Oren:
Your latest attempt to defend protectionism fails in much the same way that every one of your earlier attempts has failed – namely, you err on the facts about the economy, on the analyses of economists, and (most seriously) on the nature of trade deficits (“The One Word that Explains Globalization’s Failure, and Trump’s Response,” Feb. 24).
Where, for starters, is your evidence that current U.S. trade policy has ‘decimated’ America’s industrial base? You make this assertion as if it’s a well-established fact, but you offer no evidence in support – unsurprisingly, as there is no such evidence. America’s industrial capacity is today at an all-time high and 146% larger than it was in 1975, when America last ran an annual trade surplus. Further, as Colin Grabow reports about the U.S., “in 2021, it ranked second in the share of global manufacturing output at 15.92 percent – greater than Japan, Germany, and South Korea combined – and the sector by itself would constitute the world’s eighth-largest economy.”
These facts – and many others that you could easily find – are practically impossible to square with your account of nearly 50 years of trade deficits deindustrializing America’s economy.
As for economists on trade, you misleadingly assert that “a vital assumption of the classical model was that trade would be balanced.” Surely you’re aware that Adam Smith wrote that “nothing, however, can be more absurd than this whole doctrine of the balance of trade.” As for your suggestion that David Ricardo and J.S. Mill would oppose free trade if one result was sustained trade deficits, the quotations you offer from these scholars reveal only that they meant to debunk the mercantilist myth that the ultimate purpose of trade is to bring into the nation as much money as possible. They were making the commonplace economic point that money is a medium of exchange, not the ultimate goal of exchange.
I’ll grant you that Keynes and the Marxist Joan Robinson rejected the classic economic case for free trade, but despite their prominence, these economists’ position on trade was never widely accepted within the profession. And regarding the remarks you quote from Janet Yellen, she offered those remarks as a high-ranking member of an administration committed to protectionism. Those remarks can hardly be taken as an unbiased expression of her professional understanding.
You really go off the rails, however, in asserting that Milton Friedman believed that “a nation benefits most from producing as little as possible domestically and importing as much as possible from abroad.” To justify this bizarre interpretation, you offer this quotation from Friedman:
The gain from foreign trade is what we import. What we export is the cost of getting those imports. The proper objective for a nation, as Adam Smith put it, is to arrange things so we get as large a volume of imports as possible for as small a volume of exports as possible.
You being a graduate of Harvard Law surely possess reading comprehension better than you exhibit here. Saying – as Friedman correctly does – that the more a nation receives as imports in exchange for its exports, the greater is that nation’s gain from trading is emphatically not to say that “a nation benefits most from producing as little as possible domestically.” The people of a nation can simultaneously wish to get as much a possible from abroad in exchange for their exports and strive to increase their domestic production to ever-greater volumes. How you missed this obvious point is mysterious.
Finally, you continue erroneously to describe U.S. trade deficits as Americans buying consumption goods from foreigners and paying for these goods with debt or assets. The facts belie your description: For example, after nearly a half-century of annual trade deficits the real size of the U.S. capital stock is at an all-time high as is the real net worth of U.S. households. Also, because the amount of capital in the world isn’t fixed, foreigners can increase their investments in the U.S. while at the same time Americans’ net asset holdings can also increase. If both foreigners’ and Americans’ investments increase disproportionately in the U.S., the U.S. will run trade deficits – deficits that both signal that the American economy looks promising to global investors and that improve the American economy by bringing capital to our shores.
That you miss this foundational fact about U.S. trade deficits alone drains nearly all credibility from your assessments of U.S. trade policy.
Sincerely,
Don
