Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Land Rover Discovery Sport Rattling / Knocking Sounds From Car Pillars - 25th Apr 18
China Takes the Long View on Gold-Silver... and So Should You - 25th Apr 18
Russia Buys 300,000 Ounces Of Gold In March – Nears 2,000 Tons In Gold Reserves - 24th Apr 18
Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - 24th Apr 18
CRYPTOCURRENCY MASTERCLASS #CRY90 - 24th Apr 18
UK Gambling Statistics - What the Numbers Say - 24th Apr 18
Chaos Capitalists Short Countries - How Chanos Got China Wrong - 24th Apr
Artificial Intelligence Defines the Political News Narrative - 24th Apr 18
Stock Market "Oops, They Did It Again" - 24th Apr 18
Fox in the Henhouse: Why Interest Rates Are Rising - 23rd Apr 18
Stocks and Bonds, This is Not a Market - 23rd Apr 18
Happy Anniversary Silver Investors! - 23rd Apr 18
The Hottest Commodity Play In 2018 - 23rd Apr 18
Stock Market Correction Turns Consolidation - 23rd Apr 18
Silver Squeeze, Gold Fails & GDX Breadth - 23rd Apr 18
US Economy Is Cooked, the Growth Cycle has Peaked - 23rd Apr 18
Inflation, With a Shelf Life - 23rd Apr 18 - Gary_Tanashian
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

More Trade Barriers Are Coming—Make Sure You’re On The Right Side

Economics / Protectionism Nov 02, 2017 - 12:57 PM GMT

By: John_Mauldin

Economics

BY PATRICK WATSON : If you think economics is boring, bring up “free trade” and see what happens. I guarantee sparks will fly.

Some people preach free trade’s many blessings. Others curse the very idea, insisting free trade hurts honest working people.

Lately, this has become more than a theoretical argument.

President Trump came into office pledging to renegotiate or cancel trade agreements he thought unfair to the US. Meanwhile, the UK seems headed toward a “hard Brexit” from the European Union.


Whether you think those are good moves or not, they’re important to the world economy. Millions of jobs and lives are at stake.

I think both sides are wrong… and it’s going to cause big trouble.

Free Trade Is Anything but Free

Rational discussion is impossible if you can’t agree on definitions. So what is free trade, anyway? Here’s how Investopedia defines it:

Free trade is the economic policy of not discriminating against imports from and exports to foreign jurisdictions. Buyers and sellers from separate economies may voluntarily trade without the domestic government applying tariffs, quotas, subsidies or prohibitions on their goods and services. Free trade is the opposite of trade protectionism or economic isolationism.

By that definition, free trade exists almost nowhere on Earth. Even so-called free-trade zones like NAFTA aren’t free. They have extensive rules defining how the parties can discriminate. It’s managed trade, not free trade.

I think if we actually had free trade, it just might work.

The closest thing we have is interstate trade within the US. It works pretty well, thanks in part to having a single currency and fiscal policy. Take those away, and the US would look more like the European Union.

Barring a one-world government, international trade will always have some degree of protectionism.

But someone in the Trump White House recently decided to turn it up a notch.

Free Trade’s Downside Goes Beyond Economics

Peter Navarro is an economist who directs the White House Office of Trade and Manufacturing Policy. He’s a hard-line protectionist, especially toward China.

Last week, the news media obtained a slide presentation by Navarro that earned immediate ridicule. Here’s the most-shared slide.

In Navarro’s view, insufficiently protectionist trade policies weakened the US manufacturing base. He thinks this created other socioeconomic costs—from domestic violence to lower fertility rates—all springing from the same root cause.

The Twitterati roared with bipartisan laughter at Navarro’s slides. What a crazy idea to think that closing factories could change fertility rates!

I have to confess, that was my first reaction too. But as I thought more about it, I realized that Navarro has a point here... and an important one.

The Socioeconomics Impact of Job Loss

Losing your job is no fun, particularly when you have no savings and no good prospects for a new job. That describes a lot of US manufacturing workers in the last decade or two.

What happens inside those households after the axe drops?

Well, with no income they start falling behind on bills. Government benefits help, but they still don’t replace what was once there.

That leads to arguments between spouses. Kids hear it, get scared, and vent their fear by misbehaving at school.

The stress that comes from trying to find a new job—or from working three “McJobs” to make ends meet—can create a tense atmosphere. Then the car breaks down, or somebody gets sick, and it gets even worse. People turn to drugs, have affairs, commit crimes. Bill collectors start calling. Teens make bad choices.

None of this is imaginary. It happens all the time.

Yes, people bring some of this on themselves. But it still originates from that initial job loss, which was a consequence of national trade policies.

Other economists have reported similar findings. For instance, see “The China Trade Shock” by David Autor, David Dorn, and Gordon Hanson. They don’t endorse Navarro, to my knowledge, but their research supports some of his points.

Peter Navarro may not have all the right answers, but he’s not wrong about these socioeconomic problems.

They happen, they hurt people, and trade policy is one of the causes.

Both Camps Are Wrong

As I said, people fall in two camps about trade:

  • Free trade is great for the economy.
  • Free trade is unfair and hurts people.

Specific policy preferences flow out of those beliefs. On the surface, they look irreconcilable, but I think both are correct.

Yes, free trade—or at least taking steps toward it—helps the economy.

And yes, free trade is unfair and causes a lot of problems.

This isn’t an either/or condition. Both can happen as the process unfolds over time.

It’s true the people who get hurt by foreign competition might eventually find new and better opportunities, but that “eventually” period is painful. All those problems Navarro listed can linger a long time.

Even if everyone who lost their job finds a better job a year later, the scars from that year don’t disappear. Marriages break up, kids learn bad habits, communities fall apart.

Those who sing free trade’s praises tend to overlook this. Economic growth will fix everything, they think. Just wait.

For them, the waiting is easy. Not so for everyone.

Until that problem gets fixed, anything called “free trade” won’t get very far.

Free-traders will be lucky not to go backward. President Trump already ended US participation in the nascent Trans-Pacific Partnership (TPP). He may well pull the US out of NAFTA too.

Fierce opposition from business leaders has kept Trump and Navarro from moving as fast as they want, but I don’t think they will give up. The trade barriers that exist now will stay in place, and new ones are probably coming.

That will affect stock markets all over the world, but not equally.

The walls are rising. Make sure you’re on the right side.

Free Report: The New Asset Class Helping Investors Earn 7% Yields in a 2.5% World

While the Fed may be raising interest rates, the reality is we still live in a low-yield world. This report will show you how to start earning market-beating yields in as little as 30 days... and simultaneously reduce your portfolio’s risk exposure.

Claim your free copy here.

John Mauldin Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules