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There Is Never a Good Time for a Trade War

Published on: 22:51PM Mar 18, 2019

By Reg Clause:  Jefferson, Iowa

When’s the worst time for the United States to engage in a trade war?

The answer is right now.

That’s partly because there’s never an appropriate moment to make an economic mistake—but mostly because our present economic conditions are ideal for us to suffer the worst results of trade warfare.

A pathbreaking new study proves it.

The study comes in the form of a working paper published in December by the National Bureau of Economic Research, a nonprofit group that seeks to provide unbiased information to policymakers and business leaders.

Founded in 1920, the NBER is one of the most respected think tanks in the world. It boasts an impressive membership that over the years has included more than 30 Nobel laureates, from Milton Friedman on the libertarian right to Paul Krugman on the progressive left.

The four authors of “Macroeconomic Consequences of Trade” aren’t exactly household names, even among the types of people who eagerly read the latest releases of the NBER. Yet the international team of Davide Furceri, Swarnali A. Hannan, Jonathan D. Ostry, and Andrew K. Rose has made an essential contribution of trade policy.

As a 70-year-old farmer, believe me: I have better things to do than study NBER working papers. I’d much rather watch baseball games, take naps, and spoil my grandkids.

Yet I’m also worried about the future of farming, especially with respect to agricultural exports. When my grandkids take over the family farm, will they have the ability to sell what they grow to customers overseas?

I’m not so sure. I’ve never before seen such willingness among politicians to use and abuse commodities during trade disputes. Nor have I ever witnessed unhealthier obsessions over so-called “trade imbalances,” when we’d be better off focusing sharply on job growth, high wages, and technological innovation.

Farmers don’t need more political games. We need more market opportunities.

And that brings me back to the NBER’s working paper, which asks a basic question: What happens to a nation’s economy when it raises tariffs?

To supply a robust answer, the authors pulled together an enormous range of data from 151 countries between 1963 and 2014. “The scope of our paper is ambitious,” they write. In other words, they really did their homework.

Their conclusion, however, is refreshingly straightforward: “Our results bolster the case for free trade.”

They sure do. Here’s a little more detail: “We find empirically that tariff increases lead to declines of output and productivity in the medium term, as well as increases in unemployment and inequality.”

This isn’t a theory. This isn’t a talking point.

Instead, this is something altogether different: It’s actual proof, based on reliable data. The authors call it a “new empirical benchmark.”

The working paper also reveals another interesting fact. Although rising tariffs almost always hurt, sometimes they hurt more than other times.

“Overall,” write the authors, “we find that tariff changes have more negative consequences for output and productivity when: tariffs increase (rather than decrease); for advanced economies (not emerging markets and developing economies); and during good economic conditions.”

That’s a spot-on description of the United States today: We’re raising tariffs rather than lowering them (and threatening to raise them even more); we’re the most advanced economy in the world; and although our economy faces challenges, we’re enjoying an economic expansion.

These facts, write the authors in the almost comically understated rhetoric of careful scholarship, “do not bode well for the present protectionist climate.”

No they don’t!

The power of the NBER study is that it takes a comprehensive look at what happened in the past. Yet it’s more than a mere historical curiosity. We can use it as a tool to predict what might happen in the future: Protectionism is bad policy, trade wars hurt everyone, and Americans in 2019 are perfectly positioned to suffer more from these economic blunders than just about anyone else.

It should remind us of what George Santayana warned about more than a hundred years ago: “Those who cannot remember the past are condemned to repeat it.”

Reg Clause is a Jefferson, Iowa farmer and business consultant.  He serves as Chairman and volunteers as a board member for the Global Farmer Network (www.globalfarmernetwork.org) where this column originates. 

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*This column first appeared at The Hill.