"Dumb markets" and fair trade: another view

Our colleague Taylor Millard had a rather scathing review of some PEOTUS comments on job outsourcing and trade on Sunday night. In this column, he’s talking about a recent interview with Donald Trump done by Chris Wallace at Fox. In it, Wallace was asking about Trump’s calls for a 35% tax on companies which move jobs and factories out of the country and then seek to ship their goods back into the United States. The current trade imbalances which Trump has been citing as a motivating factor for such ideas are what Trump refers to as “dumb trade” instead of free trade.

To say the least, Taylor took exception with this description.

This is just dumb, and perverts the understanding of “free markets” Trump claims to actually believe in. If you reduce regulations and taxes, then companies will decide to stick around. Tax Foundation published a study in August pointing out America’s corporate income tax rate is one of the highest in the entire world

Despite the fact that these very questions were covered in the interview, Taylor goes on to Libsplain how no proposed solutions to any trade imbalance will work except for tax cuts and freedom. (Libsplaining is like mansplaining, except from a Libertarian.)

[W]hat Trump doesn’t say (whether on purpose or not) is the companies who do decide to not be located in the U.S. will just raise prices to absorb the 35% tax hike. So Playstations will probably cost at least 35% more, shirts made outside of the U.S. will cost more, some alcohol prices will go up, food products, and even some weapons prices because not every gun is made in the U.S. (including the ever popular Glock). There’s also the chance domestic products will go up because parts may have to be imported from foreign countries because they don’t grow here in the U.S.

These repeated claims that Trump (and the many others who are unhappy with our massive, continued trade imbalance) is not in favor of free trade is yet another example of how the Libertarian wing of the conservative movement injects well intentioned but delusional nonsense into the debate. It’s wonderful to call for a greatly reduced corporate tax rate as Taylor has done and he’ll get no argument from me on that score. But that’s never going to solve the entire problem. A high tax rate is certainly a disincentive for American manufacturers to build or stay here and hire more people, but there’s more to free market competition than just domestic taxes once the trade question passes beyond our borders.

The steel industry is one great example of this phenomenon, though it applies to many others. As we’ve discussed here before, we lost the battle for steel production to a number of countries, most notably France. That’s not a situation which can be simply written off to tax rates. France subsidizes their steel industry, taking tax dollars from their citizens and dumping them into the formula for exports to drive their prices to an artificially low level we can’t compete with. Other countries have no minimum wage and and can hold their labor costs at levels which would normally only be achievable through the use of slavery. The point here is that we are not fighting on an even field internationally.

If we were only talking about steel production and sales inside the United States, then each company would be forced to keep their costs as low as possible and compete with each other under our laws. The ones producing the best product at the lowest cost would “win” in that case with no help from Uncle Sam. But with essentially open borders for goods and services, we’re playing poker at a table where everyone else has marked the cards. Under Taylor’s Libertarian theory of operations, we should be forced to continue showing up for the game every night even though we know we’re going to lose.

The idea of that 35% tax Trump frequently mentions on the stump probably isn’t the answer. Frankly, I think he says it mostly to troll his opponents and move the conversation in the right direction rather than as a serious legislative proposal. But doing nothing about the unfair trade battlefield we’re engaged on isn’t working either. You could slash the corporate tax rate to 5% and other countries with slave wage labor and government subsidies could still beat us in the open market. The solution to this is going to be a lot more complicated than only cutting our corporate tax rate or imposing some sort of import tariffs, but doing nothing about it means we’re going to continue to lose out because of, yes… dumb trade deals.


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