David R. Henderson  

Lester versus DiMicco on NAFTA

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Simon Lester, at Cato at Liberty, has a telling Twitter discussion with Dan DiMicco of Nucor Steel. DiMicco is an adviser to president candidate Donald Trump. According to Time:

He [DiMicco] has been an avid supporter of Trump's trade proposals, recently writing, "The Trump trade policy is both sound and necessary in today's World where 'Trade Cheating' has become the norm." DiMicco became Trump's trade advisor in early July, saying he had never met Trump in person but had corresponded with him for a decade.

In other words, if Time has identified DiMicco's role accurately--and it may not have--DiMicco is not just an adviser to Trump but an adviser on trade. So, again assuming Time is accurate, you would expect him to know Trump's views on trade and also understand, if not the economics of international trade, at least the current laws on trade.

At least that's what Simon Lester expected. But in a civil exchange with DiMicco, Lester found out that DiMicco doesn't understand NAFTA.

Read it for yourself.

Here's Lester's bottom line:

A conversation like this leaves you very puzzled. Trump says he wants to renegotiate NAFTA. Yet neither he nor his advisers can explain what they want to change. It's not a hard question. I can think of quite a few things I'd change about NAFTA! No trade agreement is perfect. My main take away is this: When Trump's trade advisers are unable to explain the basic details of Trump's trade policy, it's no wonder that Trump sounds so uninformed and incoherent when he talks about trade.


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CATEGORIES: International Trade




COMMENTS (13 to date)
Bob Murphy writes:

Eh, I agree with you David that the guy probably couldn't back it up even if he really wanted to, but strictly speaking, just because he doesn't bend over backwards to placate someone who is obviously a critic using a 140-character medium, doesn't mean the guy couldn't have given a better answer. He may not have realized the writer was even from Cato, right? It could have just been some random guy who thinks Trump is wrong, and is demanding specifics on Twitter? I don't always answer people like that either.

Mark Bahner writes:
He may not have realized the writer was even from Cato, right?

Yes, I agree. But Dan DiMicco ought to at least be able to point to the document(s) that lead him to think what he thinks. It doesn't take much typing to provide a link.

David R. Henderson writes:

@Bob Murphy,
just because he doesn't bend over backwards to placate someone who is obviously a critic using a 140-character medium, doesn't mean the guy couldn't have given a better answer. He may not have realized the writer was even from Cato, right? It could have just been some random guy who thinks Trump is wrong, and is demanding specifics on Twitter? I don't always answer people like that either.
Good point, Bob, and thanks for partially defending my point, Mark. What gave it credibility to me was that DiMicco did get into the policy weeds. So that made me think he actually didn’t understand the various laws. That’s still my best guess but, as you point out, it is a guess.

Bob Murphy writes:

David,

Again, let me acknowledge that at this point we may be spending more time on this than DiMicco did, which shows we care more about it than he does.

However, take for e.g. this from Lester:

"I suspected he was confusing a couple different trade issues, and that he was actually referring to something outside of the NAFTA context, because “border adjustable taxes” is an issue broader than NAFTA. It is usually raised in the WTO context, in relation to the use of a territorial tax system in many countries (but not in the U.S.), although the impact of “border adjustable taxes” on trade is questionable."

So, related to the above, there were 2 or 3 tweets from Lester that made it sound like he was possibly saying (I'm paraphrasing):

"Yes, after NAFTA, there is a border adjustable tax WRT Mexico, but that's not really about NAFTA per se. This is a broader issue, and so it wouldn't make sense to deal with this by renegotiating NAFTA, it would make more sense to go to the WTO and do a more fundamental revision to world trade conventions."

So, if that is possibly what Lester's point was, I could see why it would be pointless for DiMicco to follow up. Because even if he *did* point to a border adjustable tax that now holds, after the passage of NAFTA, then Lester could say, "Right, I know it exists, but I'm saying it's not due to NAFTA per se. Man you Trump guys are dumb."

See what I mean? It would be a total waste of DiMicco's time (assuming I've parsed Lester's position correctly, which I may not have).

David R. Henderson writes:

@Bob Murphy,
Yes, now I get it.

