Tuesday, March 8, 2016

Would Trump's Trade Policy Really Cause a Recession? - By Howard Richman and Raymond Richman

On Friday, the U.S. Census Bureau announced that the U.S. goods and services trade deficit was $45.7 billion in January, up one billion dollars from $44.7 billion in December.  January exports were $176.5 billion, $3.8 billion less than December exports.  The reduction in U.S. exports predicted by Romney just happened, but Trump is not yet president.  On February 26, the Bureau of Economic Analysis announced that U.S. economic growth slowed to a measly 1.0% during the last quarter of 2015, but Trump is not yet president.  Billionaire investor Jim Rogers predicts a 100% chance of a U.S. recession within a year.  If he is correct, a recession will occur, whether or not Trump is elected president.
It is true, as Romney claims, that Trump has called for tariff-like penalties to prevent American factories from moving abroad and also to bring currency-manipulating countries (including China, Japan, and Mexico) into trade-balancing negotiations.  But would Trump's tariff threats slow U.S. economic growth?  No!  Exactly the opposite!
Trade-surplus countries have a lot more to lose from a trade war, so Trump's negotiations would likely succeed.  For example, in 1981, Congress threatened trade-balancing import restrictions against trade-surplus Japan, which resulted in President Reagan negotiating "voluntary restraints" on Japanese automobile exports.  As a result, Japanese automobile companies built factories in the United States that continue to employ American workers and to buy American-made auto parts, greatly increasing American incomes…….

How Trade Deficits Have Been Hurting the U.S.
When countries run trade surpluses with the United States, they give us trade deficits.  Those trade deficits reduce aggregate demand for American products, American incomes, and investment in American factories.  In his speeches, Trump has focused upon the three countries that have large trade surpluses with the United States: China, Japan, and Mexico……….

(Full text at link below)

Effect of Trump's Trade Balancing on the U.S.
So if Trump succeeds, how much would his trade balancing help the U.S. economy?  Doing so would cause businesses to locate new factories within the United States.  Since R&D gets located near factories, new innovations would be invented in the United States.  Since workers learn by doing, American workers would gain on-the-job skills, increasing their pay over time.  Since American workers buy services from American service providers, American entrepreneurs would prosper.  In sum, Americans would get more pay, more factories, more R&D, more innovations, and a more prosperous country.

Trump is the only candidate who has consistently opposed TPP. Although he voted against fast-tracking it on final passage, Senator Cruz had helped TPP get momentum by co-authoring an op-ed with Paul Ryan in its favor.  The other Republican candidates have always supported TPP, and Hillary Clinton was part of the administration that negotiated it.  All are members of the Republican/Democrat establishment consensus, which supports overseas production in return for campaign contributions.

And TPP is not just about trade.  It is also part of the open borders agenda, to which the establishments of both political parties subscribe.  Under TPP, foreign service providers will be able to recruit cheap workers in Mexico and Malaysia and bring them legally to the United States to take American service-sector jobs.  The destruction of the American middle class will accelerate.  The popularity of socialist candidate Bernie Sanders tells us where this is going.

The economic case for Donald Trump is clear.  If any other candidate is elected, U.S. economic growth will continue to stagnate in the 1% to 2% range.  In contrast, Trump's trade policies would return the United States to its normal 3% per year growth.  If any other candidate is elected, median U.S. family income will continue to decrease, but if Trump is elected, it will return to its normal increase.  Under Trump, the U.S. middle class, a bulwark against socialism, will gradually be restored.

The Richmans co-authored the 2014 book Balanced Trade: Ending the Unbearable Costs of America's Trade Deficits, published by Lexington Books, and the 2008 book Trading Away Our Future, published by Ideal Taxes Association.