[noemon]

Brexiteers – read the 'Trump Trade Doctrine' and weep. A trade deal with Trump will harm Britain

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The idea that multinational corporations colluded with foreign governments to poach high-paying US jobs is a paranoid fantasy, as is the idea that Trump ripping up trade deals will bring back low-productivity manufacturing jobs to America

Last September an economist called Peter Navarro and a billionaire private equity tycoon called Wilbur Ross published a document which attempted to justify the ways of the Republican presidential candidate Donald Trump to the world.

The pair also unveiled something they called “the Trump Trade Doctrine”.

The document made few waves at the time, mainly because few believed Trump would actually win the election.

But things have moved on somewhat since then.

Trump is in the White House, Navarro has now been appointed to head the President’s official National Trade Council and Wilbur Ross is set to be Commerce Secretary.

Given how things have unfolded, that document from last September deserves a little more scrutiny, not least from Brexiteers whose hearts are fluttering over Trumpian promises of a quick post-Brexit trade deal with the US.

From an economic perspective the Navarro/Ross paper is a joke; a catalogue of confusion and basic conceptual errors bound together by a conspiracy theory. “Magical thinking” is the description from Marcus Noland of the Peterson Institute for International Economics.

The document cites estimates that the “cost” of domestic US regulations is $2trillion, 10 per cent of US GDP. But this is disingenuous, not only because the figure is grossly inflated, but because it completely ignores the economic benefits of regulations.

The requirement to fit seat belts in cars costs money, but it also saves lives. Anti-pollution regulations push up businesses’ costs, but they also result in cleaner air. One can – and must – put a monetary value on these benefits. The US Office of Management and Budget has estimated that each dollar of regulation brings benefits several times the value of the costs.

Navarro and Ross say Trump will cut this regulation bill by $200bn without saying which regulations will be axed – or what benefits will be destroyed in the process.

But it’s on trade where the fallacies really flow.

Navarro and Ross assert that Value Added Tax imposed by America’s overseas trading partners (including Britain) on US imports amounts to a “backdoor tariff”.

This is simply nonsense given that the VAT is chargeable on all domestic sales – whether the product is imported or domestically produced. This is a tax on domestic consumption, not imports. There is no discrimination here.

The document talks as if “bad” trade deals like the North American Free Trade Agreement (Nafta) of 1994 and China’s full accession to World Trade Organisation membership in 2001 are responsible for the collapse in American manufacturing employment.

This is literally incredible. US manufacturing employment has been falling since the 1950s, long before these deals were struck. And over this period US manufacturing output has been rising, revealing that this is mainly a story of automation and rising productivity, rather than good American jobs being off-shored.

Some individual communities in America have undoubtedly suffered as result of shifting global trade patterns and China really did undervalue its currency for many years to boost its domestic manufacturing sector.

But the idea that multinational corporations colluded with foreign governments to poach high-paying US jobs is a paranoid fantasy, as is the idea that Trump ripping up trade deals will bring back low-productivity manufacturing jobs to America.

But perhaps the most disturbing element of the prospectus is that Navarro and Ross come across as unabashed “mercantilists”.

They appear to believe trade surpluses are an indication of national economic health and trade deficits are a symptom of a disease, a fundamental misconception that the father of economics Adam Smith sought to banish 240 years ago.

Which brings us to the “Trump Trade Doctrine”.

Here’s how Navarro and Ross describe it: “Any deal [that Trump makes] must increase the GDP growth rate, decrease the trade deficit, and strengthen the US manufacturing base.”

Increasing the GDP growth rate is innocuous; that’s what increasing trade does for a country, mainly through applying more competitive pressure to its domestic industry.

But decreasing the US trade deficit? That’s where alarm bells should ring. According to our own Office for National Statistics the UK ran a £40bn trade surplus with the US in 2015. Our surplus is, of course, America’s deficit.

That implies that Trump will not sign a trade deal with Britain unless the terms are so stacked in favour of US exporters that its bilateral deficit with us will fall. This means that the Trump White House will expect to export more to us than we export to them. So any UK firms exporting to the US should be scared, not heartened, by talk of a deal (manufacturers in particular given the third leg of the doctrine).

The ONS figures may not be right. For various technical statistical reasons, they may overstate UK exports and US imports. Other figures suggest trade flows between the UK and the US are roughly equal.

Yet, even if they are, why would the White House’s mercantilists not want to turn that balance into a hefty US trade surplus with Britain, to erode their own overall deficit? “America first” is not an ambiguous slogan. This is where zero sum attitudes to trade lead. Their gain is our loss.

One hope expressed when Trump won the US election was that when he entered the White House he would be forced to listen to people who actually know what they’re talking about.

But if this is the calibre of “expert” that Trump is now receiving this might even be even worse than him listening to his gut.

Guided by the likes of Navarro and Ross, Trump can be confidently expected to make decisions that will harm the livelihoods of all Americans, not least those “forgotten men and women” who he claims as his constituency.

And dollars to doughnuts, as they say in America, he will also make decisions that end up harming the economic interests of Brexit Britain.

Independent

[Kaiserschmarrn]

They appear to believe trade surpluses are an indication of national economic health and trade deficits are a symptom of a disease, a fundamental misconception that the father of economics Adam Smith sought to banish 240 years ago.

Yet, even if they are, why would the White House’s mercantilists not want to turn that balance into a hefty US trade surplus with Britain, to erode their own overall deficit? “America first” is not an ambiguous slogan. This is where zero sum attitudes to trade lead. Their gain is our loss.

Why would it be Britain's loss if running large trade deficits is no problem?

[noemon]

That's not what it says. Not being the symptom of a disease does not mean that reducing the trade balance is desirable for Britain. Is that the Brexiteers policy Kaiser to reduce their trade surpluses with the US?

