Tag: Trump

Have we been taken advantage of?

For as long as I can remember I have purchased food and household items from Safeway, Giant, and Whole Foods without any of them buying anything from me. Was I taken advantage of? Of course not. I voluntarily gave up part of my hard earned income in exchange for something I wanted more. I gained and was made better off by being able to make these trades just as they profited from providing them. In fact, I don’t know and I don’t care what those stores did with the money I paid them. Much of it, of course, was used to buy the goods they put on their shelves for me to buy.

These trades (my income for their goods) would only become a problem if I spent more at Safeway, Giant, and Whole Foods than I earned selling my labor. To do so I would need to borrow money from someone and go into debt. That might be OK temporarily, but obviously not on a permanent basis. In the long run, my purchases (imports) can’t exceed my income (export of my labor).

If you change my name to the United States and the names of Safeway, Giant, and Whole Foods to China, Japan and Germany (not necessarily in that order) nothing in this story changes fundamentally. Americans benefit from our purchases of Chinese goods and it doesn’t matter what they do with the money we paid to them (net of what they purchased from us—i.e., their trade surplus and our trade deficit). As I have explained in the following article, what they (all of them collectively) are largely doing with our money (our net global trade deficit) is finance our profligate government. https://nationalinterest.org/feature/who-pays-uncle-sams-deficits-26417

For some reason President Trump has trouble understanding these simple facts. He is upset by our trade deficit with China and Germany and others that his profligate, indebted government has caused. If the federal government balanced its budget (actually being at the top of the current business cycle it should be running a surplus in order to balance over the cycle), what would China and Germany do with their surplus of dollars? Rather than buying U.S. treasury securities, they might invest in the U.S. economy contributing to faster economic growth in the U.S. They might also choose to buy more goods and services from the U.S. thus reducing their dollar surpluses. In all likelihood they would do some of each. Given the resulting adjustments in their demand for dollars, the exchange rates of the dollar for Euros and RMB would adjust to produce the desired reduction in their surpluses.

Attacking China with tariffs and demanding a reduction in their trade surplus with the U.S. is counterproductive and wrong headed. But it does not follow that China is playing by the rules (WTO rules that we should be trying to strengthen rather than weaken). The EU, Japan, Canada, Mexico and others share this assessment and Trump would be much smarter to seek their cooperation in pressuring China to behave better rather than attacking them with tariffs and tariff threats as well. With the recent agreement with Jean-Claude Juncker, head of the European Commission, to deescalate the trade war with the EU and resume the negotiations over further trade liberalization started a few years ago (TTIP), perhaps Trump is changing tactics in a more promising direction. This should include concluding the updating of NAFTA and rejoining the TPP now the CPATPP.  We should all hope so.

Richard Rahn makes similar arguments in his Washington Times article today: https://www.washingtontimes.com/news/2018/jul/30/the-united-states-is-doing-better-than-it-did-duri/

Trump and interest rates

There seems to be no norm or conventional wisdom that President Trump is not willing to overturn. Following Fed Chairman Powell’s congressional testimony Tuesday in which he confirmed the Fed’s intention to continue its gradual increase in its policy interest rate, Trump said: “I don’t like all of this work that we’re putting into the economy and then I see rates going up.”  The statement is wrong on multiple accounts.

The economy is now fully employed and interest rates probably should have been returned to normal some time ago.  The alarming current and projected fiscal deficits of the federal government will force interest rates and trade deficits still higher.  This is Trump’s fault– not Powell’s.  “Who pays uncle Sam’s deficits?”  The major policies threatening to undermine the economic boost from tax and regulatory reforms are Trump’s trade policies (pulling out of the Trans Pacific Partnership, stalling and threatening U.S. withdrawal from NAFTA, Steel and Aluminum tariffs (taxes) on our friends in Canada, Mexico and the EU, and a deepening trade war with China).  Leaving the TPP  Resisting the interest rate increases needed to keep inflation at 2% would increase the most regressive tax around (inflation).

But Presidential interference in implementing monetary policy, as is now being undertaken by President Erdoğan in Turkey, violates a long established principle and practice of central bank independence.  Historically, inflation, which falls heaviest on the poor and undermines economic efficiency and growth, has resulted primarily from governments turning to their central banks for financing in misguided and ultimately futile efforts to keep interest rates (government borrowing costs) low.

President Trump can save the economic benefits of his tax and regulatory reforms by rejoining the TPP, rapidly concluding amendments to NAFTA that improve productive efficiency and fairness, dropping the steel and aluminum tariffs, ending the trade war with China, joining with the EU, Canada, Japan and others to bring China into compliance with the rules of a strengthened WTO, and establishing a fiscal budget surplus primarily through entitlement reform.

Econ 101: Trade deficits

Responding to critics of the administration’s proposed steel and aluminum tariffs, Commerce Secretary Wilbur Ross stated on CNBC: “I think this is scare tactics by the people who want the status quo, the people who have given away jobs in this country, who’ve left us with an enormous trade deficit and one that’s growing. [The trade deficit] grew again last year, and if we don’t do something, it will keep growing and keep destroying American jobs.” “Wilbur-Ross’s-star-rises-as-trump-imposes-tariffs”

Though the forces determining our trade deficits have many moving parts, it is not that complicated to explain why everything in the above statement is wrong. In this note I explain why:

  • Our trade deficits are caused more by U.S. government fiscal deficits than by the mercantilist export promotion policies of China, Japan, and Germany;
  • Mercantilist policies that subsidize exports and restrict imports don’t cost American jobs but rather reallocate workers and capital to less productive jobs that lower our standard of living; and
  • Challenging mercantilist policies using the tools and provisions of the WTO and other trade agreements better serves our long run interests than unilaterally imposing tariffs and inciting trade wars.

To understand the relationship between our fiscal deficit and trade balance, it is essential to understand the macro level relationship of our trade deficit to the other broad categories of our national income and expenditures. So take a deep breath as I explain the national income identities through which I will explore that relationship.

The economy’s total domestic output, known as Gross Domestic Product (GDP), can be broken into the broad components of our output/income that reflect how that income is spent. I understand how a little math can discourage some from reading further, but this is necessary and I hope you will indulge me. Starting with the components of expenditures:

GDP = C –M + I + G + X, or GDP = C + I + G + (X-M)

Where:
C = household consumption expenditures / personal consumption expenditures
I = gross private domestic investment
G = government consumption and gross investment expenditures
X = gross exports of goods and services
M = gross imports of goods and services

C-M is household consumption of domestically made goods and services, while M is household consumption of foreign made goods and services. If we subtract M from X (foreign expenditures on domestically made goods and services) we have the famous trade balance. When we buy more foreign goods and services than foreigners buy of our output, i.e., when X-M is negative, we have a trade deficit. As discussed further below, it is important to note that the trade balance (deficit or surplus) is between the U.S. and the rest of the world. Bilateral deficits or surpluses with individual countries are irrelevant.

