building plants in Mexico. He moans pessimistically that “China is eating our lunch” and “sucking the blood out of the U.S.”
But following the anti-business, rule-making assault from Obama, strategic tax cuts and regulatory relief — not trade and immigration barriers — are the solution to America’s competitiveness deficit.
A draft of Trump’s 14-point economic manifesto promises that, as president, he would “modify or cancel any business or trade agreement that hinders American business development, or is shown to create an unfair trading relationship with a foreign entity.”
His immigration plan would not only deport illegal immigrants, it would lock the golden doors to those who come to this country lawfully for opportunity, freedom, and jobs. This could hardly be further from the Reagan vision of America as a “shining city on a hill.”
In his latest policy manifesto, Trump writes, “Decades of disastrous trade deals and immigration policies have destroyed our middle class.” This “influx of foreign workers,” he continues, “holds down salaries, keeps unemployment high, and makes it difficult for poor and working-class Americans — including immigrants themselves and their children — to earn a middle-class wage.”
There’s some evidence that competition for jobs in very low-skilled occupations holds down wages, but for the most part immigrants fill niches in the labor market that natives can’t or won’t fill. Immigrants add to the overall productivity of the labor force while starting new businesses, and thus are net creators of jobs. Tech CEOs will tell you there might not be a Silicon Valley were it not for foreign talent and brainpower.
In the 1980s and ’90s, the U.S. admitted nearly 20 million new legal immigrants — one of the largest waves of newcomers in our nation’s history. Over that time period, the U.S. created nearly 40 million new jobs, the unemployment rate plunged by half, and the middle class saw living standards rise by almost one-third (between 1983 and 2005).
When Washington gets the macroeconomic policies right — on taxes, trade, regulation, and the dollar — economic opportunity flourishes.
Free trade is also one of these prosperity building blocks, and Trump’s call for tariffs as high as 35 percent is worrisome in the extreme. We want Americans and workers all over the world to have access to the best-quality products at the lowest possible prices. This is the centuries-long economic law of comparative advantage first taught to us by David Ricardo.
Take the Ford plant in Mexico. If it’s more profitable for Ford to produce trucks in Mexico, fine. As the supply of Mexican trucks rises, incomes for all Mexicans go up. These same Mexicans then go out and spend their new money — not just on domestic products, but on U.S. goods and services available on the market, thus building up the U.S. economy. It’s win-win.
Trump is correct that there are unfair trading practices around the world. We know, for example, that China pirates U.S. technologies and patents. They counterfeit our goods. But slapping Trump’s punitive tariff on imported Chinese goods would hurt America at least as much as Beijing. The same is true for rolling back Reagan’s NAFTA — a great success. Mexico is now our second-largest export market. China is our third.
And China is our number-one import market, with Canada second and Mexico third. Do we really want to pick an economic war with them?
The U.S is the hub of the global trading system, so any lurch toward protectionism in America would give other nations an easy excuse to erect higher trade barriers. The ensuing domino effect could shut down the global trading system. No wonder financial markets are so jittery.
Trump’s idea of a 35 percent tariff on imported goods would represent the biggest tax increase on U.S. consumers in modern times. This won’t help the poor. Consider that Walmart has been one of the greatest anti-poverty programs in world history, achieving the “everyday low prices” that greatly benefit the poor and middle class in part through low-cost imports.
But trade is also vital to American jobs. A Heritage Foundation study finds that “international trade has boosted annual U.S. income by at least 10 percentage points of GDP relative to what it would have been without global trade, which translates into an aggregate gain of at least $1.7 trillion in 2013, or an average gain of more than $13,600 per U.S. household per year.”
Free trade is also the greatest antidote to poverty and deprivation in the world’s history. Over the past three decades, according to the World Bank and other sources, the spread of free trade has lowered abject, dollar-a-day poverty by nearly 1 billion people.
Hundreds of millions have moved upward into the middle class, primarily in China, India, broader Asia, parts of Latin America, and sub-Saharan Africa. It’s a phenomenal achievement, underscoring the benefits of free trade and open markets.
To his credit, Trump accurately recites many of the terrible problems afflicting the American economy: “Today, nearly 40 percent of black teenagers are unemployed. Nearly 30 percent of Hispanic teenagers are unemployed. For black Americans without high-school diplomas, the bottom has fallen out: More than 70 percent were employed in 1960, compared to less than 40 percent in 2000. Across the economy, the percentage of adults in the labor force has collapsed to a level not experienced in generations.”
