Beware the Trexit

President Trump is really making a mess of global trade — and hurting himself and the country he leads in the process.

The errors are really piling up: withdrawing from the TPP trade deal, threatening to exit NAFTA, slapping hefty tariffs on imported steel and aluminum, steaming into an aimless trade conflict with China, and now shouting about stopping all trade with U.S. allies. The self-defeating results so far have been a perhaps irrecoverable loss of confidence among our friends, growing uncertainty for some U.S. businesses and real pain for others, and 6.5 million American workers at steel-using businesses wondering about their futures.

Not that Trump is trying to Make America Worse. It’s just that he’s stumbled into a series of bad mistakes that unfortunately are at the core of Trumpism. After the G7 fiasco, in which Trump refused to sign the conference’s joint communique and bashed Canadian Prime Minister Justin Trudeau as “very dishonest and weak,” White House chief economic adviser Larry Kudlow said Trump believes “the world trading system is a mess. It is broken down.”

Almost, but not quite correct. Trump doesn’t think the problem is some recent hiccup because, say, the 20-year-old World Trade Organization wasn’t set up to deal with the state capitalism of China. Trump’s critique is much broader than that, and thus his mistake much deeper and more profound. He rejects the very idea of modern globalization and the notion that the free flows of trade can be mutually beneficial even if one side has a technical trade surplus and the other a deficit.

There is nothing new here for Trump. As he said during the presidential campaign, “I think we were a very powerful, very wealthy country. And we’re a poor country now.” For 40 years, Trump has been blaming this continuing impoverishment on dumb trade deals, and how other nations have taken advantage of the United States.

All of which is ridiculous, and all of which is based on Trump’s idiosyncratic, evidence-free perception of trade. The global trading system isn’t broken, although it could be stronger. Between 1985 and 2007, according to the IMF, real world trade grew twice as fast as global GDP. More recently it has slowed somewhat, a deceleration due to a combination of factors, including the Great Recession. That said, the WTO thinks trade will grow 4.4 percent this year vs. a stretch of 3 percent growth following the global financial crisis. Trade restrictions are up a bit, but tariffs overall remain low, with the average G7 trade-weighted tariff less than 2 percent.

And while global trade has been growing, America has been benefiting from it. The U.S. economy has outperformed five of the other six G7 nations since the WTO’s creation in terms of per capita GDP, notes trade expert Philip Levy. A recent study declared the U.S. economy still the most competitive in the world, thanks in part to trade agreements such as NAFTA. And although some U.S. workers have suffered from trade, most …read more

Source:: The Week – World


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