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Copy of Copy of AFF Sentinel V21 #42-Laffer and Moore on Trump and Trade-Part II

What You Didn't Know About Trade Deficits and Other Nations' Attitudes


Steve Dittmer | AFF Sentinel

Colorado Springs, CO

Originally sent to subscribers 10/24/24


Last time we began examining Trump’s trade philosophy from the perspective of two of his closest economic advisers, Art Laffer and Steve Moore. Their book is “The Trump Economic Miracle.” This time, we examine more details.


Last time we recognized the U.S. as a tremendous pull for exports from around the world, as a large and relatively wealthy market. There’s another factor. The dollar is the world’s reserve currency. Selling into the U.S. nets foreign companies more U.S. dollars to use and invest. China needs us the most.


Trump starts tough as a negotiator. The book points out Trump got out of the TPP, as he felt multilateral deals were not advantageous to the U.S. He insisted or re-negotiating NAFTA. He threatened tariffs on Mexico if they didn’t cooperate on restricting entry via the southern border. They cooperated. He threatened NATO because they hadn’t paid their share of dues and they coughed up.


Trump got farther with China than anyone had before, including a deal for beef better than we dared hope. Unfortunately, the Biden administration has been unwilling or unable to hold China to all their commitments but many industries have benefited, ours in particular. The WTO is little help.


The book notes a 2017 study by the office of the U.S. Trade Representative. The report estimated that intellectual property (IP) theft and trade secret theft costs U.S. companies anywhere from $400 billion to over a trillion dollars per year -- and that’s just China.


Our first thought: that would go a long way towards getting rid of our budget deficit each year.


Our next thought: a seminar we attended a few years ago that detailed how the Chinese had liked and, therefore, copied our patent system for protecting their own trade secrets and IP. The difference is, they run their system correctly and we have allowed ours to become abused by unlimited challenges from well-heeled corporations, greatly reducing protection for the innovations of smaller companies.


Trump sees the U.S.’ unwillingness to stand up to such theft as allowing us to be treated as a sucker. He does not believe that standing up for our rights would cause the end of free trade but work to re-balance it. Why should the U.S. develop technology or drugs or vaccines and then let the rest of the world copy and/or patent them?


As for trade wars, Trump believes we’re already in a trade war but we’re not fighting. We need to fight and any retaliation will hurt other nations more than us. Short-term pain should bring long-term gain for us.


The Council of Economic Advisers noted in 2017 that the average U.S. tariff rate was 3.5 percent. Other partners: Canada-4.1 percent, EU-5 percent. South Korea-13.9, China-10 percent, India-13 percent and Mexico-7 percent. And that doesn’t include non-tariff trade barriers, like quotas, domestic content rules, domestic ownership rules (especially China), value-added taxes and more.


This is neither free trade nor fair trade, Trump contends.


What about trade deficits? What about us importing more from a nation than exporting to them? Laffer and Moore say Trump and former U.S. Trade Representative Robert Lighthizer are concerned with trade deficits much more than they are. In fact, Laffer studied trade deficits from colonial times through the Civil War. Surprisingly, during that period there were 95 years of trade deficits and 13 years of trade surpluses. Most of the surplus years were war years and 1842-44 during the Industrial Revolution.


America built a great economic empire by importing enormous amounts of capital, growing our economy, and employing workers at good wages. Our years of greatest growth and prosperity were trade deficit years, Laffer found.


In other words, our system put huge amounts of capital to work efficiently, consumed much of the production at home and didn’t need to export large amounts to prosper.

During the Depression Years, the Smoot-Hawley Act put tariffs on thousands of imports. There was not really a trade deficit or surplus and the economy and living standards plummeted.


Laffer and Moore contend that it is the volume of trade that determines economic growth for us, not whether there are deficits or surpluses.


Our thought is that our system, our businesses and our people produce so much wealth, a higher standard of living plus a large population so that it is hard for any nation to keep up. The level of consumption beyond necessities and our capital formation compared with the rest of the world may make some deficits expected. That doesn’t even account for things we have to get from outside like bananas, coffee, chocolate, the volume of rare minerals we need, etc.


The book backs up that theory on trade deficits with multiple examples.


JFK reduced tariffs by 35 percent and during the 13 quarters of his era, U.S. growth was above 8 percent for five quarters, above 6 percent for six quarters and three slightly below three percent.


The ‘70s under three presidents featured small trade surpluses and saw the worst economic growth in family incomes, stock markets and wealth accumulation since the Great Depression.


In the Reagan era of the ‘80s, the U.S. cut taxes, cut regulations and reduced inflation. The economy took off and trillions in foreign capital poured in. All that capital resulted in a trade deficit. But America was prosperous.

During the height of the Great Recession, 2008-9, the trade deficit decreased significantly and unemployment went from 5.8 percent to 9.3. From 2009-2014, imports went up and the trade deficit increased and our unemployment rate went from 9.3 percent to 6.2.


Laffer and Moore believe Trump wants to get to genuine freer trade. They recount the end of the 2018 G7 summit, when Trump had taken heat for threatening a break from the “new world order” the Europeans and Canada were pushing for reducing trade barriers. Larry Kudlow, the new National Economic Council director, suggested Trump go all out and call for a “zero tariff solution.”

Evidently, Trump liked the concept and, of course, liked upping the ante.


“No tariffs, no barriers. That’s the way it should be.  And no subsidies.”


The G7 defenders of the “new world order” rejected Trump’s offer and denounced him after he left.

Laffer and Moore surmise that maybe Trump is right: the world wants open borders for their trade into America but doesn’t accept the idea of opening their borders up to America.


The idea of a ten percent across the board tariff rate makes them nervous but we think they see that as a negotiating position and reciprocal trade is more likely. If any nation wants to continue paying tariffs and keep levying tariffs on us, the tariff fees could offset income or payroll taxes here that have a more significantly bad effect on our economy.


But we have free trade agreements already with key trading partners.


The volume of imports and exports increased under Trump until the left’s shutdown of the economy. Growth was on the upswing.


Trump wants trade deals that put America first, create conditions here for all companies to prosper and employ Americans. That doesn’t mean the road won’t have bumpy stretches. But Laffer and Moore contend Trump has “reset the terms of the debate.”


We think they are right. And our industry, with the quality, consistency and efficiency of our production chain and the resulting product, should be in position to take full advantage of better, freer trade.




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Steve Dittmer has over 45 years of experience in management, marketing, and communications in the beef industry.

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