But another way of breaking up total output (and thus income) is into how households allocate it:

GDP = C + T + S

Where:

T = household tax payments (personal and corporate income taxes plus sales taxes)

S = household saving

These two equations each provide definitions of the same quantity (GDP) and thus can be set equal to each other. This enables us to arrive at a useful formulation of the trade deficit:

C + I + G + (X-M) = C + T + S, or M-X = I-S + G-T;

The relationships in the identity can be described in several ways. Our fiscal deficit (G-T) must be financed by domestic net saving, i.e. a negative I-S, or by foreigners (M-X), i.e. a trade deficit or a mix of the two. Government finances its deficits by selling treasury securities domestically or abroad. If they are purchased domestically, residents must save more for that purpose or investors must borrow less from existing saving. If a fiscal deficit doesn’t crowd out private investment or increase private domestic saving (e.g., if I-S = 0) then it must be financed by foreigners who get the dollars with which to buy U.S. treasure securities by selling their goods and services to us in excess of what they buy from us, i.e., a trade deficit.

The above relationships are derived from definitions. They are tautologies. If the government’s spending exceeds its tax revenue it must borrow the difference from someone: a diversion of spending that would have financed investment (crowding out), a reduction in consumption (i.e., increase in saving), or an increase in the share of consumption spent abroad (increase in imports) giving foreigners the dollars they lend to the U.S. government. The interesting part—the underlying economics—is how markets bring about these results (usually a mix of all three).

When the government increases its need to borrow, other things equal, the increase in the supply of treasury securities relative to the existing demand for them increases the interest rate the government must pay. Higher interest rates generally encourage more saving and discourage investment. If we have no trade deficit (X-M = 0 so that G-T = S-T), the government’s deficit (G-T) must be financed by net saving (S-T). Depending on how much of the net saving comes from an increase in saving and how much from a decrease in investment, government deficits are bad for investment and economic growth in the long run (abstracting from countercyclical budget deficits and surpluses meant to offset cyclical swings in aggregate demand).

However, much of our fiscal deficits have been financed by foreigners (predominantly China and Germany) through their trade surpluses and our trade deficits. The market produces this result because the higher interest rates on U.S. treasury securities (and until now their perceived low risk of default) attracts foreign investors. The foreign demand for dollars in order to buy these treasury securities increases (appreciates) the exchange rate of the dollar for other currencies. An appreciated dollar makes American exports more expensive to foreigners and foreign imports cheaper for Americans. The resulting increase in imports and reduction in exports increases the trade deficit, which then finances our fiscal deficit.

As Alan Blinder put it: “Nations that invest more than they save must borrow the difference from abroad. Happily, the U.S. can do that because foreign countries have confidence in American securities. When we import more than we export, foreigners get IOUs in return for goods and services Americans want. That sounds more like winning than losing: We get German cars, French wines, and Chinese solar panels, while the Germans, French and Chinese get paper assets. America’s tremendous ability to export IOUs has been called our “exorbitant privilege.” Yes, privilege.” “This-is-exactly-how-trade-wars-begin”

If you have made it this far, you will be better able to understand the errors of Secretary Ross’s statement above: “if we don’t do something, it [the trade deficit] will keep growing and keep destroying American jobs.” If the United States government wants to reduce our trade deficit, it should reduce, rather than further increase, our fiscal deficit.

As noted above, however, our trade deficits reflect many moving parts. In the above example, foreigners want to increase their holdings of U.S. dollars (and dollar assets) in part because the dollar is a widely used international reserve asset. Our trade deficit is the primary way in which we supply our dollars to the rest of the world (and its central banks). However, what if our trading partners were manipulating their exchange rates in order to produce trade surpluses for themselves?

In the past, China followed such a mercantilist policy of promoting its exports over imports as part of its economic development strategy. In that case our trade deficit would result in foreign investments in the US with the net dollars accumulated abroad even without U.S. fiscal deficits. If they are not soaked up financing government debt they will be invested in private securities or other assets (such as Trump Hotels). Just to keep it complicated, these foreign investments would either add financing to increased domestic investment (if they lowered U.S. interest rates) or would buy existing American assets freeing up funds of the sellers to help finance government deficits or new investment. As I said, there are many moving parts, which adjust depending on prices (interest rates) and the public’s buying and investing propensities.

Tariffs don’t violate the above national income identities. Rather they potentially change the allocation of resources toward or away from traded goods. The Better Way tax reform proposals of Congressman Kevin Brady in 2016 included a so-called border adjustment tax, which taxed all imports equally and exempted all exports from the domestic expenditure tax. The tax on imports would have been, in effect, a tariff on all imports. Interestingly Brady’s border adjustment tax would not have affected our trade balance nor distorted resource allocation. The dollar’s exchange rate would have adjusted to nullify the impact of the tariff/tax on the prices we would pay domestically on imports.

Contrast this with the tariffs proposed by President Trump on steel and aluminum imports. These tariffs were meant to prop up inefficient American steel and aluminum firms by increasing the cost of their imported competition. As such it would reallocate our workers and capital to activities that are less productive than they would otherwise be used for (i.e., to the increased production of steel and aluminum). Once all of the adjustments were made we would be poorer, though still fully employed. “Econ-101-trade-in-very-simple-terms.”

It turns out, however, that Trump’s tariff threats were probably a negotiating ploy (He has temporarily exempted Canada and Mexico from the tariffs and is making deals with other suppliers in exchange for suspending the tariff). China is already paying special tariffs on these products to counter Chinese government subsidies and only sells the U.S. 2% of its steel imports. Thus the tariff is largely irrelevant for China. The net short-term affect of Trump’s ploy may well result in almost no tariff revenue and no protection for U.S. steel and aluminum producers and some improvements in other trade deals with our trading partners (or at least what the President considers improvements). In short, Trump’s tariff threat could turn out to be helpful. However, given Trump’s generally negative and/or ill-informed views on trade, this may be an overly generous interpretation.

