Hell’s Justice Department issues forth this “Devil’s Advocate” brief…
We are compelled to respond to the Institute of Economic Affairs’ policy head Ryan Bourne’s excellent analysis of President Donald Trump’s paean to protectionism in his first Inaugural Address. (See how we devils like to taunt our colleagues in the #NeverTrump department?) In response to the President’s admonition to “Buy American and Hire American,” Bourne replies that “If Trump goes down the protectionist route, he’ll be hurting American consumers and the growth potential of the US economy.”
In general, we agree with Bourne on the benefits of free trade: lower prices, greater and more diverse availability of goods and services, specialization as a facet of the division of labor, greater productivity, and overall more wealth for all. Yet it also behooves us to mention drawbacks to free trade, for those who lose their jobs to foreign competition and who must either take up new employment with lower emoluments, re-train, or relocate to more financially promising communities. Some, sadly, will find all these alternatives unpalatable or impossible to fulfill. In the larger scheme of things, these are short-term drawbacks, but for the individuals and families involved, they are no small matter and the negative impact can be great.
Nevertheless, we Devil’s Advocates can point to two elements of President Trump’s Inaugural that may give free traders consolation.
First, remember that Trump takes great pride in being the author of The Art of the Deal. As such, how much is his protectionist broadside an opening gambit for better terms in any new trade negotiations?
During the presidential campaign, in the face of widespread condemnation by friend and foe, Trump attenuated his protectionist message and, in addition to promising Americans competent trade representatives who wouldn’t be bamboozled by the cunning of foreign competitors, also called for an end to currency manipulation (principally by China) and the Federal Reserve’s own record of quantitative easing, which gave rise to the Obama Administration’s “false economy.”
It is our decided opinion that Trump’s protectionism is a ploy for better trading conditions for American business and its workers. We cite, as an example, the president of the Council on Foreign Relations, Richard Haass, who advocates for “sovereign obligations” and “the notion that sovereign states have not just rights but also obligations to others.” States can appeal to the WTO when sanctioned agreements run afoul of tariff terms; but what happens “when it comes to government subsidies or currency manipulation”? “The challenge,” Haass writes, “is to define appropriate sovereign obligations in these areas in future trade pacts, and to create mechanisms to hold governments accountable.”
Now, it may stretch credulity at this stage of the Trump Administration to suggest that it favors the sort of sovereign obligation as outlined by Haass, but the President’s aggressive determination that “every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families” indicates that he is establishing ground rules and laying accountability markers for globalism moving forward.
Far more important is our second contention, judge we Devil’s Advocates: President Trump’s phrasing of certain passages in his Inaugural Address, that hint at an alternative thrust to his “America First” program of protectionist policy. “We must think big and dream even bigger,” he envisions. “No challenge can match the heart and fight and spirit of America.”
We stand at the birth of a new millennium, ready to unlock the mysteries of space, to free the Earth from the miseries of disease, and to harness the energies, industries and technologies of tomorrow.
Trump is evoking America’s entrepreneurial spirit — based on the principles of private property, the rule of law, and the belief “that a nation exists to serve its citizens.”
Protectionism focuses on current corporation productivity and “correcting” trade imbalances while, in free markets, movement is always toward equilibrium of production costs and profit — that is, competition among many suppliers ensures that profits marginally cover costs. For economic growth, then, it is futile for Trump to focus his energies on safeguarding existing static business models.
The trick lies in pursuing future business opportunities which, from the State’s perspective, lie less with infrastructure projects and “internal improvements” (as necessary as they may be) than in defending private property and rule of law (i.e., an end to crony capitalism and favoritism) and encouraging investment and capital accumulation by rationalizing regulations and ending punitive taxation-redistribution regimens.
President Trump’s economic advisers aim at a baseline of 4 percent growth. Fortunately, contra Keynes and his polemics about “deficiency,” demand is limitless — only the dead or holy ascetics make no demands upon the marketplace. This is the realm of entrepreneurs who, armed with initiative and innovative ideas, compete for consumers and opportunity by introducing goods and services to the whims of the market, risking failure or success. This is the realm of progress and of America’s untapped potential.
As an economic policy, protectionism is a losing battle; best employed (if it must), as a political ploy in hammering out trade deals. Growth lies with burgeoning enterprise, borne of entrepreneurial initiative, encouraged by the profit-motive and “hands-off” government. Therein lies opportunity and wealth; whereas protectionism is a fools’ game, chasing after industries in the maturity of their development. We suspect that the President, too, concedes the downward arc of state capitalism. “But that is the past,” Trump’s intoned at his Inaugural. “And now we are looking only to the future.”