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?

4 Comments

4 Comments

  1. daniel8  •  Jul 30, 2018 @12:30 PM

    i agree on trade but we need a better deal. if not now, when?

  2. StevePK  •  Jul 31, 2018 @12:13 PM

    Trump is going about this all wrong. Quiet diplomacy works best with the Chinese. Sit down behind closed doors and work it out.

  3. derek_88  •  Jul 31, 2018 @3:52 PM

    So Dr. Parnell, do you support Trump or not?

  4. John Parnell  •  Jul 31, 2018 @5:32 PM

    I get this question a lot. I support the President when I think he is right and I don’t support him when I think he is wrong. Trump wasn’t my first (or second or third) choice, but he was a better option than HRC. He’s no saint, but he’s exposed a lot of corruption and hypocrisy in both parties. I’d love to see a President Rand Paul, but the country is not there yet. Until then and between elections, we need to promote liberty as best we can. This means calling the shots as I see them independent of personalities. In this instance, I think calling out our trading partners on unfair practices can set the stage for a reduction in barriers across the board. The President has called for the elimination of ALL tariffs on ALL sides as the ideal solution. That’s an idea we should support.