As The Economist magazine put it: “If this were the extent of Mr. Trump’s protectionism, it would simply be an act of senseless self-harm. In fact, it is a potential disaster—both for America and for the world economy.” “Trumps-tariffs-steel-and-aluminum-could undermine-rules-based-system” Why? Even if the tariffs are waved sufficiently to avoid the retaliatory trade war Europe and others are threatening, Trump’s use of the national security justification for his steel and aluminum tariffs can’t be taken seriously. “That excuse is self-evidently spurious. Most of America’s imports of steel come from Canada, the European Union, Mexico and South Korea, America’s allies.” The Economist My long time friend Jim Roumasset noted that “Wilber Ross did indeed make such a finding [of a national security threat], but then declared that the tariffs are “no big deal.” In other words, the tariffs won’t improve national security. Unfortunately, there is neither check nor balance against the ignorance of commerce secretaries.”

The large expansion of international trade made possible by removing trade barriers, including lowering tariffs, has enormously benefited us (the U.S. and the rest of the world). In 1980 60% of the world’s population earned less than $2.00 a day (inflation and purchasing power parity adjusted). Because of economic growth, significantly spurred by expanding world trade, this number as plummeted to 13% by 2012 (latest figure available). This incredible feat was made possible by the collective agreements of virtually all of the world’s countries to increasingly lower tariffs and other trade barriers and to agree on global rules for fair competition. These trade rules were developed under the General Agreement on Trade and Tariffs (GATT) created after WWII as one of the three Bretton Woods institutions (the International Monetary Fund, the World Bank, and the GATT), which became the World Trade Organization (WTO) in 1995.

With its large and diverse membership of 164 rich and poor countries, the GATT/WTO has not been able to conclude new global trade agreements since 1995. Thus attention shifted to regional, multilateral agreements such as the 11 country Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) successor to the Trans-Pacific Partnership (TPP) from which Trump very foolishly withdrew the U.S. last year. “The-shriveling-of-U.S.-influence”

When China was admitted to the WTO in 2001 we expected that it would continue to liberalize and privatize its economy in accordance with the requirements of the WTO’s rules. The expectation was that China’s membership in the WTO would draw it into the liberal international rule based trading system.

In 2002, the IMF sent me to China to discuss these requirements in the banking sector with the Peoples Bank of China. We had high expectations. Unfortunately, China’s liberalization has gone into reverse in recent years. While not a trade issue, China’s recent launch of its centralized rating of the good behavior of its citizens, drawing on its extensive surveillance capacities, and its just announced intension to bar people with low “social credit” scores from airplanes and trains is certainly not an example of the more bottom up civil liberties, human rights views and approaches of most other countries. “China-to-bar-people-with-bad-social-credit-from-planes-trains.”

China’s behavior has been a disappointment. From its accession into the WTO, China began flooding the world with its “cheap” exports while continuing to restrict its imports from the rest of the world. The normal market reaction and adjustment to the inflow of dollars to China from its resulting trade surplus would be an appreciation of the Chinese currency (renminbi), which would increase the cost of China’s exports to the rest of the world (and lower the cost of its foreign import). However, China intervened in foreign currency markets to prevent its currency from appreciating and as a result China accumulated huge foreign exchange reserves (peaking at 4 trillion U.S. dollars in 2014). Not only did China intervene to prevent the nominal appreciation of its currency, but it also sterilized the domestic increase in its money supply that would normally result from the currency intervention, thus preventing the domestic inflation that would also have increased the cost of its exports to the rest of the world.

China’s currency manipulation was not seriously challenged at that time. Economic conditions in China have more recently changed and since 2014 market forces have tended to depreciate the renminbi, which China resisted by drawing down its large FX reserves (all the way to 3 trillion USD by the end of 2016—they have risen modestly since then). China is no longer a currency manipulator as part of an export promotion (mercantilist) policy.

But China does continue to violate other WTO rules with many state subsidies to export industries and limits and conditions for imports and foreign investment (such as requiring U.S. companies to share their patents as a condition for investing in or operating in China). A government subsidy of exports distorts resource allocation and thus lowers overall output in the same way but in the opposite direction as do tariffs. Both reduce the benefits and gains from trade and are to be resisted. The WTO exists to help remove such barriers and distortions in mutually agreed, rule based ways. A tariff that balances a state subsidy helps restore the efficient allocation of resources upon which maximum economic growth depends. These are allowed by WTO rules when it is established that a country’s exports violate WTO rules. President Trump is considering such targeted tariffs (his steel and aluminum are certainly not an example of this type of tariff) and hopefully they will conform to WTO requirements. “Trump-eyes-tariffs-on-up-to-60-billion-chinese-goods-tech-telecoms-apparel-targeted”

Trump’s bypass of WTO rules for his steel and aluminum tariffs, undermine the WTO and the international standards that have contributed so much to lifting the standard of living around the world. Despite its many weaknesses and shortcomings our interests are better serviced by strengthening the WTO rather than weakening it. “Trumps-tariffs-aren’t-killing-the-world-trade-organ”

“Whatever the WTO’s problems, it would be a tragedy to undermine it. If America pursues a mercantilist trade policy in defiance of the global trading system, other countries are bound to follow. That might not lead to an immediate collapse of the WTO, but it would gradually erode one of the foundations of the globalised economy. Everyone would suffer.” The Economist

As an aside, our bilateral trade deficits (e.g., with China) and surpluses (e.g., with Canada) are totally irrelevant and any policy designed to achieve trade balance country by country would damage the extent and efficiency of our international trade and thus lower our standard of living. See my earlier discussion of this issue in: “The-balance-of-trade”

“Even though trade policies are unlikely to change the long-run trade balance, they are not unimportant. Americans will be better off if the United States can use trade negotiations to open foreign markets for its exports, not because more exports will increase the US trade surplus, but rather because US incomes will be higher if more US workers can be employed in the most efficient US firms that pay high wages, and if those firms can sell more exports at higher prices. Similarly, US living standards will be higher if the United States reduces its trade barriers at home because this will give consumers access to cheaper imports and make the economy more efficient. Ultimately, therefore, the goal of US trade policies should not be focused on trade balances but instead on eliminating trade barriers at home and abroad.” This is quoted from the excellent and more detailed discussion of many of these issues that can be found here: “Five reasons why the focus on trade deficits is misleading”

There is another, very important negative byproduct of Trump’s transactional, confrontational, zero sum approach to getting better trade agreements. Mutually beneficial trade relations strengthen political and security relations and cooperation. These have been important non-economic benefits, for example, of NAFTA. Trump’s confrontational approach undermines these benefits. Pew Research Center surveys in 37 countries found that: “In the closing years of the Obama presidency, a median of 64% had a positive view of the U.S. Today, just 49% are favorably inclined toward America. Again, some of the steepest declines in U.S. image are found among long-standing allies.” Senator Ben Sasse delivered an exceptional speech on this subject followed by an outstanding panel discussion of the NAFTA negotiations at the Heritage Foundation. I urge you to watch the following video of that event: “The-national-security-implications-of withdrawing from-NAFTA”

