On Trade, Both Trump and Warren Get a Fail

By Veronique de Rugy

When you care about freedom, there are a lot of areas where politicians of both sides are two sides of the same coin. I have already highlighted the similar enthusiasm of Senators Josh Hawley and Kamala Harris for using government to achieve their goals. 

Here is another one. When it comes to trade, Senator Elizabeth Warren and President Trump are two peas in a pod.

President Trump's views on trade are well known. Unfortunately, given the modern presidency’s enormous executive power, Trump has already inflicted on us many of his destructive policies. While some of his more free-market advisors have convinced him to occasionally assert that his ultimate goal is the elimination of all tariffs and subsidies worldwide, these assertions ring hollow given that they are always premised on the erroneous belief that nefarious foreign-government policies are behind U.S. trade deficits. Trade deficits, he wrongly claims, are evidence that America is being looted through cheating.

Don Boudreaux and others have listed all the many ways in which Trump misunderstands the causes and the significance of trade deficits, as well as trade in general. His views are also remarkably similar to  the views expressed by Sen. Warren. Her position on NAFTA, and on trade deals in general, for instance, is the same as Trump’s - i.e., these deals are alleged to be horrible, and to have left workers behind by promoting the welfare of multinational corporations at the expense of Americans as a whole.

The similarity is also on display in her recent trade manifest of July 29, 2019.  Swap a few words around and its content could pass for something written by one of the protectionists in the White House. For one thing, both Warren and Trump treat trade as zero-sum — where someone is gaining and someone else, inevitably America and its workers, are losing. In addition, both the senator and the president have a misbegotten opposition to the WTO. And their ‘solutions’ for addressing what are mostly imaginary trade problems are problematic.

As a matter of fact, even under less-than-perfect conditions, the voluntary exchange of goods is mutually beneficial— nearly always. It took a long time and numerous costly wars before a global system for governing trade was established that permitted individuals to buy and sell across political borders without significant interference. And once that happened, a sharp rise in global prosperity followed. What barriers now remain should ideally be removed, but history shows that that’s best achieved by working within the system, not by tearing it apart. These two politicians also share the arrogance - pervasive among politicians - that they know better than all of us what is good for us, and that they can overcome the knowledge problem better than the market (paging Don Lavoie).

Here is another issue where they agree: The United States Export-Import Bank (Ex-Im). I have noted many times why this crony institution should be abolished. Frustratingly, we have Trump and Warren to thank for its recent revival. Worse, Warren now wants to double down on this cronyism. She’s calling for what amounts to a green Export-Import Bank. The new agency (because all we need is more agencies) would allocate “$100 billion to helping other countries purchase and deploy American-made clean energy technology.”

This issue involves trade because it comes from the misguided mercantilist idea that exports should be subsidized, or at least promoted. As I explained years ago talking about Obama’s similar mistakes:

“So far, Obama has only been “pro-trade” when it serves interests defined by business lobbies and other pro-export mercantilists. But when it comes to the pro-trade policies that benefit U.S. consumers by introducing entrenched U.S. exporters to more competition, the president consistently falls back on basic protectionist instincts.”

Harder to understand, but more important, is the fact that exports are actually costs, and the true value of trade lies in what we import. Don Boudreaux has written on this issue here, here, and here. And Mark Perry has a good summary of Boudreaux on this issue, here.

Now I want to make one thing clear; green Ex-Im equals corporate welfare. Cronyism is a rampant disease, and I am willing to bet with you right now that it will exhibit all or most of the following symptoms:

  • Mostly serve companies at home and abroad that already have plenty of access to capital.
  • Extend discounted loans to foreign companies that will then compete with non-subsidized American companies.
  • Extend subsidized loans or insurance products to domestic companies that will then compete with non-subsidized American companies.
  • Back a few companies that will, like Solyndra and Abound Solar, spectacularly fail.
  • Cater to special-interest groups with a lot of political access.
  • Cater to companies that are subsidized through other government programs (double-dipping, Alert!)

  Subsidize companies that are state-owned and/or operate conspiring with very unsavory foreign governments.

  • Hide its cost from taxpayers by using distorted accounting techniques.
  • Lack transparency about their transactions, and provide sloppy data to avoid accountability.

We see all these woeful outcomes with Ex-Im, but also with the 1705 loan program, the Small Business Administration and many other crony agencies that I have fought against for years.

During the campaign, Trump said of Bernie Sanders, "He and I are similar on trade." Now Trump can say, “Warren and I are similar on trade.” And if he wants, he can add, “Both of us also want to grow the swamp!”

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Veronique de Rugy

AIER Senior Fellow Veronique de Rugy is also a Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist. Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy.