Copy of AFF Sentinel V21 #41-Laffer and Moore on Trump and Trade
- Steve Dittmer
- Jul 22
- 4 min read
Trump Deal Making Tactics in Context and Ultimate Goals
Steve Dittmer | AFF Sentinel
Colorado Springs, CO
Originally sent to subscribers 10/23/24
We have many pages of notes, news stories and commentary on a topic that suddenly became a big deal in this election: trade.
What’s more interesting is that the whole theory of free trade has changed with the evolution of global trade, communication, internet and more agile companies and countries. Besides its importance economically and politically, it’s been newsworthy as a tactic the Democrats have tried to use as a political weapon against former president Trump, assuming any tariff would raise prices on consumers -- essentially a tax. But economist John Carney has said that hasn’t been the case in today’s world. But the Democrats’ interpretation of free trade has not necessarily kept up with the shifting trends in global trade.
The more traditional views of free trade go back to the liberalization of trade in the late 1800s and early 1900s. We’ve previously quoted Burke Cochran’s views on free trade, as both taking advantage of competitive advantages of countries and firms, economic efficiency and making available products in America that we have neither the natural resources nor expertise to make here.
But the “shrinking” of the globe regarding communication and marketing, especially the internet; shipping speed and cost; possible access to global markets; increasing purchasing power of world populations and global innovation have changed world trade. Of course, all this activity has exacerbated a couple problems, especially with China, with the theft of intellectual property and flouting of trading rules.
America is a market in terms of population and wealth that has changed trading strategies in recent years. Companies cannot afford to be out of the U.S. market.
With the intrusion of politics on trade discussions, much of Trump’s past record on trade has been ignored and much has been speculated on what he would do in a second term. Commentary has ranged from approval, to very negative to those liking his approach in general but concerned.
A chapter on Trump’s thinking on trade in a new book is instructive. Art Laffer is regarded as the founder of supply-side economic theory and advised Ronald Reagan, Margaret Thatcher and Trump. Steve Moore has advised Trump, was on the Wall Street Journal’s editorial board, on the Heritage Foundation’s staff and is an economist with Freedom Works.
“The Trump Economic Miracle” is their book and they begin their chapter on trade with the basics: trade provides advantages of competition, increased productivity, economic growth, innovation, lower prices and more variety. American firms tap into markets in other countries, can leverage better economies of scale from the added volume and may source lower-cost inputs.*
Of course, from the beef industry’s standpoint, trade provides access to high quality market volume beyond the domestic population, as well as markets for variety meats and hides. We need that added value/carcass but we also need lean beef imports, as our herd cannot keep up with consumer demand for ground beef. That two-way street is critical for us.
Trump doesn’t quibble with any of the basic trade principles above, but as a businessman rather than a politician, he has different ideas about how to secure those results.
From the get-go, he sees economic pressure as the way of getting what America needs. That economic pressure on other countries is often best applied through tariffs or the threat of tariffs.
During the 2016 campaign, much was made of Trump’s book, “Trump: The Art of the Deal.” We like the Chicago Tribune’s book review: “Donald Trump is a deal maker, he is a deal maker the way lions are carnivores and water is wet.”
We’ve heard Larry Kudlow and Moore both reference Trump’s business and deal making attitude towards trade. That puts a perspective on his saying he would consider an across the board tariff on everybody except China, who he would push for 60 percent.
“I use tariffs as a weapon,” is how the book quotes Trump. Trump is very cognizant of China’s President Xi listening to such a pronouncement -- and wondering what Trump would really do. Somewhere just recently we saw Trump quoted as saying some adversaries like Xi and Putin think he’s crazy -- and that’s part of his deal making edge.
While a big tariff on China would hurt consumer prices here, China’s economy, struggling as it is, would be hit harder by losing the vast American market. Moore and Laffer don’t believe Xi would call Trump’s bluff.
They say Kudlow coined the description of Trump’s trade doctrine as “trade reciprocity.” In Trump’s New York thinking, that comes out as, “You hit us with tariffs, we will hit you back.”
Part of the problem is that most of us don’t realize what the rest of the world has been doing to us. Breitbart economist John Carney notes that the European Union hammers us with 50 percent tariffs, China with 2X tariffs, Brazil with 3.5X and India 5X tariffs. Kudlow points out the WTO has been ineffective in preventing such inequalities and has failed to enforce agreed upon trade rules when China ignores them.
Trump prefers negotiating one-on-one trade deals rather than the complex multilateral trade deals that don’t always favor the U.S. The American beef industry experienced the benefit of that philosophy in Trump’s first term with Japan, South Korea and China, for example.
But China is a two-edged sword.
Kevin O’Leary has been doing business in China for 20 years. Not a fan of tariffs in general, he agrees with Trump that only tariffs will bring China around but O’Leary would levy much higher tariffs on China than Trump has posited.
In the long run, Trump’s goal is to get rid of tariffs and trade barriers American companies face and, on the flip side, create a business environment in America of lower taxes, fewer regulations and a better work force so American companies can stay here and make money. He would also entice foreign capital and businesses to build and invest in America by allowing them similar advantages by operating here.
*Council of Economic Advisers Report, 2018, Trump Administration.
Next time: more from Laffer and Moore on Trump’s thinking.
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