The shriveling of U.S. influence

Today in Chile 11 of the original 12 countries that had signed the Trans-Pacific Partnership (TPP) multilateral trade agreement on February 4, 2016 are signing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11 for short, i.e., the TPP minus the U.S.). Upon taking office President Trump promptly withdrew the United States from the agreement saying that it was “a bad deal”. In fact it modernized and raised the level toward U.S. standards in the areas of e-commerce, intellectual property protection, and dispute resolution. Though the agreement provided significant benefits to the U.S. and despite the U.S. withdrawal, the remaining participants (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) preserved the basic provisions of the original agreement while freezing 22 provisions of particular interest to the United State to facilitate its rejoining at a latter time should it return to its senses.  China and other Pacific Rim countries are also welcome to join if and when they meet the agreement’s high standards. This will not be easy for China should it chose to return to its earlier efforts to integrate into the rules of the world trading system.

The U.S. Congressional Research Service summarized the key provisions of the TPP as follows:

“The TPP would provide several principal trade liberalization and rules based outcomes for the United States. These include the following:

  • lower tariff and non tariff barriers on U.S. goods through eventual elimination of all tariffs on industrial products and most tariffs and quotas on agricultural products;
  • greater service sector liberalization with enhanced disciplines, such as nondiscriminatory and minimum standard of treatment, along with certain exceptions;
  • additional intellectual property rights protections in patent, copyrights, trademarks, and trade secrets; first specific data protection provisions for biologic drugs and new criminal penalties for cybertheft of trade secrets;
  • investment protections that guarantee nondiscriminatory treatment, minimum standard of treatment and other provisions to protect foreign investment, balanced by provisions to protect a state’s right to regulate in the public interest;
  • enforceable provisions designed to provide minimum standards of labor and environmental protection in TPP countries;
  • commitments, without an enforcement mechanism, to avoid currency manipulation, provide transparency and reporting concerning monetary policy, and engage in regulatory dialogue among TPP parties;
  • digital trade commitments to promote the free flow of data and to prevent data localization, except for data localization in financial services, alongside commitments on privacy and exceptions for legitimate public policy purposes;
  • enhanced regulatory transparency and due process provisions in standards setting; and
  • the most expansive disciplines on state owned enterprises ever in a U.S. FTA or the WTO, albeit with exceptions, to advance fair competition with private firms based on commercial considerations.”

No trade agreement (yet) is perfect and the TPP represented a significant improvement for the U.S. and its trading partners of existing agreements.

The 11 signers, in addition to embracing standards that will promote economic growth in their own countries in the long run also sought originally to enhance America’s role and leadership in the Asian Pacific area (i.e., as a counterbalance to the rising strength of China). With or without the U.S. more countries are expected to join the CPTPP after the governments of the current 11 have ratified it. At the top of this list are Taiwan, Thailand, South Korea, the Philippines, and Sri Lanka.

President Trump has chosen to retreat from American leadership in setting and helping to oversee the rules of international cooperation and trade. It seems unlikely that Wilbur Ross and Peter Navarro will give up their fixation on protecting a hand full of inefficient, uncompetitive American industries, so Congress should take back its constitutionally given authority over trade policy delegated to the President in the Trade Act of 1974. https://fas.org/sgp/crs/misc/R44707.pdf

China’s misbehavior can be better addressed using the rules and provision of the WTO in ways that would strengthen the rule based international order rather than weakening it as Trump is now doing with the use of the national security provision. If China is selling its aluminum below cost, i.e., dumping it, we should impose a tariff on China under WTO rules against dumping. The use of the national security provision of the WTO is laughable on the face of it and would weaken rather than strengthen the rule of law in the trade area.

Econ 101—Trade in very simple terms

Trade allows people and firms to specialize in what they produce. This enables them to be more productive. This raises the income (standard of living) of both the seller and the buyer (who must also sell something in order to buy something)—i.e. both the exporter and importer. https://wcoats.blog/2017/09/15/a-basic-human-right/  https://wcoats.blog/2016/12/22/save-trade/

So what does Trump’s steel and aluminum tariff do?

The American economy is now fully employed (ok, maybe some of those who left the labor market in recent years, not all of whom are old, can be coaxed to return). Thus if high tariffs on steel and aluminum make previously non competitive and inefficient American steel and aluminum producers competitive again, where will the workers come from to do that work? They must be attracted away from what ever they are producing now—lets call it good A. So we will produce less of good A, which was competitive without taxpayer subsidies or regulatory favoritism, in order to produce more steel and aluminum, which was not competitive before given tariff protection. Add it up and our overall income goes down. The economy over all will be less efficient, less productive, and our overall incomes and standard of living will be reduced.

This reallocation of our resources from more productive to less productive products will make owners of steel and aluminum companies and property owners around closed foundries happy. Trump-may-prosper-from-tariffs-even-if-this-faded-port-town-doesnt/2018/03/02/. But what about those who buy steel and aluminum made more expensive by the tariffs? What about Boeing and other aircraft manufacturers who are the fourth largest American exporters, whose products will now be more expensive and less competitive with Airbus, etc.? When steel tariffs were imposed in the year 2002, 200,000 Americans in steel using industries lost their jobs. That is more than the total of around 150,000 workers in the steel industry! “If-the-US-steel-industry-employs-150000-people-then-how-can-imports-threaten-500,000-jobs?”

Subsidizing inefficient industries with tariffs hurts consumers, who will have to pay the higher prices of aluminum beer cans, etc., as well as exporters like Boeing. We will all (except steel and aluminum producers) pay the cost of this increased inefficiency. Commerce secretary Wilbur Ross thinks we should just get over these modest increases in the costs of our purchase of goods that include steel and aluminum for the greater good of American steel and aluminum producers and the 150,000 people who work for them. In case there are children listening I am withholding what I would like to say to Mr. Ross.

