Tuesday, February 21, 2017

In Trump's Alphabet, "F" Is for Protectionism

The President wants to put another “F” in NAFTA. The morning he met with American motorcycle maker Harley-Davidson, Mr. Trump said, as the cameras rolled, "I want to change it. And maybe we do it – maybe we do a new NAFTA and we put an extra "F" in the term NAFTA. You know what the "F" is for, right? Free and fair trade – not just free trade; free and fair trade, because it's very unfair."
Harley-Davidson improved due to its own improved product, not the government's tariff.
The President then told the tall tale about Harley-Davidson almost going out of business because foreign competitors were dumping their cycles in the US and Harley couldn’t compete. President Reagan stepped in, put a tariff on foreign cycles, and saved the domestic manufacturer, Trump said. Even Lefty Lawrence O’Donnell on MSNBC knows Harley was ready to go under due to making bad products back in the 70s and 80s as the lone domestic manufacturer. O’Donnell, himself a rider, told his audience, “You had to be a mechanic to own a Harley; to even get one started.”

Reagan did impose a tariff, Harley did turn around, and, in fact, requested the tariff be lifted a year early. However, the company’s rebound was not due to Reagan’s use of government force – foreign competitors designed around the tariff restrictions – but rather the company’s choice to make a better product more efficiently.
Barnaby J. Feder wrote in the New York Times in 1987,
Harley introduced practices such as just-in-time manufacturing, in which parts are made only when needed, and statistical process control of operations, which catches production errors before they have become embedded in products. The company raised the percentage of motorcycles leaving its production lines without defects from about 50 percent to more than 98 percent and became a mecca for engineers from other industries.
At the same time, Harley redesigned many of the parts in its cycles without changing its basic design. The changes rid the products of such defects as bone-jarring vibration.
Today, O’Donnell owns a Harley and wouldn’t buy anything else, because the company learned how to make good bikes by studying foreign competitors.
Meanwhile, Trump wants to protect domestic manufacturers – with the inevitable result of American consumers forced to purchase inferior products for higher prices to save a few jobs in the US.
If its present form, NAFTA is anything but free trade. But Trump's proposed change would only make it worse.
In its present form, NAFTA is anything but free trade. “In the first place, genuine free trade doesn’t require a treaty,” wrote Murray Rothbard. “If the establishment truly wants free trade, all it has to do is to repeal our numerous tariffs, import quotas, anti-"dumping" laws, and other American-imposed restrictions on trade. No foreign policy or foreign maneuvering is needed.” “I’m a free trader,” Trump said back in June 2015. But since then, as hardhats have lined up behind him, he’s said the US needs “fair trade, not free trade.” America imports nearly $800 billion more in goods than it exports, and that is a “politician-made disaster,” he claims, adding, “It is the consequence of a leadership class that worships globalism over Americanism.”
However, what Trump sees as a disaster, Rothbard views as not only not a problem but as a great thing. “Foreigners are providing cheap imports, making the dollar stronger,” Rothbard pointed out, “which is terrific.” It’s no different than a trade deficit between Las Vegas and Los Angeles. Who cares?
The trade barriers Trump is proposing, in the words of Milton Friedman, “benefit a few, at the expense of many.” True free trade “benefits many at the expense of a few.” Friedman pointed out that what’s known as a “favorable” balance of trade is actually “unfavorable”: getting more goods in and sending fewer out is a good thing, not a bad thing.
If it is Trump’s intent to do away with NAFTA in its entirety and replace it with nothing, that would be fantastic. After all, NAFTA is, in Rothbard’s words, more than a trade deal.
It is part of a very long campaign to integrate and cartelize government in order to entrench the interventionist mixed economy. In the United States, this has taken the form of transferring legislative and judicial authority away from the states and localities to the executive branch of the federal government. NAFTA negotiations have pushed the envelope by centralizing government power continent-wide, thus further diminishing the ability of taxpayers to hinder the actions of their rulers.
But Trump’s fair trade is not trade benefiting consumers and producers alike. It is protectionism, which “is out to mulct all of us for the benefit of a specially privileged, subsidized few – and an inefficient few at that: people who cannot make it in a free and unhampered market,” Rothbard wrote in Making Economic Sense.
We can only hope foreign producers dump their products in the US. If Mr. Trump is as smart as he claims to be, he surely understands that more dumping means more prosperity.

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