[Kaiserschmarrn]

Navarro and Ross have never called trade deficits "a symptom of a disease" to my knowledge. That is a phrase the the author of the article chose, quite likely to make the position of these two people sound more like a "fundamental misconception".

Perhaps they consider a large sustained trade deficit a problem, although my understanding so far has been that the main problem they have with the trade deficit is what they regard as too much tolerance by the US of protectionist and quasi-protectionist policies of other countries. Britain is certainly not one of them. I have little doubt that a fair deal that balances both countries' interests can be reached and will benefit both. If any country can do a good deal with the US today it's the UK.

[noemon]

If we go by the "Trump Trade Doctrine", then a trade deal with the UK would be explicitly designed to reduce the UK's trade surplus with the US damaging that surplus for the UK.

Perhaps you find that a fair trade for the satisfaction of seeing the EU damaged, but I doubt the British people would.

[Kaiserschmarrn]

I've stated my understanding of his trade doctrine, so we'll have to wait what they come up with to see who is right about this.

I also stand by what I said about the article in my first post though: Since Mr Ben Chu apparently agrees with Adam Smith, he is contradicting himself. If a trade deficit is nothing to worry about, Britain wouldn't lose if it no longer had a trade surplus with the US.

[noemon]

His trade doctrine is explicitly clear and not controversial at all to require a waiting game.

Britain wouldn't lose if it no longer had a trade surplus with the US.

You should tell that to the Brexiteers and then we can wait and see how they take it.

[Kaiserschmarrn]

Don't quote me out of context, please. The whole sentence was:

If a trade deficit is nothing to worry about, Britain wouldn't lose if it no longer had a trade surplus with the US.

[anasawad]

Trade deficit with a specific country is indeed not a problem of any sort.
Trade deficit in general trade balance is a problem however, big difference between the two.

For the UK-US topic. The OP isn't inclining that its bad if Britain had a trade deficit with the US. No, its inclining that if Trump was to make it that the level or in simpler words the amount of exports the UK sends to the US was to drop, or for companies to have harder time exporting, then that would indeed be a problem because it means less revenues and thus lower economic performance.

[noemon]

@Kaiserschmarrn The whole sentence is in your previous post, it still does not change anything contextually.

[Kaiserschmarrn]

Yes, obviously the whole sentence is in my previous post and I'd appreciate if you quote it in full instead of distorting what I actually said. It's the article's author's opinion that trade deficits are no problem because Adam Smith said so, so feel free to send him an email and tell him what to tell Brexiters.

[noemon]

Here:

If a trade deficit is nothing to worry about, Britain wouldn't lose if it no longer had a trade surplus with the US.

You should tell that to the Brexiteers and then we can wait and see how they take it.

I'm sure the Brexiteers will be happy to know that losing their trade surplus to the US is exactly the global success that they have in the minds.

There was no distortion whatsoever on what you said, simply focusing on the relevant part.

[Kaiserschmarrn]

And now it is clear that it is a conditional statement and not my position, so why on earth should I tell anything to Brexiters.

Again, send Ben Chu an email and tell him what to do. You could then also inform him that he is contradicting himself in this piece.

[noemon]

Conditional on whether one believes that trade surpluses are good or not, is not a significant condition. It is however rather ridiculous that those who support Brexit and a trade partnership with Trump's US have failed to notice that Trump's Trade Doctrine explicitly seeks to eliminate trade surpluses of other countries with the US including the UK's.

Chu is not contradicting himself at all. Unless you claim that the US's trade deficit with the UK is an indication of its national economic malaise.

[Kaiserschmarrn]

Feel free to tell Ben Chu what is significant or not, but leave me out of that nonsensical discussion and your calls to tell something to Brexiters.

As an adherent of Adam Smith, Chu is obviously contradicting himself.

[noemon]

For someone who wants to be left out of the conversation you sure insist on participating even if you have nothing else to add.

Chu is not contradicting himself at all as we have clearly seen.

A trade deficit is not an indication of national economic unhealthiness as Adam Smith has pointed out and Chu agrees. That does not mean that Britain should eliminate its trade surplus with the US because Trump has endorsed that trade doctrine. That is a non-existent leap of logic.

[Rugoz]

Current account deficits are arguably a problem if they sum up to large negative NIIPs (net international investment position) over time.

But I don't understand people who say it's bad for the US and good for creditor countries. In fact US international debt is denominated in dollars (~95% of it I think) so in a sudden crisis the US can just say fuck off devalue their currency. Germany better has the Amerika bomber ready by then .

Not saying it's good for the US either of course, it's bad for the stability of the system in general.

[Kaiserschmarrn]

Just leave me out of the irrelevant parts of the conversation. You should have them with Mr Chu. It's his position that you apparently have a problem with after all.

In the unlikely event that I remember, I'll come back to this thread once there are facts to discuss about a UK-US trade deal and what it means for the UK an the US. We'll see then whether your insistence that it must lead to a UK trade deficit with the US is true or not. However, as mentioned before, I'm not worried since in my view you and probably most people misinterpret the Trump administration's trade policy.

[noemon]

I'm not arguing with Mr Chu, I am arguing with you and your misrepresentation of Mr Chu's statements.

Trump's Trade Doctrine clearly states that it aims to reduce the trade deficits with other countries and since the UK has a trade surplus with the US the writing is on the wall regardless of how you try to dress it up or evade the obvious.

[Kaiserschmarrn]

I've opted out of the nonsensical parts of the conversation though, so it'll have to be Mr Chu.

We'll come back in the future to see whether you are right on this, but just like with your position that Brexit won't happen, you are most likely wrong in this case too.