Only 2.2% of our steel and aluminum imports come from China while Canada (hardly a security threat to the U.S.) provides 16.1% of our imports of these products: https://www.washingtonpost.com/world/the_americas/canada-top-exporter-of-steel-and-aluminum-to-us-flabbergasted-by-trumps-tariff-proposals/2018/03/02/7c906c2a-1e22-11e8-98f5-ceecfa8741b6_story.html?undefined=&utm_term=.294884487749&wpisrc=nl_headlines&wpmm=1. The rest of the world will not roll over and play dead. The EU is already preparing counter measures to punish American exporters to Europe. “EU-vows-to-hit-back-against-trump-in-trade-war”

Following the end of WWII the world, lead by the U.S., has built up mechanisms for promoting fair trade (first the General Agreement on Trade and Tariffs—GATT—now called the World Trade Organization—WTO). Where countries violate these rules, and China frequently does, they should be addressed via the WTO. American interests, and the world’s interests more generally, are served by strengthening the WTO not weakening it. Trump’s unilateral tariffs do not serve our interests. Not only has he persistently undermined free markets with his misplaced attack on bilateral trade deficits https://wcoats.blog/2017/07/23/the-balance-of-trade/ but he has systematically undermined the WTO and the international rule of law. Please, Mr. President, stop this nonsense before it gets even worse.

Trade wars are never good, and no one wins in the end. Instead we should be enforcing and improving the rules of trade via the WTO, which has helped lift  millions of people out of poverty and raised the standard of living of the average person.

American Exceptionalism—where has it gone?

Americans are among the most generous people in the world.  World Giving Index – published by the Charities Aid foundation – averages the percent of the population giving money to charities, the percent who have volunteered time for an organization in the past month, and the percent who have helped a stranger in the past month. Americans are sixth, tied with Switzerland with a score of 55%. Australia and New Zealand are first and second with 57% followed by Ireland and Canada with 56%. Germany is 19th with 44% and France is 93rd with a score of 27%.

I have always been proud that visitors to the United States have generally found Americans to be friendly, helpful, and good-hearted. I realize that this is a bit hard to imagine these days with the negativism thrown from the right and the left at each other, but we still manage the occasional smile in the grocery store as we wait at the checkout line. However, views of America abroad have been declining for some years and have plummeted this year. http://www.pewglobal.org/2017/06/26/u-s-image-suffers-as-publics-around-world-question-trumps-leadership/

The reasons for this decline that leap out to me reflect the propensity of our government to throw its weight around. We have been at war almost continuously since 9/11 (Afghanistan, Iraq, Somalia, Syria, Libya, Yemen, Nigeria, and who knows where else). The U.S. has 662 overseas bases in 38 foreign countries and military personnel in 130 countries. Most American soldiers are fine young men but no one likes foreign soldiers on their streets for very long, even went they are well behaved most of the time.

I was discussing with a Pakistani friend the “special” qualities of the American government and American people that make us exceptional https://works.bepress.com/warren_coats/35/. He suggested that a growing number of people around the world see the United States as exceptional in the sense that it doesn’t think it needs to follow the rules it sets out for everyone else. We are seen as bullies. Ouch.

The most recent and embarrassing example of this was President Trump’s announcement that the United States recognized Jerusalem as the capital of Israel and would move the U.S. Embassy there. As background, on May 14, 1948 the British agreed when Israel declared its independence from the British mandate that ruled Palestine. The State of Israel was immediately recognized by the United States. After several rejections by the UN Security Council, Israel’s UN membership application was accepted by the General Assembly on May 11, 1949 in Resolution 273, which, among other things, defined the new country’s boundaries. Between June 5 to 10, 1967 Israel attacked and captured surrounding territories in Egypt, Jordan and Syria in what became known as the Six-Day War. Except the Gaza Strip and the West Bank most of the captured territory was returned as part of a peace agreement. Israel ended its occupation of the Gaza Strip in August 2005.

The termination of Israel’s “temporary” occupation of the West Bank, including East Jerusalem remains the subject of the Israeli-Palestinian peace negotiations. “Under the 1947 UN Partition Plan to divide historical Palestine between Jewish and Arab states, Jerusalem was granted special status and was meant to be placed under international sovereignty and control. The special status was based on Jerusalem’s religious importance to the three Abrahamic religions.”  “Jerusalem-capital-Israel”

In general, the international community rejects the use of brute force to change borders. Russia’s annexation of Crimea into Russia (though it was previously part of Russia before Khrushchev gave it to Ukraine in 1954) violated this understanding.

President Trump’s announcement about the status of Jerusalem violates standing U.S. and international policy. It was almost universally condemned. The US vetoed a Security Council condemnation of Trump’s action but the General Assembly overwhelmingly (128 to 9, with 35 abstentions) passed a resolution declaring that, “any decisions and actions which purport to have altered the character, status or demographic composition of the Holy City of Jerusalem have no legal effect, are null and void and must be rescinded.” White-House-vows-to-stand-firm-on-trumps-recognition-of-jerusalem-as-israels-capital/2017/12/23/

The General Assembly vote used a rarely exorcised power as explained by Paul Pillar. “Among the principal takeaways from the General Assembly’s action is that an international sense of justice and fairness matters.  Many states reject the notion that might makes right, which is how the Israeli government has treated its relations with the Palestinians, and how the Trump administration approached its lobbying on this resolution.” “Uniting-against-trumps-policies-for-peace”

When the UN voted Thursday (Dec 22) to condemn this action “Only seven countries—Guatemala, Honduras, Togo, Nauru, Palau, Micronesia and the Marshall Islands—were willing to stand with Uncle Sam and Israel and vote against the resolution.” “Next-year-in-Jerusalem”

Aside from keeping the favor Israeli Prime Minister “Bibi” Netanyahu and some wealthy American Jewish donors, there is no upside to this step to be found. The peace talks, such as they were, have been damaged. Even the “Permanent Observer Mission of the Holy See to the United Nations called for maintaining of the status quo of Jerusalem.” In its letter to the President of the General Assembly it stated that: “The unique identity of Jerusalem, which is of universal interest, consists in its particular nature as a Holy City, most sacred to the three monotheistic religions and a symbol for millions of believers worldwide who consider it their “spiritual capital”. Its significance goes beyond the question of borders and this reality should be considered a priority in every negotiation for a political solution.” “Holy-See-supports-Jerusalem’s-historical-status-quo”

Israelis themselves are deeply divided on this issue. The continued and unresolved occupation of the West Bank by Israel has and continues to provoke terrible behavior by both sides. Uri Avnery, an Israeli freedom fighter in his youth, decries acts by his country against occupied Palestinians in passionate terms (email me if you are interested in his email) as does Phillip Weiss: Ending-crisis-Zionism/

But American bullying did not stop there. Nikki Haley, U.S. Ambassador to the UN, delivered a disgusting and threat-filled speech condemning the U.S. rebuke. “The crude tactics included Nikki Haley’s rhetoric about ‘taking names’ and Donald Trump’s bombast about cutting off U.S. aid.  Among the Arab states that supported the resolution were the two states—Egypt and Jordan—that receive more U.S. aid than anyone other than Israel.  The very crudeness of the tactics, and the offense taken to bullying, probably made the tactics counterproductive.” (see Pillar article above).

