12 June 2018
Originally published by Cato Institute.
Some people are skeptical of taking specific statements President Trump makes too seriously/literally, and I can understand why. Nevertheless, in the midst of mostly aggressive trade rhetoric, every now and then he calls for more trade liberalization. This is from Trump’s Saturday press conference at the G7 meeting:
Q Mr. President, you said that this was a positive meeting, but from the outside, it seemed quite contentious. Did you get any indication from your interlocutors that they were going to make any concessions to you? And I believe that you raised the idea of a tariff-free G7. Is that —
THE PRESIDENT: I did. Oh, I did. That’s the way it should be. No tariffs, no barriers. That’s the way it should be.
Q How did it go down?
THE PRESIDENT: And no subsidies. I even said no tariffs. In other words, let’s say Canada — where we have tremendous tariffs — the United States pays tremendous tariffs on dairy. As an example, 270 percent. Nobody knows that. We pay nothing. We don’t want to pay anything. Why should we pay?
We have to — ultimately, that’s what you want. You want a tariff-free, you want no barriers, and you want no subsidies, because you have some cases where countries are subsidizing industries, and that’s not fair. So you go tariff-free, you go barrier-free, you go subsidy-free. That’s the way you learned at the Wharton School of Finance. I mean, that would be the ultimate thing. Now, whether or not that works — but I did suggest it, and people were — I guess, they got to go back to the drawing and check it out, right?
In fact, Larry Kudlow is a great expert on this, and he’s a total free trader. But even Larry has seen the ravages of what they’ve done with their tariffs. Would you like to say something, Larry, very quickly? It might be interesting.
MR. KUDLOW: One interesting point, in terms of the G7 group meeting — I don’t know if they were surprised with President Trump’s free-trade proclamation, but they certainly listened to it and we had lengthy discussions about that. As the President said, reduce these barriers. In fact, go to zero. Zero tariffs. Zero non-tariff barriers. Zero subsidies.
It’s hard to know what to make of this “free-trade proclamation,” because reducing trade barriers is what many other countries have been promoting, and Trump keeps resisting. That’s what TPP was, and that’s what NAFTA is. So how is everyone supposed to react to his call for such broad trade liberalization? One possible reaction, which may or may not be productive, is that the other G7 leaders should accept his proposal, publicly endorse it, and suggest a date to begin negotiations.
The Canadians can do this in the context of the NAFTA talks. The EU could propose new transatlantic trade talks. Japan could remind Trump about the TPP, or agree to bilateral talks. (And everyone seems to accept that subsidies have to be negotiated multilaterally, so maybe the better idea is to propose that this all be done at the WTO, rather than through bilateral talks.)
Unfortunately, I don’t think there is much hope of convincing Trump and his trade team that their view of trade deficits is misguided (we can line up a thousand economists to explain why it is misguided, but it won’t change their minds). However, I can imagine that talk of specific tariffs, barriers, and subsidies could be helpful here. Those do exist and are a problem. Trump may genuinely believe there is an imbalance, with Canadian, EU and Japanese tariffs, trade barriers, and subsidies far outweighing U.S. ones. A negotiation would be an opportunity to show him the reality. When he points to Canadian agriculture tariffs, the Canadians can point to U.S. agriculture subsidies. When he points to European auto tariffs, the Europeans can point to U.S. truck tariffs. And then they can keep going down the list: Buy America procurement policies, the Jones Act, barriers to trade in legal and medical services, anti-dumping abuses, etc.
Now, I’m not saying there is a great chance of success on any of this. Most likely, the best we could hope for is that these talks go about the same as other talks, with a little progress on a few tariffs, trade barriers, and subsidies. That’s the nature of these things. But Trump just called for going “tariff-free,” “barrier-free,” and “subsidy-free,” and it seems to me that taking him up on this may be better than the alternative, which right now looks like it could be escalating tit-for-tat tariffs.
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