Browsing the blog archives for July, 2018.

Resolving Trade Disputes: Policy vs. Strategy

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I’ve lost track of the number of times a likeminded free-marketer has chastised me for failing to oppose President Trump’s approach to trade and tariffs. The exchange usually goes something like this:

Other person: Trump says we should “put workers first” and raise tariffs to reduce the trade deficit. How can you possibly support that as economic policy?

Me: I don’t.

Other person: Then why do you support his tariffs? Remember Smoot-Hawley? Don’t you know they will start a trade war and nobody will win?

Me: So, what should we do about unfair trade practices like higher tariffs from our trading partners, China’s requirement that many US firms partner with Chinese companies in order to compete there, or China’s inability to enforce intellectual property rights?

Other person: We should resolve these issues at the negotiating table.

Me: We have been trying to do so for years, but it’s not working.

Other person: Perhaps, but we should still negotiate. We shouldn’t start a trade war over it.

I’ve been searching for a simple way to explain my position in conversations such as these. I think it can be summed up by policy vs. strategy. Free trade is the best friend of workers, consumers, businesses, and even politicians. I do not support tariffs as economic policy, but that doesn’t mean I can’t support them as political strategy.

It should be obvious that “free trade” isn’t currently a two-way street. Many of our trading partners employ restrictive trade policies that they would find unacceptable from the US. China is the most obvious example. US action can evoke retaliation and ramp up a trade war, but the battle has already started.

Some business leaders and economists correctly note that the current arrangement is still a net benefit to the US and should be allowed to fix itself slowly over time. Others agree that “something should be done” but seem afraid to take any action. The first group is engaged in wishful thinking, while the second group does not appreciate the difference between policy and strategy.

Most of our trading partners benefit from the current system and will not change course unless they are forced to do so. The existing rules have been accepted for years, so why change now? The only way to make real progress at the negotiating table is to impose tariffs and other restrictions as bargaining chips on the US side. It will require some short-term pain, but it’s the only option that works. What are the alternatives?

The US is in a strong economic bargaining position now relative to countries like China, so I believe the odds of getting an acceptable deal soon are good. If not now, when?

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Dads, Paternity Leave, and Government Mandates

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The Family Medical Leave Act (FMLA) passed in 1993 provides (among other things) 12 weeks of unpaid leaves to moms and dads to care for their newborns. During the last quarter century, companies such as Facebook, Twitter and American Express have added paid leave as a job benefit. Nonetheless, men hesitate to take the leave, fearing that time off the job would hurt their careers and be seen as a lack of commitment to the company. Women are more likely to take leave but many struggle with the same concerns, according to a recent Deloitte survey (https://www2.deloitte.com/content/dam/Deloitte/us/Documents/about-deloitte/us-about-deloitte-paternal-leave-survey.pdf).

The survey provides several additional interesting findings. Not surprisingly, 54% of the respondents said that their coworkers would judge males more harshly than females for taking the leave. Half of the respondents said they would prefer more parental leave to a pay raise. This is another way of saying that they would rather work less for less money.

So, is paid paternity leave a good idea? Perhaps, but it depends on who gets to decide. Those on the political left use surveys like this one to justify their calls for more government regulation. To be clear, governments should NOT mandate any form of paid leave, as doing so inflicts costs on businesses that should be managed by the owners. But this doesn’t mean that providing paid leave is a bad idea. Many companies offer leave and other benefits to retain top employees. Indeed, 77% of respondents in the survey said that paid parental leave is a factor in employment decisions. Companies offering paid leave tout “corporate social responsibility” as the impetus for doing so, but it’s often just good business.

The beauty of the free market is that companies can try different approaches—new products, lower prices, pay more or less, and so on—and stick with what is most effective. Best practices are usually adopted by other companies, all by choice. For example, McDonald’s is using kiosks to take orders in many of its restaurants instead of hiring more workers. This is probably a good idea long term, but the results will speak for themselves and competitors will follow suit when doing so makes economic sense for them. The same is true for paternity leave. Like the minimum wage and health care, we will be better off if governments leave business decisions to investors who are risking their own funds in the marketplace. The market already provides incentives for them to do the right thing.

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