Trump and Trade Policy — Why He Will Fail

by Gaius Publius

The clip above is an interview Thom Hartmann did with Forbes writer and commentor Eamonn Fingleton, whom the headline touts as "The Man Who Predicted Trump," a true statement, by the way. That prediction came in February 2016, as noted at the start of the conversation in the clip.

Here Fingleton and Hartmann discuss Trump, U.S. trade and industrial policy, why Trump won, and why he will now fail, at least with respect to changing American trade practices.

The following is taken from the transcript, with just a little editing to clean up typos. My excerpts will make just a few points, but they're worth keeping in mind as Trump rolls out his trade policies — which may or may not, by the way, correspond to his trade promises. Read on to see why.

For 200 Years, American Manufacturing Was Built by Protectionism

The first point they make after discussing the last 30 years of neoliberal trade policies, called by the right "Milton Friedman free trade," is to look at how America became a manufacturing giant in the first place. Consider that in its earliest years, the new nation was a fragile place economically, just 13 colonies along the Atlantic seaboard, vulnerable to the manufacturing and trade giants in Europe, especially Great Britain. George Washington's problem — how to jump-start American manufacturing in that environment.

From the transcript:

Eamonn Fingleton: ... [H]ow the hell is Trump going to get the economy moving again? Because he wants to get manufacturing back but you can't get blood out of a stone. All of these key industries have migrated. The more advanced of them gone to Japan or to Korea or to Germany and then the middling level ones are in, of course, China. ...

Thom Hartmann: ... [W]hat should we be doing in the United States to bring, first of all, should we bring manufacturing back home? I mean, you know, the position of the Third Way Democrats and the entire Republican Party for 35 years has been, you know, manufacturing jobs are crappy jobs. Who wants those kind of jobs? We need information industry jobs, right? So should we bring manufacturing back, and if we should, how do we do it?

Eamonn Fingleton: ... Absolutely, the manufacturing sector has to be strengthened. You have to bring back the serious manufacturing industries, meaning the capital-intensive ones, the [inaudible] intensive industries. But how do you do that? It seems to me that tariffs are the solution, but they're going to be very unpopular if he really goes at it in a serious way. He would have to apply essentially a tariff to the entire world because if he doesn't, if he applies tariffs simply to China then the manufacturing for the American market will move to Vietnam, it will move to Brazil, it will move to Mexico, Canada, wherever. So, if he wants, seriously wants to get manufacturing back he has to use tariffs right across the board.

Thom Hartmann: But we had tariffs against the entire world for 200 years. It worked, didn't it?

Eamonn Fingleton: Absolutely, it did. You're well-informed on the history of the United States. That story has been very much suppressed in the last 50 years. But yes, America was for its most successful decades very protectionist.

Thom Hartmann: Yeah, the George Washington administration at the behest of Alexander Hamilton, 1791, he presented is his 11 point plan on trade, his Report on Manufactures, most of it was adopted by 1793. The entire federal government from the George Washington administration to the Abraham Lincoln administration was funded by tariffs a hundred percent. From the Lincoln administration to World War One, two thirds of the government was funded by tariffs. World War One to World War Two, one third of the government was funded by tariffs. And now, you know, our tariffs are pretty much non-existent.

It seems to me like we should be able to just look back and say "Gee, what worked?" ...

So that's the first piece. As Hartmann said, "It seems to me like we should be able to just look back and say 'Gee, what worked?'"

Tariffs worked, and as they note as the conversation continues, tariff-like restrictions continue to work for nations with positive balances of trade, like Japan and Germany. As Hartmann says, "[T]hey do it with VAT taxes and domestic content requirements and regulations and that kind of thing." Fingleton adds that in Japan, you see mainly Japanese cars, and in Germany, you see mainly German cars.

Eamonn Fingleton: ... I mean, Volkswagen is a match for Toyota everywhere else in the world but not in Japan. It has about one percent of the market in Japan. Worldwide, it has about twenty-five, thirty percent.

So tariffs and protectionism work, if the goal is really to restore core manufacturing and worker wealth to the United States.

Why Trump Will Fail: "The rot has gone too far"

The current goal of U.S. trade policy is not, however, to restore manufacturing to America and wealth to workers. The goal, of both parties' leadership cliques, is to keep each party's wealthy donor class in position to grow even wealthier. I wrote this in 2013 about our real "industrial policy":

I am not optimistic about either jobs in general or good jobs going forward, since the current U.S. industrial policy is to ship our industries out of the country and hand the (untaxed) savings to billionaires, using corporations as a pass-through. (I’m not joking.) And I don’t expect that to change anytime soon.

I think as a literal description of "U.S. industrial policy," it hits the mark squarely.

Which is why Trump will fail. Here's Hartmann and Fingleton on that:

Thom Hartmann: ... [S]o, if we brought back tariffs, every country that we have a trade agreement with would say that we are in violation of the trade agreement, it would go to investor state dispute settlement, we would be found guilty, we would be fined, we would get nailed, so the president should simply get us out of those agreements?

Eamonn Fingleton: I think that it's in character for Trump really to sort of bulldoze his way through and frankly that's what he's going to need in this instance. I think that if he goes the legal route as it were and tries to comply with all sorts of international agreements, he's going get nowhere. So he has to take the law into his own hands, frankly.

Thom Hartmann: Yeah, which is basically what Bernie Sanders was suggesting doing, too.

So far, so good. Trump could simply violate all of our trade agreements, then get us out of them by "bulldoz[ing] his way through." But there's a problem with that. After discussing the question of "what if Trump succeeds and gets a big fat political victory?" (my phrasing), Fingleton says, in effect, "Don't worry, he won't succeed."

Eamonn Fingleton: I think there's a big "if" there. I have a feeling that for all Trump's nationalistic fervor he's not going to succeed. That's very unfortunately my analysis, that he has the right ideas for trade and manufacturing but the problem, the rot has just gone too far.

Thom Hartmann: And his own party is by and large opposed to all this stuff. I mean, you've got all these Republican members of Congress who are bought and paid for by industries that are manufacturing overseas.

Eamonn Fingleton: Yeah, absolutely. That was the point I was going to make and also the lobbyists are just moving in and there's evidence that some of them are going to be inside his administration.

Thom Hartmann: Right. Yeah, and you've got Reince Priebus as his Chief of Staff. You know the old saying, 'personnel is policy'. It looks like policy is going to be Republican policy with populist rhetoric and I think that's a prescription, that's dynamite. That's a prescription for disaster, for an explosion.

Eamonn Fingleton: I checked on Priebus today with a very well-placed source in Washington and yes, the news I have is that he's a trade ideologue, free-trade ideologue.

Hartmann adds, "It's going to be real interesting when the people in Indiana who Trump promised he was going to stop their Carrier factory from going to China [actually, Mexico], when he doesn't stop it." Indeed. Or save only some of the jobs he promised to save all of. We wrote about that problem earlier. There are certainly ways to turn Trump's bad fortune to our benefit.  

Yes, the rot may have gone too far. But we'll see. Again, the whole clip is good and it's not that long. Give it a listen if you can.

Bottom Lines

Keep your eye on Priebus, the "free trade" acolyte, and the bought Republican Congress. And be sure to notice which bought Democrats show their loyalty to their own billionaire donor class when (or if) these votes come up.

But two bottom lines for now: The good news is, Trump will probably fail to correct U.S. trade and industrial policy, so good for us that he failed. The bad news is, Trump will probably fail to correct U.S. trade and industrial policy, so bad for us that he failed. Pick your poison, I guess, then pick up the political pieces.

GP