Trump, the novice protectionist, and the principles of free trade
WASHINGTON – Sooner or later, and the later the better, the president's wandering attention will flit, however briefly, to the subject of trade. So, let us try to think about the problem as he seems to: Wily cosmopolitans beyond our borders are insinuating across our borders goods that Americans, perhaps misled by British economist David Ricardo, persist in purchasing.
Exactly 200 years ago, Ricardo published "On the Principles of Political Economy and Taxation," explaining the doctrine of comparative advantage. Paul Samuelson, a leading 20th-century economist, cited this doctrine when challenged to name a social-science proposition that is both true and not obvious. British journalist Matt Ridley calls Ricardo's insight "a thoroughly counterintuitive idea" that "takes Adam Smith's division of labor one step further." It explains why free trade benefits every country, even relatively advanced England trading cloth for wine from relatively undeveloped Portugal, which has a comparative advantage making that product.
Seven years after Ricardo's book appeared, Thomas Babington Macaulay wrote, "Free trade, one of the greatest blessings which a government can confer on a people, is in almost every country unpopular." It certainly is with the Trump administration, which bristles with chest-thumping anti-cosmopolitans who are too flinty to be bamboozled by foreigners like Ricardo and others who deny that trade is a zero-sum game.
Mark Perry of the American Enterprise Institute says that in the last 20 years the inflation-adjusted value of U.S. manufacturing output has increased 40 percent even though – actually, partly because – U.S. factory employment decreased 5.1 million jobs (29 percent). Manufacturing's share of GDP is almost unchanged since 1960. "U.S. manufacturing output was near a record high last year at $1.91 trillion, just slightly below the 2007 level of $1.92 trillion, and will likely reach a new record high later this year." That record will be reached with about the same level of factory workers (fewer than 12.5 million) as in the early 1940s, when the U.S. population was about 135 million. Increased productivity is the reason there can be quadrupled output from the same number of workers. According to one study, 88 percent of manufacturing job losses are the result of improved productivity, not rapacious Chinese.
But those Democrats who think government should fine-tune everything are natural protectionists (Sen. Charles Schumer: "They're rapacious, the Chinese") and probably think Trump is too fainthearted because he is not protecting Americans from competition from Americans. This neglect might be changing, thanks to West Virginia's Gov. Jim Justice.
It was beguilingly transactional – no nonsense about principles – when Justice recently had his road-to-Damascus moment. Elected as a Democrat nine months ago, Justice, a billionaire from the coal industry, announced at a Donald Trump rally that he had discovered that he is a Republican. Almost simultaneously, he asked for a $4.5 billion subsidy for the coal industry: Taxpayers everywhere should pay Eastern utilities $15 for every ton of Central or Northern Appalachian coal they burn. Naturally, Justice said this is necessary for "national security," the hitherto neglected menace being this:
Competition from more productive American mines and, even worse, from American fracking (too much inexpensive oil and natural gas) is endangering America by threatening the "survivability" of America's Eastern coalfields, potentially putting America "at risk beyond belief." Suppose, Justice says, terrorists disrupted the Eastern power grid and there were no abundant supplies of Eastern coal? (He did not explain how the coal would fix the grid.) So, channeling George Orwell, Justice says the subsidy is not a subsidy, it is a "homeland security incentive."
Trump surely will make a similar claim when he proposes to tax Americans (they will pay all tariffs) who jeopardize America's security by buying American refrigerators made with steel imports that delight America's circling enemies by putting domestic steel mills "at risk." Anyone who cannot make a similar argument against imports of Greek yogurt – "food security equals national security" – is a novice protectionist.