Benjamin Cole writes:

That international free trade is a positive, even as practiced and even with huge structural impediments, is prominent modern-day orthodoxy. Would that macroeconomists spent as much time calling for the total abolition of property zoning, or decriminalization of push-cart and truck-vending.

And yet---imagine not nations, but regions. If you study honest regional economics, you know that a region only prospers by 1) selling goods and services outside the region 2) tourism, or 3) taxing money in, as in a national capital. The rest is taking in each other's laundry, as they say.

The United States is a region. Can it really net-import its way to prosperity, to the tune of $500 billion annually?

The orthodox answer is, "Well, we borrow the $500 billion to finance the imports, or sell assets, and so everything is okay."

Trump is a piker next to what is happening in Australia, New Zealand and Canada, which are all busily erecting barriers to foreign purchases of homes. Gee, you run a trade deficit long enough, and you find yourself selling the best assets off to foreigners? LIke the Waldorf Astoria, for example?

Add in: Okay so we borrow money and sell assets to finance imports? Is encumbering our economy a good idea? We have to pay interest on the borrowed money and if we sell assets, it may be said we will have to pay rent in perpetuity to the offshore owners of assets. When I rent a room in the Waldorf, I am sending money to China. Now and fifty years from now.

Detroit in 1960 was the wealthiest city per capita in the US. Forget nations for a moment and think regions. Whether due to unions, urban politics, or free trade, Detroit stopped exporting so many cars. Despite plummeting population, it is one of the poorer per capita cities today.

A region cannot import its way to prosperity.


B Cole writes:

Add on: why is it the same people who love to say, "There is no such thing as a free lunch," then say "Except in free trade, you do get free lunches!"

David R. Henderson writes:

@B Cole,
Add on: why is it the same people who love to say, "There is no such thing as a free lunch," then say "Except in free trade, you do get free lunches!"
I don’t recall saying that it’s a free lunch. It’s not. Rather, the value of the lunch to the buyer exceeds the cost. In other words, people gain from trade, or else they wouldn’t trade.

B Cole writes:

David H---

Can a region (the US) annually import net $500 billion in goods and services in perpetuity?

If so, there is in fact such a thing as a free lunch. We get $500 billion dollars of free lunches every year, no consequences.

David R. Henderson writes:

@B Cole,
Can a region (the US) annually import net $500 billion in goods and services in perpetuity?
Yes.
If so, there is in fact such a thing as a free lunch. We get $500 billion dollars of free lunches every year, no consequences.
Not true. That net $500 billion is paid for--with $500 billion. People do not GIVE us goods and services, more’s the pity. They SELL them to us. Do you see the difference?

Benjamin Cole writes:

As a region, the U.S. has financed its net $500 billion trade deficit by paying for the net imports...and paying for the net imports by borrowing money, or selling assets.

My point is indisputable.

I think it is also indisputable that a region cannot import its way to prosperity in perpetuity.

There is a lot of ruin in a nation.

Or, we can sell assets continuously.

In Australia, New Zealand and Canada, the process of selling assets, especially residences, is leading to backlashes. Many Australian banks do not extend loans to foreigners anymore, and Canada just slapped a 15% tax on any foreigner buying a house in Vancouver.

David Henderson, at least be honest in your positions. Sure, the U.S., as an economic region, can run perpetual trade deficits, and we just have to borrow money or sell assets to finance those imports.

This may result in foreigners owning the best assets in the U.S., or a very large debt load in the future, and a downward valuation of the dollar.

There are no free lunches!


David R. Henderson writes:

@Benjamin Cole,
David Henderson, at least be honest in your positions. Sure, the U.S., as an economic region, can run perpetual trade deficits, and we just have to borrow money or sell assets to finance those imports.
Exactly. Now you’re getting it.
There are no free lunches!
Exactly.
Benjamin,
I’ll cut you a little slack here because you generally have shown good will, but if you ever again accuse me of dishonesty, I will not answer you.

B Cole writes:

David--ok. In general I agree with the libertarian point of view.

But I think we should be upfront about negatives and also fair in its application.

Bulldoze single-family detached housing districts, through the elimination of property zoning. Finance trade deficits through borrowing or selling assets. Tolerate panel-wagon brothels. Eliminate housing standards. Embrace push-cart vending.

There is more to libertarianism than smiting the minimum wage and opening borders.

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