But the American problems that Trump complains about — stagnant growth and wages and slow job growth — can be sourced principally to Washington, D.C., not Beijing or Mexico City.
The solution begins with substantially cutting or even eliminating the corporate tax. After that, policymakers should stop the double taxation of multinational profits by moving to a territorial system, like everyone else in the world. Also, we need to shift to full cash expensing for new investment in plants, equipment, and building structures.
The personal tax code should then be reformed by lowering the rates, getting rid of corporate-cronyist deductions, simplifying the whole system, and ripping out tens of thousands of regulatory pages from the IRS code. In general, we prefer a flat-tax structure.
We have seen firsthand how companies from Medtronics to Burger King have fled the U.S. for lower-tax nations like China, Canada, and Ireland because U.S. tax rates are 10 and even 20 percentage points higher. This is like imposing a tariff on our own goods and services. The real victims, according to a study by the American Enterprise Institute, are American workers who earn lower wages and find fewer jobs.
Next, we need a pro-America energy policy that expands the North American shale-oil and gas revolution, ends the war on coal states, builds pipelines, allows drilling on federal lands, and greenlights the export of our vast oil and gas sources — all of which will create millions of new jobs. In other words, we need the precise opposite of the Obama energy strategy.
After that we can tackle America’s massive regulatory burden — think Obamacare, Sarbanes-Oxley, Dodd-Frank, the Consumer Financial Protection Bureau, the EPA, and the National Labor Relations Board — which under Republicans and Democrats has expanded exponentially the incredible maze of licenses and regulatory codes that pose a huge barrier to small new-business startups.
Finally, we need a strong and stable dollar policy that ensures that the value of tomorrow’s greenback will be the same as it is today. The collapse of the dollar in the 1970s and 2000s led directly to the collapse of the economy. Right now, the unstable dollar is a huge deterrent to future investment from abroad and at home. Ideally, Fed monetary policy should aim at a commodity-price rule bolstered by forward-looking, inflation-sensitive market prices.
Trump says his goal is a pro-business policy that rewards companies that “invest in America, return to America, or stay and thrive in America.” Let us add, “create in America.” The good news is that Trump’s draft economic plan contains variations on most of these ideas.
And they are ideas that have worked. When they have been in place, growth has exploded. It happened under Republican Reagan and Democrat Clinton, both of whom were free traders who favored legal immigration.
– Stephen Moore and Larry Kudlow are co-founders with Arthur Laffer and Steve Forbes of the Committee to Unleash Prosperity.
Why in the world would he do that?
Trump would get a tremendous pay cut if he were elected, so I don't see him in the race for the long haul.
The Trump Organization makes $300 million a year. That won't stop.
I believe they are listening to him, but only hear what they want. Comparing Trump to Herbert Hoover is an example of economic cluelessness. Telephones were not commonplace in HH’s time and the stock market dealt in pieces of eight (hence the reason why stocks moved in eights of a dollar). There is a thing called the internet now and it can be used by foreign powers to buy crooked politicians. Trump wants to erect more than just a border fence IMO...he wants to have a smart and patriotic gubmint. Monumental task, but he is the man for the job, if anyone.
Namely to allow a Constitutional conservative to govern again; you think Trump has as great a grasp of our laws and the Constitution as Cruz does?
“Unfortunately, Mark Levin says the same thing. Tariffs weren’t the main reason for the Great Depression.”
I noticed that. The Federal Reserve was FAR more responsible than the Hawley-Smoot tariff — by withdrawing a large portion of the money supply and by destroying the banks with refusal to grant them loans. The Fed made restrictions on loaning money to banks so restrictive, that if the banks could have met the standards, they would not have needed the loans.
“Stop trying to make us believe he’s something he isn’t.”
They can’t, that’s the only trick they’ve got.
Free trade is a great idea - on paper, and only if the other players are fair and reasonable. When the other side is composed of cheating mercantilists, it doesn't work. When "free trade" also includes effectively unlimited immigration into a welfare state, it not only doesn't work, it is a prescription for disaster.
In theory, theory and practice match. In practice, theory is impractical and should be restricted to textbooks.
BTW, Archie was right about Hoover. He was far from a perfect President, but the Fed is much more responsible for the Depression than he ever was. Roosevelt also deepened and extended it with tax increases and the imposition of burdensome regulations.
“Then I’ve lost count of how many times protectionists Dick Gebhardt and Bob Kerrey ran. But anyway, it doesn’t look to me as if protectionism is a winning ticket to the White House.”