Good hearted and freedom loving Americans are increasingly represented by governments that push our views and interests on the rest of the world. The rest of the world’s resistance is building. This does not serve our economic or security interests. How did the “essential country”—the “exceptional country”—become a big bully? In recent weeks we have also been asking ourselves how prominent leaders in the media, industry, and Congress have become sexual bullies. It seems that power corrupts. Eternal vigilance is still needed.

General Michael Flynn

We all deserve to know whether Donald Trump colluded or cooperated with Putin and Russia in any way to illegally help his presidential campaign. I have full confidence that special counsel Robert Mueller’s investigation will provide us with the truth of that question one-way or the other.

I also strongly support former President Obama’s (Russian restart) and President Trump’s desires to build the closest and most cooperative relationship possible with Mr. Putin’s Russia that is consistent with American interests and values. This means that conversations—many conversations—between the Trump administration and Russian officials are not only proper, but also highly desirable.

The revelations that such conversations occurred tell us nothing about whether the Trump administration has been doing anything improper. Then enter General Michael Flynn.

Sunday’s Washington Post contains an article with the headline “Inside the day that set in motion Michael Flynn’s guilty plea”. The day in question was Dec 29, 2016, well after Trump’s election and four weeks before his inauguration. The day before President Obama had “imposed sanctions against Russia for its alleged interference in the election.” Flynn called Russian Ambassador Sergey Kislyak, “urging Moscow not to retaliate — and Russia later surprisingly agreed.”

On the face of it this is neither appropriate nor inappropriate. We would need additional information to come to such a conclusion. However, Flynn lied to the FBI about having such a conversation, which raises the suspicion that it was inappropriate. Unrelated to his work with the Trump administration, General Flynn failed to get clearance before doing work with foreign governments, nor did he register as their agent, as required by law. Generally Flynn seems to have a habit of lying. Later Flynn pleaded guilty to perjury as part of a deal to fully cooperate with Mueller’s investigation in exchange for not being charged with these other crimes.

So if Flynn was not making improper deals with Russia, why did he lie about it? Hopefully we will know in the course of time, but it could be because he belatedly learned that his “conversations with Kislyak violated the Logan Act, a 1799 law that prohibits private citizens from conducting U.S. foreign affairs without the permission of the government.”

No one has every been convicted of violating the Logan Act and a strong argument could be made that such acts by a President elect and his team are not covered.

I want to know the truth. Trump lies so regularly that he has no trust from anyone who really cares about the truth. But to be fair, Flynn’s conversations with Kislyak is not evidence of anything inappropriate. Let’s not jump to conclusions until we have enough information to do so with some confidence that they are correct.

Our Free Press

A free press is an important pillar of a free society. In addition to reporting what is going on—who said and did what—the hard hitting investigative reporting of The Washington Post and other news outlet has exposed corruption and abuse of power from the Watergate scandal of Richard Nixon to the sexual misconduct of Donald Trump, Bill Clinton, Roy Moore, Harvey Weinstein, Bill O’Reilly, Roger Ailes, Kevin Spacey, Charlie Rose, Mark Halperin, Al Franken, and Representative John Conyers to name a few (more on this later). Such scrutiny of the behavior of those in positions of power is a critical service that is vital to the preservation of the integrity of our government.

One way to undermine the role of our free press is to challenge its integrity—to create doubts about the honesty of news reports—to label news as “fake news.” I am not suggesting for a second that news reports are never wrong or that we should not scrutinize them with some care and skepticism, but if the public comes to believe only those news sources that repeat what they already believe, one of the most important institutions protecting our freedoms (the fourth estate) would be seriously weakened.

We know that Mr. Putin’s Russia has been actively undermining faith in Western institutions by their citizens. In the U.S. and Europe Russia has used social media to plant fake news with both the right and the left in order to fan social divisions. One element of this campaign has been to undermine confidence in news reporting in general.

According to Hedrick Smith, former New York Times Moscow Bureau Chief and author of the global best-seller, The Russians: “Putin has turned to cyber warfare, using his intelligence services and computer hackers rather than military force to disrupt the West – and we can expect more of that in the 2018 elections and beyond…. It’s kind of Putin’s revenge for the fact that we pushed the Russian bear back in the cave by moving the frontiers of NATO into the Baltic states—Lithuania, Estonia and Latvia. And (Putin) sees us as being behind the overthrow of the pro-Russian president in the Ukraine. So he’s hitting back.” (Putin wants new cold war) Putin also needs external enemies—external distractions—to divert the attention of Russians from deficiencies at home.

As part of this attack on American institutions they have called the news media “the enemy of the American people,” and planted statements such as: “It’s frankly disgusting the way the press is able to write whatever they want to write, and people should look into it.” New York Times /2017/10/12/ And in a direct attack on the First Amendment, this: “Why Isn’t the Senate Intel Committee looking into the Fake News Networks in OUR country to see why so much of our news is just made up-FAKE!” Money CNN/2017/10/05/

If you didn’t catch it already, I played a little trick on you in the previous paragraph. Those of you who have been paying attention will have spotted that the above quotes attacking the American press and fake news were not Russian propaganda but from President Trump. He also said in a February White House press conference:

“I’m making this presentation directly to the American people with the media present … because many of our nation’s reporters and folks will not tell you the truth and will not treat the wonderful people of our country with the respect they deserve.

“Unfortunately, much of the media in Washington, D.C., along with New York, Los Angeles, in particular, speaks not for the people, but for the special interests and for those profiting off a very, very obviously broken system.

“The press has become so dishonest that if we don’t talk about it, we are doing a tremendous disservice to the American people, a tremendous disservice. We have to talk about it. We have to find out what’s going on because the press, honestly, is out of control. The level of dishonesty is out of control.”  (Trump: media out of control)

Why does Trump do this? Some think that Trump’s attempt to undermine confidence in the news media is part of a well thought out strategy to raise doubts about the veracity of news reports critical of him. It is all “fake news.” I am more inclined to think that he is simply unable to control his anger whenever his ever present and huge ego is bruised. He and his ego are more important than the health and well being of our country, as when he complained about a lack of gratitude for his helping get the release of three UCLA basketball players caught shoplifting in China. On November 15, Trump tweeted:

“Do you think the three UCLA Basketball Players will say thank you President Trump? They were headed for 10 years in jail!”

