Notwithstanding the flimsy legal basis and other over-the-top aspects of the Trump Administration’s blunderbuss, across-the-board tariff initiatives (see previous post), it is true that there are longstanding serious problems in the international trading system that the policy establishments of both parties have let fester — another aspect of their shared neoliberal legacy of very light-touch management of global economic integration.
A charitable interpretation of these new trade initiatives is that they are mere tactics in a larger strategy to correct structural anachronisms in the international economic order whose negative impact on the US economy has grown as other economies have industrialized over the past few decades.
I refer to three phenomena in particular:
1) industrial tariff disparities that have remained substantial even as many nations have become industrially competitive and no longer merit “special and differential” treatment that was originally intended to apply to poor countries only (indeed, this was one of the big impasses that led to the failure of the WTO Doha Round earlier this century);
2) the peculiarities of the treatment of value-added taxes by GATT/WTO rules under which countries that have them (most of our major trading partners do but we don’t) are allowed to impose them on imports and rebate them on exports; and
3) the upward pressure that the US’s “exorbitant privilege” as issuer of the world’s principal reserve currency places on the value of the dollar, e.g., other countries need to buy dollars to settle their import bills with third countries and to accumulate dollar assets to insure themselves against the prospect of a financial or currency crisis due to longstanding weaknesses in the mandate and capacity of the IMF to facilitate orderly adjustment of persistent trade imbalances and currency misalignments, which Keynes himself struggled unsuccessfully to address at the Bretton Woods conference in 1944.
Many decades ago, these quirks in the system were mere nuisances because the US economy was so much larger and further advanced than others. But their adverse effects have become material; they each have been contributing to (but are far from entirely responsible for) our trade deficits and deindustrialization since the turn of the century.
The following recommended reads take the charitable view, or at least imply it, that these underlying problems are what the Trump Administration’s trade policy broadsides are really aimed at. In the telling, these seemingly haphazard and improvised tariff initiatives are deliberate tactics to create strategic leverage vis-a-vis China, Europe and major industrializing countries for the purpose of gaining agreement on a watershed realignment of macroeconomic burden sharing and related compensation for certain shortcomings of the international trade and monetary systems. In other words, these initiatives are not necessarily what they seem: an extension of the tawdry politics of grievance and scapegoating to international economic relations and an expedient dash for cash from new sources to help offset the cost of extending the largely regressive Trump 45 tax cuts. At a minimum, the argument implicitly goes, Pres. Trump has been able to attract a few serious people interested in making more of them than that (e.g., Miran and Bessent in the tradition of Trump 45’s Lighthizer).
I’m personally dubious that there is or will be this method to the seeming madness but acknowledge that the possibility should not be excluded. Over the years, I have analyzed and proposed possible solutions to each of these conundrums in a few of the publications compiled on this site. It’s galling to think that it may take such an unabashed advocate of autarky, isolationism and nativism to shatter the bipartisan neoliberal/neoconservative complacency of the past generation in this policy area, too. I invite you to draw your own conclusions/place your own bets:
For the best technical exposition of the thesis, see this memo from Trump 45 Treasury official and current nominee for Chair of the Council of Economic Advisers, Stephen Miran:
On its trade and geo-economic implications (a much easier read), see this piece from the prolific and ever provocative David P. Goldman of the Asia Times:
And for some of my own work over the years addressing each of these longstanding headwinds for US international economic policy:
On the Triffin Dilemma aspect of the dollar serving as the world’s principal reserve currency and related need for global macroeconomic rebalancing and a new, more domestically-driven growth and development model in China and elsewhere (which is where the Goldman piece lands), here are: a) remarks last year in China marking the 80th anniversary of Bretton Woods; and b) a 2009 paper urging the new Obama Administration to take a serious run at these problems:
On the treatment of value-added taxes by GATT/WTO rules, here is a 2016 proposal for a WTO-consistent “industrial externality tax” (or CBAM) imposable on imports and rebatable on exports, which was contained in a larger blue-green proposed reform of the US corporate income tax regime, about halfway through the piece:
On industrial tariff disparities, and the need to “enlarge the problem” beyond trade ministers and the WTO (e.g., to finance and development ministers and the international financial architecture) in order to solve it: