US President Donald Trump’s measures against Chinese trade have been criticised by a few people who you might expect to be sympathetic to a Republican president. So its helpful to get a riposte from economist Casey Mulligan, who recently finished a year’s stint as the chief economist on Trump’s Council of Economic Advisers.
Mulligan starts off by comparing Trump’s trade restrictions to those implemented by hallowed free-trader Ronald Reagan – seen as a benchmark by some.
The Reagan administration imposed import quotas (generally thought more costly than tariffs) on autos, steel, sugar, semiconductors, textiles, machine tools, and clothespins. Trump added steel quotas for South Korea, Brazil, and Argentina.
The Reagan administration increased tariffs on motorcycles, Canadian lumber, and various Japanese goods, while Trump’s increased them on steel, aluminum, Chinese goods, solar panels and washing machines.
He could not find any equivalent to Trump’s (economic equivalent of) tariff decreases on autos and postal terminal dues.
Mulligan concludes: “It is clear that the Reagan administration restricted trade, and did so more than the Trump Administration has”.
Useful political context, but not exactly a ringing defence you might think.
But Mulligan thinks Trump’s administration is also delivering substantial offsets to its politically-driven trade restrictions. He argues that the ” … the proposed DOT-EPA rule [easing up on car fuel efficiency standards] would enhance U.S. international trade and consumer benefits so significantly that it would, if finalized, overwhelm the various tariff actions cited above.” He crosses his fingers and hopes that some of Trump’s trade restrictions will “enhance trade by reducing tariff and nontariff barriers that foreign countries have erected against U.S. imports” in line with the Reagan experience.
Mulligan also draws attention to the deregulatory achievements of the Trump administration, in a recently-published report from his time as chief economist to the CEA.
“Since January 2017, there has been a historic effort to reduce costly regulation, while protecting workers, public health, safety, and the environment. The Council of Economic Advisers (CEA) estimates that after 5 to 10 years, this new approach to Federal regulation will have raised real incomes by $3,100 per household per year. Twenty notable Federal deregulatory actions alone will be saving American consumers and businesses about $220 billion per year after they go into full effect. They will increase real (after-inflation) incomes by about 1.3 percent.”
This level of deregulation is historically significant; in typically nuanced economist-speak: “Many of the most notable deregulatory efforts in American history, such as the deregulation of airlines and trucking that began during the Carter Administration, did not have such large aggregate effects.”
The point that economic benefits can come from freeing up internal – as well as external – markets is well made. Also that gains don’t always come in obvious areas: prescription drugs, health insurance, and telecommunications provided most of the benefits in the CEA list (table on page 22 if you are interested.)
These points ought to be more heard more clearly in political discourse because the battle to regulate new technologies looks like it might be one of the main drivers of global economic growth in coming years. New technologies – like online search and markets – have created astonishing new products and lowered prices but at the price of significant disruption to established interests.
Now a powerful counter-revolution to slow or stop the adoption of new technology is building – whether by regulation of AI and data in Europe or restrictions on the operations of firms like UBER, Lyft and AirBNB. The California state legislature is looking at proposals to reclassify hundreds of thousands of independent contractors as employees, a move likely to restrict the development of more productive ways of delivering services.
Mulligan’s analysis suggests that the best way to assess the Trump administration’s impact on economic well being is to look at its overall record on letting markets work and deliver productivity growth. It’s a sensible approach; international trade, while important, is unlikely to generate the greatest impacts. And on past performance, voters are also likely to look beyond policy debates to economic outcomes.