Free trade follies

Still more than two weeks until Donald Trump becomes POTUS 45, but we can already see how he intends to use the Oval Office: as a bully pulpit, a term coined by his predecessor Teddy Roosevelt.  His tweeted threats to Boeing (over the cost of a new Air Force One) and to Carrier, Ford. GM and, just today, Toyota, over jobs moving to Mexico from the United States, seem to portend a major change in the historic relationship between a Republican White House and big business.

There has been a wide variety of reactions to the Trump Trade Twitter-storm, but one surprising thing is the relative absence of voices prepared to come to the defense of free trade as such.  Trump may be leading the charge here in his inimitable way, but he's by no means out of touch with the zeitgeist, even among academics.  Herewith a short sampling of reactions over the past few days.

First, a surprising reaction from Paul Krugman. Writing just after Christmas in the New York Times, Krugman warned that the trade war threatened by Trump during the campaign was already under way.  However, he believes that this will "probably not" push the world economy into recession.  Why is this surprising?  Well, it's long been believed that it was US protectionism, in the form of the Smoot-Hawley Tariff Act, which turned the Wall Street Crash of 1929 (a problem) into the Great Depression (a calamity).

Krugman, a diehard Keynesian, doesn't see it that way:  "protectionism didn't cause the Great Depression", he asserts.  Instead, it was the inappropriate austerity measures taken in the US and elsewhere that did that, right up until FDR's New Deal.  That's arguable -- both factors probably played a role -- but the interesting thing here is that Krugman is in effect validating what seems likely to be Trump's economic policy.  The crackdown on free trade is already visible, but the other key element is sure to be an expansionary fiscal policy that will make FDR look like a piker.  And here we have a left-leaning Nobel Prize winner telling us that this may well be a successful formulation!

Moving on, we find my old friend Dennis DesRosiers, who has been running an automotive consulting firm in Toronto since the days of the Edsel. (Sorry, Dennis!).  Dennis is the closest thing to a free trader that we find during this little tour d'horizon.  He told the local media that forcing producers to build cars in the high-wage USA won't promote economic growth: "tariffs sound good on paper, but they increase prices for consumers", which prevents them from buying.

DesRosiers is not wrong here, but that's not the whole story.  The people who used to earn $40 an hour plus benefits at the huge GM plants in my neighbouring city of St Catharines, Ontario are now on minimum wage in call centres, always assuming they have work at all.  They can't afford to buy GM cars any more, either, even if those cars are now being made in Mexico by workers making a fraction of the wage.

Here, in fact, we get a bit of a clue to why the bloom is off the free trade rose.  The benefits of well-paid, skilled work haven't been transferred lock, stock and barrel from unionized workers north of the border to grateful Mexicans.  The work has gone south all right, but much of the benefit has gone into the pockets of the automakers and their shareholders.  There can be no real doubt that globalization and free trade have been major factors behind the massive rise in wealth inequality in the past three decades.

Lastly let's meet Jerry Dias, head honcho of Unifor, the current name for the old Canadian Auto Workers Union.  Dias sees Trump's assault on outsourcing as an entirely positive thing for his members and for the Canadian auto industry.  After all, he notes, Trump's attacks have all been on Mexico, with Canada not getting so much as a mention.

Well, so far, at any rate.  It's tempting to remind Dias of the old lament that dates back, I think, to the rise of the Nazis -- you know, the one that begins, "First they came for the Communists, but I'm not a Communist, so I just sat back and did nothing to help", and ends "And then they came for me, and by then there was nobody left to help me".  If Trump sees his bullying is working -- and maybe even more if he fears it isn't -- it's astoundingly naive to think that he will stop with Mexico.

The whole world is likely to be in the firing line, and if that is the case, then it's not just Jerry Dias that's naive: so too, I'd argue, is Paul Krugman.  The world is much more trade dependent now than it was in the 1930s, and so the kind of trade disruption that Trump seems so blithely willing to trigger stands to be much more destructive.  Can a domestic infrastructure program offset that?  I'm not sure that's a good bet.