The “swamp” just got bigger.
The latest and perhaps clearest evidence of this involves Trump’s trade policy with China. If you’ve been paying attention, you know that Trump and Chinese Vice Premier Liu He recently signed so-called phase one of a sweeping trade agreement.
The agreement’s major provision is China’s pledge to buy roughly $200 billion more in U.S. exports over the next two years — about $100 billion each in 2020 and 2021. The additional exports would come from agriculture (example: soybeans), manufactured goods (cars), energy (oil) and service (banking).
In exchange, the Trump administration cut some of its tariffs on Chinese goods — 15 percent tariffs on about $120 billion worth of goods were reduced to 7.5 percent. Despite this, average tariffs of 19 percent remain on about two-thirds of Chinese exports to the United States.
As trade policy, the new agreement raises many questions. One issue is whether China and the United States can increase the purchases of U.S. exports so quickly. Estimates done by trade expert Chad Bown of the Peterson Institute for International Economics suggest that hitting the goals will be extremely hard.
There are two reasons for this, Bown notes. First, U.S. exports to China are now running about $20 billion below their 2017 levels. These lost exports have to be made up. Second, buying the extra $100 billion in each year won’t occur in one burst. With shipments increasing gradually, the ultimate export level would be higher at the end than the simple target.
If fulfilled, the deal would result in a 105 percent increase of U.S. exports to China, Bown says. “With unrealistic export targets, the deal may be doomed from the start.”
Bown notes that “shortfalls in those Chinese purchase pledges won’t be clear until after the presidential election in November 2020” — implying that Trump may be able to brag about the deal even if it fails. There are also other unsettled issues, especially the subsidies that China’s government pays to many of its firms and that Americans and others say puts them at a disadvantage.
But what’s the connection of all this with the swamp? Just this: Trump’s China deal essentially repudiates post-World War II trade policy, based on open trade, and replaces it with so-called managed trade.
Under open trade, competition and efficiency have been crucial in determining trade flows, though there have always been exceptions. Under "managed trade," countries control trade flows. This sounds reasonable and less disruptive, but it squanders many of trade's economic benefits because politics tends to be protectionist.
At its extreme, the result is “Soviet-style managed trade,” writes Gary Clyde Hufbauer, another trade expert at the Peterson Institute. Now, “China promises to import a certain dollar or physical volumes of detailed goods and services, regardless of market prices or demand conditions. That’s the way the old Soviet Union conducted trade with its satellites for 40 years,” he says.
Managed trade need not go to extremes to create problems. It substitutes political power for market power. “The erosion of a market system of international trade is sure to cause [economic] distortions, lots of favoritism, and inevitable corruption,” Hufbauer says. “That [describes] past U.S. bouts of managed trade in textiles, apparel, steel ... in the 1970s.”
How do people and firms adapt to a system that sanctions cronyism, pursues political influence, panders to popular opinion, and funnels campaign contributions to friendly members of Congress? Simple: You hire more lobbyists and lawyers, commission more self-serving "research" reports and raise your political contributions.
Put differently, you wade further and further into the swamp. Trump seems to like it that way. Fresh from the deal with China, he’s now threatening to slap tariffs on European exports to the United States unless the European Union supports a new U.S. trade agreement. Serious problems remain in U.S.-China economic and trade relations. Meanwhile, Trump is accumulating more and more power for himself.
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