No to the Village People, but Yes to ‘Bait-and-Switch’?
October 9, 2018
First, let me thank those column readers and The Trade Guys podcast listeners who wrote in about last week’s column/episode. You will be relieved to know that Scott Miller and I do not intend to channel the Village People and sing “YMCA” on the next podcast.
While I am on that subject, however (the United States-Mexico-Canada Agreement or USMCA, not YMCA), I do want to alert everyone to the over-selling that has already begun. Our current president oversells everything he does but for trade agreements that have long been par for the course. Economists have disagreed for 24 years about whether the North American Free Trade Agreement (NAFTA) has been a net positive or negative for our economy, and even those who agree on the overall direction do not agree on the magnitude; however, if you look at the statements politicians made about it in 1993 and 1994, NAFTA was the greatest thing that ever happened to our economy.
I recall when I was on the Hill, every time Congress considered a trade agreement, the U.S. Trade Representative was asked, “How many jobs will this create?” The U.S. Trade Representatives always had an answer—and it was always wrong. It just took four or five years to see that. I can safely predict that is going to happen again, just as five years from now economists will be explaining why they got it wrong. This does not mean it is a bad agreement. It just means the claims about it should be taken with a tablespoon of salt.
The completion of USMCA negotiations, however, has allowed attention to turn to other trade issues. While talks with the European and Japan are looming, China is the topic du jour, especially in the wake of the vice president’s speech last week. And there, I think, we are witnessing the unfolding of a time-tested tactic—"bait-and-switch”—promising one thing and delivering something else, usually of lesser value. You can find it in the Bible and throughout history. Right now, we are finding it in U.S. trade policy on China.
The imposition of $253 billion in tariffs, the threat of another $267 billion, and Chinese retaliation combined have produced considerable consternation in the business and agriculture communities. The administration’s response, until the vice president’s speech, has been, “Don’t worry; tariffs are a tactic. Once we win, they will go away, and things will be back to normal, only better.”
Many businesspeople and farmers appear to have bought this line and continue to support the president, although a growing number are asking how long they are supposed to wait and pointing out that if they go bankrupt in the interim, “winning” after they’re broke won’t matter very much.
There is growing concern, however, that we are victims of bait-and-switch—the tariffs are not a tactic but a policy, and they are here to stay. From the president’s point of view, this is a win-win strategy. We have demanded the Chinese make significant changes in the structure of their economy. If they do, we win. If they don’t, which is far more likely, we have the tariffs, which the president thinks is “winning.”
He thinks that because the real objective is the de-linking of our two economies. Chinese surrender to our demands would be nice, but nobody really expects that. Instead, we are trying to force U.S. companies out of China and keep Chinese companies out of the United States. U.S. companies are being encouraged to leave China—ideally to come back home but at a minimum to go somewhere else, and major Chinese investments here are being rejected. Tariffs encourage U.S. companies to leave. Since we are talking about global supply chains, any adjustment will take time, cost money, and leave our companies worse off than they are now, but that’s the plan.
Regular readers of this column know I think that is a bad idea. Like it or not, we live in a globally integrated economy, and our long-term competitiveness depends on our ability to take on our foreign competitors and win all over the world, not just in the United States. Using tariffs to force companies to alter their supply chains forces them to act in ways that are not in their long-term economic interest. Some will do that; others will not. All will end up worse off in the long term. This week, however, I mostly want to point out that our policy is classic bait-and-switch. People are being told they are getting a tactic designed to produce more open trade when in fact they’re getting a long-term policy of protection intended to drive apart the two biggest economies in the world. If nothing else, that deserves more of a public debate than we have had, and it should begin with the administration fully and accurately explaining its intentions.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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