“Our country is getting ripped off.” That’s the sub-headline on Donald Trump’s campaign web site for his position on trade. A vote for Trump is a vote for standing up to trade manipulators.
For many of us, it’s hard to make sense of short videos and sound bites about complex topics like international trade. But, to keep things relatively straightforward, Trump’s major policy positions are primarily focused on two countries: China and Mexico.
Let’s start with Mexico. Since 1994, the US, Mexico and Canada have been parties to NAFTA, the North American Free Trade Agreement, which allows goods to flow freely between the three nations. Obviously, the trade deal has been controversial. Many say NAFTA laid the foundation for strong economic growth in the three countries. Others blame NAFTA for manufacturing job losses in the US. It’s complex, a story for another day.
For Trump, it's straightforward. The Republican presidential candidate is unequivocal on his position: He would renegotiate NAFTA and impose a 35 percent tariff, a tax on imports, from Mexico. Or, he'd rip up the trade agreement entirely.
With China, Trump says he would impose a 45 percent tariff on Chinese imports.
Let’s consider what this would mean with a real-world example. Let’s say an American consumer goes out to buy a refrigerator from Mexico. For simplicity, let’s say that refrigerator normally costs $100. Under Trump’s plan, that refrigerator from Mexico would now cost 35 percent more, or $135. The thinking behind a tariff is that an American shopper would gravitate toward an American-made refrigerator selling for less. Here’s the problem: Mexico would certainly retaliate and levy tariffs on American products coming into Mexico. And then you have a possible trade war.
Further, tariffs prevent American companies from bringing in foreign goods they need to build products.
So, can Trump do it? Can he impose tariffs? The short answer is no, at least not alone. A president can’t levy tariffs or amend trade deals without congressional approval. And getting that might be a tough sell. Republican Party leaders Mitch McConnell and Paul Ryan are both proponents of more free trade. And if the Democrats take control of the Senate in November’s election, well, it would make a President Trump’s task that much harder.
Now, technically, a president could unilaterally withdraw from a trade agreement, like NAFTA, without Congress. But it’s never happened and would certainly be challenged in the courts. And, with NAFTA, for example, questions would arise about what would happen to laws that lowered tariffs. Would those laws remain intact or be eviscerated along with the end of the trade agreement?
But let’s say a President Trump could pull away from trade deals and levy high tariffs on our trading partners. What then? This has happened before.
“In the late 1920s the Republican establishment actually embraced the very positions Trump is advocating today,” said economist Lee Branstetter, with Carnegie Mellon University in Pittsburgh and the Peterson Institute for International Economics in Washington.
“As the Great Depression began, Republicans reacted to economic weakness with a plan to raise tariffs on thousands of goods to levels exceeding 60 percent. Economists opposed it, and Henry Ford denounced it as ‘economic stupidity.’ Democrats were more pro-trade and they opposed the bill. But President Herbert Hoover, desperate to ensure his own re-election and wanting to curry favor with workers who were increasingly worried about an economic slowdown, signed the bill in 1930. History tells us what happened next.”
Soaring American tariffs set off a global trade war, America’s trading partner’s retaliated, and global trade fell sharply, deepening The Great Depression.
If you want a more recent example of isolationist economics, look to the recent Brexit vote, where a majority of Brits voted to pull away from the European Union.
“Even before Brexit legally started, the British stock market took an immediate hit, the pound fell sharply, and the chances of a British recession have risen,” said Branstetter. “Trump is advocating a far more complete repudiation of globalization than Brexit. If he gets Congress to back him, or even if he looks like he’s going to get Congress to back him, ‘Trumpanomics’ would be Brexit on steroids, and the economic consequences would be far more dramatic.”
Branstetter, who served as a senior economist for international trade and investment in the Obama administration (Branstetter was also twice asked to serve in the same capacity for President George W. Bush), had some further blistering criticisms for Trump on trade, but he insists, “I’m not a political actor; I am an economist. And the positions that I’ve described are about as close to a sort of a universal truth as you can ever get a set of economists to agree on.”
Echoing that, one of George W. Bush’s chief economic advisers, Harvard economist Gregory Mankiw, recently told the New York Times, “There are few things economists are unanimous about, but support of free trade comes pretty close.”
I spoke with several other economists and they all basically agreed that Trump’s policies are deeply flawed.
“There are a host of serious mistakes in Trump’s trade positions,” said economist Derek Scissors, with the American Enterprise Institute, a conservative think tank in Washington. “Forty-five percent across the board tariffs is a terrible ‘solution’ to our problems with China, one that would harm poor Americans.”
“Trump isn’t wrong about everything,” Scissors added. “The populist support he and Bernie Sanders have is justified by several important facts, even if their policy positions would hurt much more than they would help.”
Meaning, many Americans are upset that they’ve been left behind in today’s global economy. Their anger is warranted, but these economists say Trump’s proposed trade solutions won’t solve their problems.