I knew that DonaldTrump has long been suspicious of international trade and has worn his uninformed anti-trade preferences as a badge of honor. I’ve argued with pro-Trump friends that his proposed replacement for NAFTA is good only because it isn’t as bad on trade as I feared it would be: it will, if passed, reduce gains from trade for both sides, but not as much as I had feared.
So none of what I saw come out of the renegotiation of NAFTA came as a surprise.
None, that is, until this:
Stripping out the investor dispute-settlement provision was an American demand. U.S. trade rep Robert Lighthizer and Mr. Trump figured that fewer Americans would invest in Mexico if contract disputes were settled in Mexico’s notoriously corrupt courts. After U.S. business complaints, the revised agreement retains current protections for the likes of oil and gas, telecom and power generation. But that leaves banks, retailers and countless others more vulnerable to regulatory assault from the left-wing populists who will soon be running Mexico. (italics in original)
This paragraph is from “Bad Trade Timing,” the Wall Street Journal‘s editorial that appeared today.
As the Journal editors conclude:
New Nafta may be the first trade agreement in history that is designed to encourage less trade and investment across borders. (italics mine)
READER COMMENTS
Matthias Goergens
Nov 26 2018 at 7:57pm
Curiously enough, Trump recently (at least pretended to) care a lot about consumers’ access to cheap oil imports.
David Henderson
Nov 26 2018 at 10:04pm
Yes, that is strange, isn’t it?
Hazel Meade
Nov 28 2018 at 1:21pm
It’s almost like he doesn’t actually have a coherent economic philosophy guiding his positions.
David Seltzer
Nov 28 2018 at 5:46pm
Miss Hazel, It is astonishing as too how inconsistent his thinking is. Tries to bully Us enterprises, Ford, Carrier and Harley Davidson.
Thaomas
Nov 27 2018 at 9:13am
The new NAFTA is not the first trade agreement to reduce trade. I believe the Nazi State negotiated a number of trade agreement with dependent states that had that effect.
Benjamin Cole
Nov 27 2018 at 7:35pm
When free-trade theory —and it is only a theory—is sacralized, it becomes free-trade theology.
Many nations operate dirigiste economies and appear to be thriving, such as mainland China and Singapore. Both those nations heavily manage international terms of trade— it is the government policy of Singapore to seek current-account trade surpluses.
David Ricardo never imagined a world in which capital was mobile between nations or one defined by dirigiste-state economies.
US macroeconomists need to develop a more nuanced thoughtful approach to global trade.
Matthias Goergens
Nov 27 2018 at 8:46pm
Current account surpluses come from savings decision. Yes, Singapore’s CPF (and eg Australia’s superannuation scheme) encourage savings. The Singaporean tax system also has zero capital gains tax.
Given an aging population in a small country, that seems prudent.
Singaporeans are mostly free to engage in foreign trade as they please. How is Singapore a ‘dirigiste’ economy?
Benjamin Cole
Nov 28 2018 at 10:38pm
Matthias G:
https://mpra.ub.uni-muenchen.de/4741/1/MPRA_paper_4741.pdf
https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=2876&context=soe_research
These Singapore scholars, published in peer-reviewed journals, describe the Singapore economy as dirigiste.
There is a difference between being pro-business or being pro-market. Singapore, like China, does make use of market forces, the price signal and keeps taxes low on business, and in fact subsidizes export businesses. But the government is involved in everything, even street-side vendor prices. The government owns all the land, all the hospitals and built 80% of the housing. They own the airport and Singapore Airlines and oil refineries.
A query for “libertarians”: How do you get infrastructure built and remain squeamishly reverent towards property rights?
In China, they build it.
mbka
Nov 30 2018 at 3:56am
Benjamin Cole,
you keep copy-pasting almost the same comments on China and Singapore, whether it fits the subject matter or not. Clearly, you’re obsessed with these two countries. And as I pointed out before, yes, government does a lot of planning in Singapore and owns stakes in many major firms (as a shareholder) but in the details, almost all of your statements are wrong or misleading. Singapore Airlines is listed and the SG government owns just about 55% of it through Temasek Holdings. Singapore does not subsidize exports as a whole. Singapore has no tariffs. It has a VAT that applies equally to everything sold to the end consumer in that country. Domestic or foreign. Exported goods don’t pay this VAT, whether domestic or foreign in origin. Government doesn’t actually own all the land, why, I live on freehold = privately owned land here. I also own 2 businesses in Singapore and government never went dirigiste on me – they didn’t ever ask me to do anything beyond follow professional licensing and equipment standards. And regulatory standards are very light compared to the regulatory nightmare in Europe, US, AU or any one country in the so called free world zone. But you only see what you want to see, and you have decided that the US is a victim. All you see now is data that fits your conclusion.
BTW airports in the US are also often government owned. Dirigiste, huh?
Michael Hammock
Nov 28 2018 at 8:34am
The “David Ricardo’s model is irrelevant because capital is mobile” argument always struck me as strange. People taking that position never seem to notice that capital is even more mobile between U.S. states than it is between countries. If capital mobility is a reason to restrict trade, then people advocating these trade restrictions should be especially keen to impose them between the U.S. states (This wouldn’t require repealing the Interstate Commerce Clause via constitutional amendment if Congress were the entity imposing the trade barriers between states).
Somehow their attention is always focused on foreigners.
Jon Murphy
Nov 28 2018 at 10:35am
Agreed. The “capital mobility” argument against Ricardo has been routinely addressed and refuted.
dede
Nov 28 2018 at 11:07pm
“Many nations operate dirigiste economies and appear to be thriving, such as mainland China and Singapore.”
China’s economy does not thrive thanks to the communist party but despite the communist party. Having engaged in liberal reforms 30 years ago, the thriving comes from the direction of policies, not from all the restrictions that are still in place. Please also note that GDP per head over there is still less than USD 8,000.- : that’s what the thriving people of China are making for themselves (compared to over 50K in the US)…
As for Singapore being a dirigiste economy, that sounds a bit streched, at least for international trade : you may wish to have a quick look at the tariff elimination schedule for Singapore on the TPP and you may find out that committing to lower the tariff on malt beer from SGD 16.- per liter to 0.- within a year is the only “difficulty” for them…
https://ustr.gov/sites/default/files/TPP-Final-Text-Singapore-Tariff-Elimination-Schedule.pdf
To be compared with the laughable US schedule that has eventually been abandonned :
https://ustr.gov/sites/default/files/TPP-Final-Text-US-Tariff-Elimination-Schedule.pdf
Comments are closed.