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Thoughts on a post-Trump US trade policy.
1. Let me start with tariffs. The customs tariff is a tax-and-transfer policy in one. Importers pay the tax at the border; consumers transfer wealth to domestic producers through higher prices.
That transfer element 1/
1. Let me start with tariffs. The customs tariff is a tax-and-transfer policy in one. Importers pay the tax at the border; consumers transfer wealth to domestic producers through higher prices.
That transfer element 1/
is a public choice disaster waiting to happen.
This is why the decision to impose tariffs should always be subject either to democratic - that is, legislative - control, or in specific circumstances, strict administrative rules and overseen by courts. 2/
This is why the decision to impose tariffs should always be subject either to democratic - that is, legislative - control, or in specific circumstances, strict administrative rules and overseen by courts. 2/
What about tariffs as trade policy instruments?
True, threatening to destroy Canada's economy through "national security" taxes on cars made by American manufacturers forced Canada to renegotiate the NAFTA. Canada's economy is 1/11 that of the US and Canada sells 70% 3/
True, threatening to destroy Canada's economy through "national security" taxes on cars made by American manufacturers forced Canada to renegotiate the NAFTA. Canada's economy is 1/11 that of the US and Canada sells 70% 3/
of its exports to the US. What works with Canada does not always work with the rest of the world.
And, whatever the trade policy benefits, the public choice corrosion of democratic institutions and the prospect of favouritism massively counterbalances those. 4/
And, whatever the trade policy benefits, the public choice corrosion of democratic institutions and the prospect of favouritism massively counterbalances those. 4/
Congress should take back its tariff authority, or at least subject the "national security" measures to greater congressional and court oversight. This is actually easily achievable without in any way affecting the US national security.
It is also the right thing to do. 5/
It is also the right thing to do. 5/
2. Speaking of Canada and the NAFTA and the new NAFTA: Canadian nerves have been frayed over the past decade - first, because the former PM did not get along with Obama (and you really don't want to know what his ministers said in private), and then Trump's overt threats. 6/
There have always been, and there will always be, trade disputes between the two countries. (In this respect, nothing has changed from my observations back in 2013.) But they have been channeled to protect the broader relationship. 7/
https://www.kslaw.com/news-and-insights/the-dog-that-did-not-bark
https://www.kslaw.com/news-and-insights/the-dog-that-did-not-bark
The North American economic zone needs a period of relative calm to recover. Above all, Canadian trade policy officials need a bit of time to recover from the trauma of having to anticipate the next volley of threats, but also to mobilize against other threats. 8/
3. I'd be giving away no secrets if I said that every discussion with my former colleagues about taking multilateral action in respect of China started and ended with "we're now trying to deal with the x tariff threat". No surprise if other trade ministries had same reaction. 9/
Multilateralism is not an objective; it is an instrument of national policy that, much like trade - much like any economic interaction - is a win-win situation.
For a hegemon or a state with hegemonic aspirations, it's a net positive because it gets to help craft the rules, 10/
For a hegemon or a state with hegemonic aspirations, it's a net positive because it gets to help craft the rules, 10/
and will be able to enforce them at minimal cost (relative to the vagaries of indiscriminate tariffs or the costs of the Seventh Fleet).
For smaller countries, they accept rules largely crafted by Great Powers in return for stability - "predictability and security." 11/
For smaller countries, they accept rules largely crafted by Great Powers in return for stability - "predictability and security." 11/
Imbalance arises in three ways.
a) When hegemons go rogue, in the hope of extracting hegemonic rents. This almost always rebounds, but the costs are hidden.
b) Rogue hegemons fray alliances and make multilateral action against other rogues difficult. 12/
a) When hegemons go rogue, in the hope of extracting hegemonic rents. This almost always rebounds, but the costs are hidden.
b) Rogue hegemons fray alliances and make multilateral action against other rogues difficult. 12/
c) When multilateralism is seen as purely a check on the hegemon - and advertised as such in unrestrained terms in the halls of the WTO. For multilateralism to work at all, it needs the not just the consent of and but active participation by the hegemon. 13/
I will have more to say (later) on WTO reform, but non-US observers need to know that US concerns with the WTO, and the AB, did not begin under Trump and will not end with Biden's inauguration.
A new USTR will not end the current pain; it will only help reduce uncertainty. 14/
A new USTR will not end the current pain; it will only help reduce uncertainty. 14/
What does all this mean?
- The US needs multilateralism for its own long-term interests, but not at any cost.
- Within the multilateral structure, the US can advance its interests more effectively through coalitions rather than unilateral and omnidirectional belligerence. 15/
- The US needs multilateralism for its own long-term interests, but not at any cost.
- Within the multilateral structure, the US can advance its interests more effectively through coalitions rather than unilateral and omnidirectional belligerence. 15/
- Potential US partners in a new multilateral structure that will eventually rise out of the ashes of the current one need to ratchet down the "isolate the US" rhetoric. If it were ever policy, it was stupid; it's also daft as talking point.
Here endeth the lesson. /fin
Here endeth the lesson. /fin
