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 Richmans' Trade and Taxes Blog

Are Trade Agreements Necessary?
Raymond Richman, 11/29/2016

Most economists are believers in free trade but there is nothing in economic theory that justifies a free trade policy. There is plenty of international trade theory that shows that balanced trade is beneficial to trading partners but there is no economic theory that justifies free trade and then only when special conditions apply. Chronic trade deficits are to be avoided because they usually involve loss of jobs and growth in the trade deficit country in favor or gains in jobs and growth in the trade surplus country. Free trade between countries is justified only when the countries have the same monetary unit, labor and capital are freely mobile between the countries, and none of the countries impose barriers to the free movement of goods. In effect, all the countries involved are in a common market. This is the case in the U.S. where the Constitution imposes these obligations on the States.

U.S. economists have always favored increased trade between nations. When the U.S. experienced     chronic trade surpluses, American economists opposed protective tariffs arguing for free trade. But they failed to distinguish between free trade and balanced trade. Prof. Milton Friedman is often quoted as favoring free trade but that was when the U.S. enjoyed chronic trade surpluses. Another great economist, Prof. John Maynard Keynes was an advocate of free trade but when the U.K. experienced chronic deficits, he stated that Britain should not tolerate being the victim of beggar-one’s neighbor policies pursued by countries to gain chronic trade surpluses at the U.K.’s expense.

The movement toward freer trade gained impetus with the inauguration of the series of General Agreements  on Tariffs and Trade in 1947 culminating in the conclusion of the Uruguay round in 1994, and the creation of  a new international agency, the World Trade Organization in 1995. What characterized these agreements is that they were all called “free trade” agreements even though countries continued to levy tariffs and impose non-tariff barriers on imports and to subsidize exports. As a result of the trade agreements, the U.S. in particular began to experience chronic trade deficits. In a paper written in 1995, I wrote:

The log-rolling negotiations that accompanied the revision of the GATT treaty gave substantial benefits to some American firms but sacrificed others. Owners of intellectual property and American companies that have established manufacturing facilities abroad are clearly the big winners. …The big losers are the employees of companies that do their manufacturing in the U.S. and the U.S. taxpayers who will have to make up the billions in lost tariff revenues and smaller taxes paid by displaced U.S. workers. Nor will these costs be compensated by benefits to the American consumers of imported goods. ...



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It's Morning in America 2.0 -- Peter Navarro in SF Chronicle
Howard Richman, 11/13/2016

Peter Navarro, Trump's chief economic advisor, had a commentary about Trump's election victory (It's Morning in America 2.0) in which he made the case that the Trump administration will lead to an economic resurgence. He states that the Trump program will create a stimulus to the economy in four ways:

President Trump will hit four points of the stimulus policy compass: tax cuts, streamlining regulation, reducing restrictions on fossil fuels production, and, above all, eliminating a chronic trade deficit that shaves at least a full point of GDP growth off the American economy each year.

Regarding Trump's trade policy he wrote:


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Joseph Wharton is smiling down on Donald Trump
Howard Richman, 11/10/2016

Joseph Wharton founded the Wharton School of Business at the University of Pennsylvania in order to insure that America would protect its industries from the economic attacks of other nations. Michael Lind pointed this out in a 2011 commentary:

In 1881, in order to promote protectionism, a Philadelphia industrialist named Joseph Wharton founded the first business school in the U.S. Wharton viewed free trade as a “fungus … which healthy political organisms can hardly afford to tolerate.” In his deed of gift to the Wharton School of Finance and Economy at the University of Pennsylvania, the industrialist specified that the school should teach “how by craft in commerce one nation may take the substance of a rival and maintain for itself virtual monopoly of the most profitable and civilizing industries; how by suitable tariff legislation a nation may thwart such designs.” He made his gift conditional: “The right and duty of national self-protection must be firmly asserted and demonstrated.”

Recent presidential candidates of the Democrat Party have promised, when running, to protect American industries from foreign attacks, but once elected, they have failed to do so. As Lind noted humorously:...


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How the Media Show Their Anti-Trump Bias and Why I Favor Trump  
Raymond Richman, 11/7/2016

You may believe that the media is anti-Trump because they believe he is unqualified to be President. Nothing is further than the truth. The real issue is his position on foreign trade. Free trade has become a Republican and Democratic ideology. There is nothing in economic trade theory that suggests free trade is an appropriate public policy unless the following conditions exist: the trading partners have a common currency, there is free movement of capital and labor, and no trading partner can impose artificial barriers to trade on imports from the other. The only place where these conditions hold is between the States of the USA because the U.S. constitution mandates them. Of course, multi-nationals are for free trade; it is the source of great profits.

And they favor globalization because it reduces the sovereign power of national governments. You did not hear a peep from any of them when the World Trade Organization ordered the U.S. government to rescind a law that the U.S. congress enacted requiring meat products to be labeled to show the country of origin. Can you believe that the U.S. Congress complied? And the U.S. media with the exception of Fox News, the Washington Times, and a few others fall in line with the desires of the multi-nationals as does the pre-Trump leadership of the Republican Party and the current leadership of the Democratic Party. Take as an example of media bias the following analysis of a single edition of a formerly conservative newspaper.

I read the Tribune Review, Pittsburgh edition, published on November 6, 2016, two days before the national presidential and Congressional elections, and what did I read? No news at all about the positions of either Donald Trump or Hillary Clinton. ...


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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]