Saturday, June 2, 2018

Donald J. Trump is neither Republican, nor Conservative, nor Capitalist.



I have previously posted about the value of free trade.  In summary, free trade benefits consumers by increasing sources of competition for consumer's dollars, resulting in better quality of goods at lower prices.  While protectionism, on the surface, seems like a plausible strategy to protect domestic industries or jobs from foreign competition, the reality is that this protection of the interests of a few comes at the price of the many: less competition and higher prices for the consumer and less overall economic growth.  Secondly, trade promotes peace.  When goods and services cross borders, armies don't.  No country goes to war with a country with whom it has a profitable trading relationship.  Lastly, markets are made of voluntary transactions.  Only an economic system based on freedom to choose what to buy and from whom is congruent with a free society.  Protectionism, by limiting those choices, is antagonistic to the goals of a free society.


For three decades, there has been bipartisan agreement in the United States on the value of free trade.  For Republicans, the policy promotes their ostensible core values of lower taxes and less intervention of government in the marketplace.  Even Democrats, however, largely acknowledge the value of trade as downward pressure on the prices of consumer goods, as promoter of economic growth, and as a promoter of international alliances and friendships.  President Reagan negotiated the first Free Trade Agreement with Canadian Prime Minister Brian Mulroney.  His successor, President George H.W. Bush completed negotiations with both Canada and Mexico on a North American Free Trade Agreement (NAFTA).  NAFTA was not ratified by Congress before the end of President Bush's term, but President Clinton also championed the deal and challenged so-called, "progressive" elements in his own party to push for its passage.  Since then, administrations of both parties have participated in the World Trade Organization and have pushed for free trade agreements in the remainder of our hemisphere.


With such broad bipartisan support for free trade, one would think the idea of protective tariffs on imports is a thing of the past.  However, in 2016, Donald Trump ran for the nomination of the very party that had been trade and capitalism's loudest champion by decrying, "these trade deals."  As President, he made good on his anti-capitalist, anti-market, anti-trade rhetoric three months ago when he slapped a 25% tariff on steel imports and a 10% tariff on imported aluminum.  Initially, these tariffs excluded our closest allies of Canada, Mexico, and the European Union; but in an effort to win concessions in revisions he wants to NAFTA, the President allowed these exemptions to expire yesterday.


The historic partnership between the United States and Canada illustrates the value of free trade.  Even long before the initial Free Trade Agreement, the U.S. and Canada have been each other's largest trading partners for decades. The border between the U.S. and Canada is the longest undefended border in the world and has been peaceful for over two centuries.  Many companies employ people on both sides of the border and both nations have reaped profits and enjoyed economic growth from the free trade agreements that have made the U.S.-Canadian alliance the greatest strategic and economic alliance the world has ever known.


President Trump's actions threaten this historic relationship as Canadian Prime Minister Trudeau has vowed to retaliate.  In addition to alienating our allies, Mr. Trump is pursuing a harmful economic policy that might protect some manufacturing jobs but will do so at the expense of American consumers who will face higher costs for products made with these metals.  Mr. Trump's actions are a repudiation of the economic platform of the Republican Party for the last 40 years as it had been the party focused on tearing down trade restrictions and opening markets.  In November 1988, President Reagan devoted a weekly radio address to support for free trade and warning against protectionist demagogues like Donald Trump, "Our peaceful trading partners are not our enemies, they are our allies.  We should beware of the demagogues who are willing to declare a trade war with our friends, weakening our economy, our national security, and the entire free world; all the while cynically waving the American flag.  The expansion of the international economy is not a foreign invasion.  It is an American triumph, one which we worked hard to achieve, and something central to our vision of a peaceful and prosperous world of freedom." (quote begins 3:37 into the address).  Mr. Trump's tariff is more than just anti-conservative or anti-Republican, it is anti-capitalism.  Capitalism requires open and competitive markets but a protective tariff represents government closing of markets to competition or hindering competition in the market place and picking winners and losers in the marketplace by increasing the cost of competing in the market for some companies and not others.  The winners are the favoured domestic producers. The losers are the consumers who are deprived of the lower prices and higher quality that result from competition for their business.


To call Donald Trump and his supporters conservative, Republican, or capitalist when their economic view resembles that of self-described socialist Senator Bernie Sanders (although in fairness to the Senator, he apparently opposes tariffs on Canada while supporting them on everyone else - apparently capitalism is good for Canada but everyone else needs protection from competition and higher prices) more than that of Ronald Reagan, is laughable.

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