A few hours later at a press conference the three did just that, but the father of one of them, LaVar Ball, downplayed Trump’s role in his son’s release precipitating the following Presidential tweet:

“Now that the three basketball players are out of China and saved from years in jail, LaVar Ball, the father of LiAngelo, is unaccepting of what I did for his son and that shoplifting is no big deal. I should have left them in jail!”

Are you shocked or have you acclimated to the new normal? I leave it to you to decide whether Trump is reflecting his concern for the well being of our country or his ego. (Trump-college-basketball-players-helped-free-china-left-jail)

Undermining our faith in our institutions and in particular our news media is a serious matter. It is dangerous whether promoted by Russia or Trump. (Trump’s dangerous attacks on the press.) The press and its supporters, to their credit, are fighting back. (US-press-freedom-tracker-documenting-press-freedom-violations)

As David Ignatius put it: “Amid the slithering mess of problems that emerged in 2017, the one that bothers me most is that people don’t seem to know what’s true anymore. “Facts” this year got put in quotation marks.

“All the other political difficulties of the Donald Trump era are subsumed in this one. If we aren’t sure what’s true, how can we act to make things better? If we don’t know where we are on the map, how do we know which way to move? Democracy assumes a well-informed citizenry that argues about solutions — not about facts.” He suggests the reestablishment of newspaper ombudsmen and would “like to see [Google, Facebook, etc.] using machine learning to interrogate supposed facts to establish where they’ve been — how they first surfaced, and how they were passed from user to user.” (“Getting-back-to-facts/2017/11/23/”)

At the same time, the American press deserves some of the criticism it has received. The following article by Chris Wallace puts the case very well: Trump-is-assaulting-our-free-press-but-he-also-has-a-point The distinction between news and opinion is sometimes blurred.

Here are two quick examples: The-FCC-has-unveiled-its-plan-to-rollback-its-net-neutrality-rules. The Post article linked here provides a reasonably balanced report on those favoring and those opposing the FCC’s proposed return to more or less the legal situation prior to 2015. The problem, as is often the case, is that the article’s headline is not written by the article’s authors and the headline gives a totally misleading impression of what is proposed: “FCC plan would give Internet providers power to choose the sites customers see and use” However, the headline writer probably reflects the better disguised biases of the reporters (to their credit). My own blog on the subject from last May is far more balanced if I may say so myself: https://wcoats.blog/2017/05/17/net-neutrality/

The discussion now underway on Republican tax reform legislation provides another example of press bias. Every morning I read the Wall Street Journal followed by the Washington Post, which should provide a bit of balance. But I have found press reporting (editorials and opinion pieces are free to say whatever they want) on this subject sufficiently biased to provoke me to blog twice on it: https://wcoats.blog/2017/11/12/tax-reform-and-the-press/    https://wcoats.blog/2017/11/18/salt-more-press-nonsense-on-tax-reform/

And finally from my highly selective short list was the recent Post headline: Trump boosts Moore in Ala. Senate race despite sexual misconduct allegations (Trump-boosts-Moore-in-ala-senate-race-despite-sexual-misconduct-allegations)  This is very interesting (and amazing) on several levels.

Trump does not indorse Moore in this article but speaks out against his opponent: “’We don’t need a liberal person in there, a Democrat,’ Trump said about Moore’s opponent, former federal prosecutor Doug Jones, who has led in some recent polls in the state.”

The WSJ version of the same story was titled: “Trump Signals Support for Roy Moore Over Democratic Opponent.” WSJ 11/22/2017 With regard to the multiple sexual misconduct claims against Mr. Moore, “Mr. Trump pointed to the can­di­date’s state­ments: ‘Look, he de­nies it… He to­tally de­nies it. He says it didn’t hap­pen. And, you know, you have to lis­ten to him also.’”

A few hours later this article was updated as follows: “Trump said, ‘He totally denies it.’ Previously, the White House said that Mr. Trump believed Mr. Moore should leave the race if the allegations proved to be true.”

From CNN news: “President Donald Trump on Tuesday defended embattled Alabama Republican Roy Moore, all but endorsing the Senate candidate who has been accused of sexual assault and child sex abuse. “He denies it. Look, he denies it,” Trump said of Moore. “If you look at all the things that have happened over the last 48 hours. He totally denies hit. He says it didn’t happen. And look, you have to look at him also.” But to repeat, Trump did not endorse Moore.

Trump’s tolerance of “questionable” behavior by Republican’s is not extended to Democrats. When he returned from Asia he tweeted on Nov 16 about a picture in which Al Franken is holding his hands above Leeann Tweeden’s breasts, while they were on a 2006 USO tour to entertain U.S. troops.

“The Al Frankenstien picture is really bad, speaks a thousand words. Where do his hands go in pictures 2, 3, 4, 5 & 6 while she sleeps?”

He continued in a second tweet, “And to think that just last week he was lecturing anyone who would listen about sexual harassment and respect for women.”

Trump seems to suggest that we should believe the denials of Republicans and investigate the denials of Democrats. He had wisely kept silent to that point about Moore’s pedophile charges, presumably not to remind the public of his own admitted sexual misdeeds (plus the large number of claims he has denied). Here is the full list: President Trump-and-accusations-of-sexual-misconduct-the-complete-list . The mystery is why when he consulted his advisor on such things (himself, of course) he decided to break silence on the subject—condemning Sen. Franken while giving Moore a pass. I suggest that he change advisors.

We have sadly and dangerously grown used to the routine lying of Trump and others. We live in a world of fake news. There have always been limits on our generally wide-ranging freedom of speech, however. Famously, we may not shout fire in a theater when we know there is none. The balance between the First Amendment’s protection of free speech and protection against willful defamation, for example, can be tricky. The following article provides a useful discussion of this balance in the context of the defamation case against Trump by one of his claimed sexual abuse victims, Summer Zervos, a contestant on Trump’s reality television show, “The Apprentice.” “She accused then-presidential candidate Trump of sexual harassment that purportedly occurred in 2007. Trump denied the allegations, and, in his characteristically understated style, tweeted that those allegations, and similar allegations made by other women, were “nonsense,” lies,” “phony” and “100 percent fabricated.” Zervos then claimed that Trump’s comments amounted to defamation.” (Trump’s attack on Summer Zervos blows hole first amendment) This might prove more damaging to Trump than the Russia investigation.

