Since we discussed tariffs earlier, it is only fair to note that Dr. Paul Krugman disagrees with the premise that the Smoot-Hawley tariff act was a cause of the Great Depression, and with the idea that tariffs are by themselves a bad thing…
protectionism in general should reduce efficiency, and hence the economy’s potential output. But that’s not at all the same as saying that it causes recessions.
But didn’t the Smoot-Hawley tariff cause the Great Depression? No. There’s no evidence at all that it did. Yes, trade fell a lot between 1929 and 1933, but that was almost entirely a consequence of the Depression, not a cause. (Trade actually fell faster during the early stages of the 2008 Great Recession than it did after 1929.) And while trade barriers were higher in the 1930s than before, this was partly a response to the Depression, partly a consequence of deflation, which made specific tariffs (i.e., tariffs that are stated in dollars per unit, not as a percentage of value) loom larger.
(click here to continue reading The Mitt-Hawley Fallacy – The New York Times.)
…and on the Lord Little Hands Dotardo’s tariff threats in general:
So what will happen when the Trump tariffs come?
There will be retaliation, big time. When it comes to trade, America is not that much of a superpower — China is also a huge player, and the European Union is bigger still. They will respond in kind, targeting vulnerable U.S. sectors like aircraft and agriculture.
And retaliation isn’t the whole story; there’s also emulation. Once America decides that the rules don’t apply, world trade will become a free-for-all.
Will this cause a global recession? Probably not — those risks are, I think, exaggerated. No, protectionism didn’t cause the Great Depression.
What the coming trade war will do, however, is cause a lot of disruption. Today’s world economy is built around “value chains” that spread across borders: your car or your smartphone contain components manufactured in many countries, then assembled or modified in many more. A trade war would force a drastic shortening of those chains, and quite a few U.S. manufacturing operations would end up being big losers, just as happened when global trade surged in the past.
An old joke tells of a motorist who runs over a pedestrian, then tries to fix the damage by backing up — and runs over the victim a second time. Well, the effects of the Trumpist trade war on U.S. workers will be a lot like that.
(click here to continue reading And the Trade War Came – The New York Times.)
Hmmm, so maybe I shouldn’t lay awake worrying about the upcoming conflagration? That Trump is not trying to sabotage the world economy so that totalitarian governments will rise around the world? I suppose we’ll see for ourselves, if Trump even follows through with his trade threats.
Trump has threatened to withdraw NAFTA pact since the 2016 campaign, saying the 24-year-old deal allowed manufacturers to relocate to Mexico and take advantage of cheaper labor. Even a number of Democrats have said NAFTA should be reworked, but Canada and Mexico have resisted Trump’s strong-arm tactics.
And a number of GOP lawmakers are apoplectic about what would happen if Trump withdrew from NAFTA, warning it could devastate the U.S. agriculture industry.
Tying NAFTA to the steel and aluminum tariffs shows that Trump is trying to use his new trade gambit as leverage, though it’s unclear if it will work.
Trump on Thursday surprised much of Washington — and his own staff — by announcing that he would impose a 25 percent tariff on steel and a 10 percent tariff on aluminum. A formal announcement is expected this week or next. Commerce Secretary Wilbur Ross and top trade adviser Peter Navarro are both supportive of the tariffs, but even they were hard pressed to explain how the new restrictions would work.
(click here to continue reading Trump says Canada and Mexico will only escape new tariffs after NAFTA concessions – The Washington Post.)