Browsing the blog archives for March, 2018.

The problem with the trade war argument

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I’ve heard many free-traders question the wisdom of President Trump’s tariffs against China. They argue that free trade benefits everyone and that tariffs elicit responses that can trigger a trade war. I don’t need to be convinced that their arguments are 100% correct as far as they go, but they make 3 questionable assumptions.

  1. They assume that US tariffs would be the “first salvo” in a trade war, but this is not the case. I don’t agree entirely with President Trump’s public assessment of the trade situation, but trade salvos have been launched at the US for some time. Currency manipulation, intellectual property rights, requirements that US firms must secure joint ventures with domestic firms to enter the market, and competition from state-owned enterprises are but 4 examples from China. In this respect, the tariffs announced today could be viewed as a much-delayed response to unfair practices instituted years ago.
  2. They assume that all nations share an equal commitment to free trade. In an ideal world, leaders in each country would be equally committed to open exchange, not just in talk, but also in practice. While we should work to reach this ideal, we must equally recognize that it’s not reality. Like it or not, governments don’t just get out of the way and let companies trade.
  3. They assume that a “somewhat free” trade arrangement is acceptable, and certainly better than tariffs and other government restrictions. But the US has overlooked real trade problems for years in the interest of short-term corporate gains. This assumption is not valid in the long run. It’s akin to appeasing a brutal dictator. You get might get “peace” for a while, but your long-term position is compromised.

All nations benefit from free trade, and it’s my hope that all nations will come to the table to discuss the removal of barriers that protect their firms and punish outsiders. But we need action. I expect my leaders to be open to compromise, but insistent on results. I’m willing to accept some international blowback from other nations if that’s what it takes to get real progress.

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The Delta-NRA Debacle

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Last week, Delta Airlines buckled to gun control pressure and began disassociating with the National Rifle Association. In response, the Georgia House and Senate just voted overwhelmingly to eliminate an amendment that would have renewed a $50 million jet fuel tax exemption for the Atlanta-based carrier. Lt. Gov. Casey Cagle summarized the sentiment this way: “Businesses have every legal right to make their own decisions, but the Republican majority in our state legislature also has every right to govern guided by our principles.” Many conservatives are cheering the response, but there are problems on both sides of the issue.

First, the NRA discount was available to members flying Delta to attend the NRA convention. These discounts are not uncommon and are simply offered to attract group business. They don’t reflect any kind of endorsement between airline and organization, but Delta cited “neutrality” in the gun debate when announcing its pullback. It’s obvious that Delta was caving to activist pressure. If Delta is taken at its word, then ALL discounts reflect a social position, and ALL are now subject to scrutiny. The company clearly doesn’t want to go there. Georgia politicians called out the company on this hypocrisy.

Moreover, Lt. Gov. Cagle is right. He is not challenging Delta’s legal right to pull the NRA discount. What the government gives, it can take away. But I’m uncomfortable with the entire process. Several questions are being overlooked.

Why was Georgia pondering the transfer of $50 million in tax dollars to Delta in the first place? Is it a proper role of government to subsidize certain companies because they “create jobs” or are savvy enough to lobby for the support? These are complicated questions, but the simple answer is no.

Why must Delta have a policy on social issues unrelated to its business activity? Should we expect airlines to negotiate group discounts only with organizations that meet the approval of political activists? This has gone too far. Delta should not have to pull group discounts in order to remain neutral on social issues.

Should we expect (or even want) politicians to reward or punish companies on either side of this debate? Absolutely not. Those cheering Georgia lawmakers at the moment have no basis to complain when left-wing politicians in California and New York harass companies in their states.

I don’t like what Delta did, but the response should be left to the market.

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