Trump’s Real Job

President Trump should give up his childish feud with the NFL and attend to his real job. His frequent attacks on the press, the intelligence community, so called rapists from south of the border, among many other things, in addition to being incredibly stupid, seem a tactic to deliberately divert public attention from failures of his administration. And the NFL players should think again about how most effectively to make their political points.

During the campaign the President promised a more restrained use of our military around the world, which is a view I share. However, he has failed to appoint the State Department officials needed to develop and oversee the diplomacy that could replace excessive reliance on our solders. Almost a quarter of our ambassadorships remain vacant, including to Germany and France. The ambassadors to the UK and Italy were only appointed last month. When I attended the American Embassy’s Independence Day celebration at the Ambassador’s residence in Rome in July, there was still no Ambassador.

According to Wikipedia: “The Washington Post has identified 601 key positions requiring U.S. Senate confirmation. As of September 22, 2017, 122 of Trump’s nominees have been confirmed for those key positions, 157 are awaiting confirmation, and 18 have been announced but not yet formally nominated.” In other words Trump has not even appointed half of his administration.

Our indefensible assistance to Saudi Arabia’s indefensible war in Yemen needs the POTUS’s urgent attention. As Russia and our allies in Syria finish off ISIS, what is our strategy for the future of the region and Iran’s role in it? What about Afghanistan and Iraq, where I worked extensively for the last 15 years? Our objectives re our relationship with China (not to mention Russia) need to be clarified and our strategy for achieving them better articulated.

And then there is the mess that is the DPRK (North Korea). School boy taunts that threats from Kim Jung Un “will be met with fire and fury like the world has never seen,” is not a credible or wise strategy. Even without a full deck at the State Department, Trump’s senior advisors repeatedly warned him not to attack the North Korean leader personally:

“Trump’s derisive description of Kim Jong Un as ‘Little Rocket Man’ on ‘a suicide mission’ and his threat to ‘totally destroy’ North Korea were not in a speech draft that several senior officials reviewed and vetted Monday, the day before Trump gave his first address to the U.N. General Assembly…. Some of Trump’s top aides, including national security advisor H.R. McMaster, had argued for months against making the attacks on North Korea’s leader personal, warning it could backfire.” http://www.latimes.com/politics/la-fg-trump-northkorea-20170922-story.html

And then there is Trump’s domestic agenda (Obama care, Tax Reform, etc.). How is that doing? He should cancel his twitter account, finish appointing his government and listen to what his cabinet and advisors have to say and get on with his job as the President of the United States. And by the way, the campaign is over. It is time to stop further dividing the country and to reunite us to the extent possible.

 

Buy American, Hire American

President Trump continues to repeat his populist slogan “Buy American, hire American,” reflecting the way he and Steve Bannon appear to understand what is needed to make America Great Again. Thus, with apologies, I endeavor again to explain why this catchphrase is fundamentally wrong and would actually make America weak. “Trade and Globalization” “Save trade”

If buying an American made product or service (100% American, 90%, 51%?) or hiring an American worker is my best option, I would not need to be compelled to do so by the government. If it is not my best option, being compelled to do so forces me to accept an inferior option. It would make me worse off. The Trump family understands this as their hotels import and purchase foreign made products (from China, Philippines and India, to name a few) and Ivanka sells clothing made in China.

It is obvious that being forced to buy and hire American would make many of us worse off (not to mention diminish our freedom of choice), but are there compensating benefits or gains for others in the American economy that would justify making us worse off? “Teeing up Trump tariffs”

Buy American

If I must buy an American made Corvette rather than a German Porsche, does the American economy benefit? To simplify, leave aside the fact that a substantial part of the components making up a Corvette are imported from various countries. The fact that I had to be forced to buy the American car rather than the German one, i.e. that it was an inferior deal, means that the American workers who make it were reallocated from the production of export products at which the United States had a comparative advantage. Trading less as a result of buying American mean allocating American workers to producing things (Corvette) that they are not as productive at making. They would be moved from producing Boeing aircraft to sell to Germany (to pay for our imports of Porsches) to producing Corvettes. So in addition to my being made worse off as a result of having to buy American, the American economy as a whole would be worse off as a result of a less productive work force and thus lower overall income (lower GDP). This is Econ 101.

In addition, as noted by the Financial Times, “Attempts to restrict procurement to domestic companies tend to backfire. They induce retaliation from trading partners, harming US businesses trying to sell abroad. They raise input costs, ensuring less infrastructure is built and fewer construction workers are hired for each dollar of public spending.” “The Pitfalls of having to buy and hire American”

Hire American

The meaning and impact of a requirement to hire Americans is a bit more complex. If the terms to American companies of employing the workers needed, whether they are citizens, permanent residents, or temporary or permanent immigrants from abroad, are not competitive with importing the product or service, American companies will in effect hire foreigners abroad (i.e. they will import the goods and services produced abroad). Thus it is a bit unclear what “hire American” means. “The long, rough ride ahead for ‘Made in America'”

Presumably, “hire American” refers to our immigration policies. Indeed our immigration laws need fixing. This includes providing a solution to the status of the 10 or 11 million people living here illegally, and adjusting immigration quotas to better match the needs of American firms for workers without undercutting the status of existing American workers. “Illegal-aliens”

The decline in American manufacturing jobs is largely the result of automation, not foreign trade. Manufacturing employment has fallen almost everywhere in the world as manufacturing output has increased. Automation enables the work force to produce more and thus enjoy a higher living standard. It need not cause unemployment.

The wonderful film “Hidden Figures” tells the true story of the large number of human “computers” employed by NASA (the National Air and Space Administration) who cranked out the numbers needed to put Americans in space and bring them home again. The stars of the film are three black women whose mathematical skills were indispensible to NASA. At the end of the day and in time for the first American to orbit the earth in 1961, new IBM’s mainframe computers proved essential to crunch the critical data fast enough. Overnight the human computers were no longer needed. But rather than becoming unemployed, most of them retrained to program and run the IBM computers with an unbelievable boost in productivity. While other things also affected NASA’s workload, the employment data are interesting. In 1960 NASA had 13,500 in house employees, which increased to 41,100 by 1965 and gradually drifted down to 18,618 in 2010. The numbers for contract workers on the same dates were 33,200 in 1960, 369,900 in 1965 and zero in 2010.

The President’s appeal to Buy American and Hire American, in addition to restricting our freedom of choice, flies in the face of what made America Great in the first place. As proclaimed by the Financial Times: “The principle should remain to keep the US economy as open as possible to the inflow of good products and good workers from abroad. Slamming down the drawbridge is only likely to impoverish the residents of the citadel.”