You honestly think the average American voter gets upset over protectionism? And, Pat Buchanan very accurately predicted the outcome of free trade. Free trade is why we are in shape we are in. How on earth can anyone argue the point? Have you noticed, that when you buy anything made in the United States, it has a small American flag on the package? You don’t see that small flag very often.
That’s why he’s under attack left right and center, God help him.
Trump's financial advisers are Steve Forbes and Art Laffer. Hmmm. Don't think they've ever been accused of being "protectionist."
Probably, and we don’t need a Hoover, we need a Coolidge.
When there was a crash earlier in the 20s, the government did nothing and it passed in fairly short order. When the 1929 crash happened, first Hoover and then FDR began to intervene in the economy and they stretched it out and made it deeper.
So let’s follow their lead, right?
Just like that evil Ronald Reagan, who imposed quotas on Japanese imported cars so they would build plants in the United States.
But you cannot discount Smoot-Hawley. Now, understand this was the BIGGEST TAX HIKE IN HISTORY, hitting some imported raw materials (which killed manufacturing) by up to 30%. We had had smaller tariffs for years without any problems.
Mark Levin called out Kudlow yesterday and said he pretends to be neutral when discussing Trump but is really biased. Levin has also called Kudlow a fake economist who does money shows on Sunday. I also remember Kudlow saying the govn’t doesn’t lie about economy/job/growth statistics because he was in the Reagan admin and they never lied in the early 80s; therefore, the peoplein the Obama admin cannot lie today.
If the world were a textbook, you'd be correct. However, what we have now is far from free trade - it is largely a one-way street for money and jobs to flow out of this country. Couple that with an insanely self-destructive immigration policy (aided and abetted by having a social welfare state that supports illegals), and you have a recipe for...Donald Trump.
Understand that establishment types like Moore and Kudlow created the demand for Trump (or someone like him). Repeatedly and knowingly lying to, and ignoring the desires, complaints and best interests of those whom the elites (of both parties) purport to represent, is a perfect recipe for incredible resentment, at best.
Hoover was unfairly beat up by history, He was the victim of the financial system and had limited tools to use. As this was a worldwide event it took Adolf Hitler to end the Great Depression. FDR and his regulators had virtually nothing to do with it.
>> Free trade is why we are in shape we are in. How on earth can anyone argue the point? <<
I can and do “argue” the point. I cast my lot with free trade advocates like Adam Smith, Milton Friedman, Thomas Sowell and Ronald Reagan.
In the meantime, if you think your logic is superior, you’re free to reject their beliefs and cast your lot with mercantilists like Ross Perot, Pat Buchanan, Bernie Sanders and the AFL-CIO.
So let’s agree to disagree. Further discussion would not be useful.
The thing to do is withdraw from the UN, The WTO, NAFTA and the G8. We can make it just fine .
>> Hoover was unfairly beat up by history <<
Only partly so. He was clearly a “big government Republican” in the style of Teddy Roosevelt. Among other things, Hoover was responsible for the government monstrosity known later as the FCC, and he was father to the American foreign aid program.
Even worse, the lion’s share of FDR’s New Deal policies were actually birthed by Hoover’s administration. If Coolidge had run and been re-elected in 1928, we’d probably be living today in a much safer and more prosperous world.
Yeah, I’ve seen Kudlow speak, and there’s something oddly charming about him. I also sometimes listen to podcasts of his Saturday show or the weekly podcast that he does with TPaw. A complete GOPe/RINO thinker politically. He I think is sincere in his beliefs and is a bright guy though of course no longer a practicing economist. There’s also some truth about what he says of a strong economy improving a lot of social ills and better tax policy improving the economy.
That said, he pals around with the worst of the Establishment apologist/pundits, like “Jimmy P.”
Larry has been downright vicious about and toward Trump.
In contrast, TPaw correctly called Trump as a major force in the race before he announced (maybe because he saw Jesse Ventura get elected?, and TPaw went right back at Larry pointing out all of the ways we’ve let China strip our countries of IP, and force various one-way conditions on them, as a condition of selling into the country.
Boy, the way Glenn Miller played
Songs that made the Hit Parade
Guys like us, we had it made
Those were the days
Didn’t need no welfare state
Everybody pulled his weight
Gee, our old La Salle ran great
Those were the days
And you knew where you were then
Girls were girls, and men were men
Mister, we could use a man like Herbert Hoover again
People seemed to be content
Fifty dollars paid the rent
Freaks were in a circus tent
Those were the days
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