William Watson is right: “Free trade is being replaced by crony trade.” A slice:
By contrast, the U.S.-U.K. agreement (or U-SUK, as its critics refer to it) slaps together four or five ad-hoc arrangements dealing with a few products, promises to keep talking about many, many other things and calls it a win-win, but especially (in the White House spin) a U.S. win. One of the two parties to the deal clearly needed a public-relations victory to get the markets off his back for a high-tariff strategy that has rapidly turned belly-up. Hint: it wasn’t the party who was trying to watch his favourite football team, Arsenal, play Paris Saint-Germain in their Champions League semi-final when the other party called with final changes the night before the deal’s unveiling on VE Day, soon to be renamed “America Wins the War Day.” (Note: Arsenal had a bad night, too, losing 2-1.)
At Dartmouth, GMU Econ alum Dominic Pino talked about trade with, among others, Doug Irwin.
Although some real gains have been made in relaxing foreign restrictions on U.S. exports, the administration has made an unforced error in increasing restrictions on U.S. imports — in the face of foreign opposition, no less! Let’s unpack these agreements and consider what they portend for future trade deals.
U.S.-U.K. Deal
When considering the results of a negotiation, we must compare the status quo to the new deal. Compared with the immediate past, the new deal with the U.K. brings down the tariffs that the U.K. charges the United States. Similarly, U.S. tariffs on British goods came down — especially on aluminum, steel, and cars. These developments benefit consumers and producers in both countries. All of this is very positive.
But when we compare the deal to trade arrangements in 2024, the benefits become murkier. After all, the global 10 percent tariff remains in place with only a couple exceptions, and the higher 25 percent tariff remains on several items. That is quite a bit higher than the 3.3 percent rate that the U. S. imposed on imported goods before so-called Liberation Day.
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This constant whiplash of tariff rates suggests there isn’t a coherent plan. The lack of clarity creates paralyzing uncertainty for U.S. businesses. Though the April jobs number was strong, first quarter GDP growth was anemic. As disruptions in trade work their way through the global economy, we will likely see other problems emerge. No one disputes that tariffs are taxes; but many in the administration insist that the tax is not primarily paid by Americans, though there is a great deal of evidence to the contrary.
Jim Geraghty wants to know what’s the point of Trump’s trade war.
Craig Richardson reports on “tariffs built the world’s worst car that only the rich could have.” A slice:
The White House tariff policy is meant to act like a time machine, ostensibly bringing back high paying and heavy manufacturing jobs like we had in the 1950s. But it’s a time machine that keeps a society frozen in amber, never evolving or improving because the manufacturers face far less competition. For some Americans like me, a trip to Cuba provides a window into what life would have been like if automobiles had never evolved- 1950s era American taxis still ply the streets with none of modern features of safety, ergonomic design and computer assisted driving, because of a 60 year embargo on trade by the United States.
But India provides an even better comparison, because Cuba never manufactured automobiles. The Hindustan Ambassador, built in India between 1957 to 2014, is arguably the worst car ever built, from a perspective of serving consumers’ wants and needs.
India’s idea, like President Trump’s today, was to build cars in India in order to create domestic manufacturing jobs. However, once a government decides which industries to protect and give special exceptions to (see the case of Apple getting a reprieve on iPhones from tariffs) it is a slippery slope over how involved government becomes in industrial production.
The great Bruce Yandle warns that “Trump’s economic roller-coaster is not for the faint of heart.”
Former Senator Pat Toomey (R-PA) has a fine letter in today’s Wall Street Journal:
Your editorial “One Cheer for the House Tax Bill” (May 14) correctly observes that the best parts of the bill are “from the first term, and the worst are from the second.” This is because the 2017 Tax Cuts and Jobs Act was designed to make a priority of economic growth. Growth, rather than expanding the entitlement state and granting narrow constituent favors, should guide Republicans as they weigh competing demands on the current tax effort.
In 2017 we cut the top corporate income-tax rate from 35% to 21% to enable our companies to compete globally. We also ended U.S. multinational exits from the U.S. by transforming the international side of our business tax code. We made these features permanent so that businesses could confidently invest in the U.S. And they did.
We recognized that increasing capital expenditures on technology and equipment would lead to productivity gains and higher worker pay. We thus reduced the after-tax cost of capital expenditures by allowing full expensing in the year in which it occurred rather than depreciating the costs over many years. Investment and workers’ pay surged.
On the individual side, we wanted to encourage work, savings and investment while making tax returns simpler for most filers. We created a 20% deduction of business income for small businesses taxed at the individual rates. We also lowered all marginal rates and doubled the standard deduction. Now more than 90% of filers can skip the tedious process of itemizing deductions.
To their credit, House Republicans have proposed making several of these expiring, pro-growth provisions permanent and even increasing the pass-through deduction to 23%. But federal budget rules limit the amount of tax reduction and expenditures allowed in this bill. Proposed tax exemptions on tips; special deductions for seniors; a new $1,000 entitlement program for new parents; expanding the child tax credit—again; and increasing the state-and-local tax deduction won’t encourage growth and will squeeze out policies that would. Congressional Republicans shouldn’t forget the many voters who elected them expecting economic growth.
My intrepid Mercatus Center colleague, Veronique de Rugy, shares her thoughts on the big, ugly bill.
Bjorn Lomborg urges the Trump administration to “end the World Bank’s climate hypocrisy.” A slice:
Rich Western nations and their development banks love to parade their climate virtue and wag their fingers at Africa. They insist that the continent leapfrog from no energy to trendy renewables like solar and wind, even as wealthy nations run mostly on fossil fuels. With the biggest voting share in the World Bank, the U.S. has effective veto power over major decisions at the globe’s largest multilateral organization—and the moral duty to put its foot down.
Africa deserves the same shot at development that the West had. Sub-Saharan Africa—excluding relatively well-off South Africa—is home to 1.2 billion people, who together consume less electricity annually than Florida’s 23 million. An average person in these nations is getting by with direct or indirect access to only half a kilowatt-hour of energy a day. The average person in a rich country—those in the Organization for Economic Cooperation and Development—has access to nearly 40 times as much power.
