Republican Presidential Front-Runner Trump on Trade Policy

From the NYT:

Donald J. Trump said he would favor a 45 percent tariff on Chinese exports to the United States, proposing the idea during a wide-ranging meeting with members of the editorial board of The New York Times.

usimportsfromchina

Figure 1: Chinese imports into the US (cif), billions of USD, annual rates (blue), and 12 month moving average (red). Source: Census via FRED.

A partial equilibrium analysis of the short run impact depends critically on the price elasticity. The Cheung, Chinn and Qian (2015) estimates range from -1.6 to -2.2, for exchange rate changes, for Chinese ordinary exports to the United States. Price elasticities for tariff changes need not be the same, and in fact are likely to differ given the greater persistence in tariff rates. However, for the sake of illustration, let’s suppose the price elasticity is 2.0, and Chinese exports are perfectly elastically supplied in yuan terms. Then a 37% tariff increase (in log terms) implies a 74% decrease in imports from China (in log terms). As of November, the 12 month value of Chinese goods imports was $500 billion (measured as imports into the US from China by Census), so this means Chinese exports to the US falls to about $239 billion.

Of course, if Chinese costs in yuan fall (due to pricing to market), then the reduction in imports is less marked. Suppose for instance, 50% is absorbed by Chinese exporters (hard to believe given paper thin margins), then the decrease in imports to the US would only be 37%…

The foregoing assumes no retaliation, and no repercussion effects on the Chinese economy that would change the constellation of exchange rates, price levels, and GDP throught the world.

So far, 2016 is shaping up to have as nonsensical policy proposals (at least from one side) as in 2015.

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14 thoughts on “Republican Presidential Front-Runner Trump on Trade Policy

    1. PeakTrader

      Trump’s tariff is limited to only one country.

      It’s better to reduce tax and regulatory burdens, particularly on middle class entrepreneurs. Then, raise the minimum wage to boost the labor force participation rate.

  1. pete

    Trump implicitly assumes that China subsidizes our consumption, much as Japan did in the 70s. We should thank them for now….but of course this subsidization is not sustainable, as Japan found out. China’s labor costs have risen so much that India, and next Africa, will be sources of our imports. There is a long way to go before manufacturing wages are equalized around the globe.

  2. Anarchus

    For one thing, President’s never keep their campaign promises, none of them. Reagan was going to seriously address the budget deficit and it exploded to the upside. Even after Obama got elected, he was still saying “If you like your doctor you can keep your doctor” and that’s a howler-for-the-ages right there.

    Trump is all about “The Art of the Deal”. In dealmaking (and any kind of negotiating), you always start out with an outrageously BAD offer, and then scale back from there . . . . . . . it’s probably unlikely, but IF Trump thought that China was deriving unfair trade advantages by making children work long hours for low wages (it is) and by ignoring pollution controls on coal-fired power plants (it is), one way of pushing China to address those awful shortcomings would be to start with an onerous, outrageously bad proposal for them (and us too, of course) like a 45% across the board tariff and then gradually negotiate than penalty away in return for getting what you really want.

    Also, a 45% tariff on China would, I think, result in their unelected power elite getting thrown out before it destroyed our economy, and I think they know that . . . . .

    1. Menzie Chinn Post author

      No, but I remember candidate Obama on health insurance, climate change. I remember GW Bush on a respectful foreign policy. If you are saying Trump has no intention to adhere to his promises, then I agree.

  3. spencer

    Does anybody, including Trump, have any idea of what Trump really wants?

    Talk about buying a pig in a poke.

    1. PeakTrader

      I think, Trump knows he wants to be #1. Can you blame him? Maybe, he wants to build things and put “Trump” signs on them?

    2. Jeffrey J. Brown

      My theory is that Trump is on the Clintons’ payroll (and there is that video from 2008, where Trump extols the many virtues of Bill & HIllary).

      In any case, Trump’s statements seem designed to piss off every voting group, except for the AWM (Angry White Male) component, which is not exactly a winning coalition. I think that the principal reason that AWM’s overestimate their influence is that they tend to only talk to each other, and they tend to listen to and watch the same media sources (Rush, Fox News, etc.). Of course, cognitive dissonance is not exclusively limited to AWM’s, but it is very pronounced. For example, I’ve observed that in general AWM’s simply don’t care that most of the numerous stories they circulate about Obama are false. From their perspective, the stories feel like they should be true, and I think that this factor is at work in regard to many of Trump’s assertions.

      1. PeakTrader

        Then, you should vote for Trump. As Hillary would say: “What difference does it make.”

        I agree, I’d like to start hearing true stories about Obama.

        And, what about angry white women? It seems, everyone is angry about all sorts of things nowadays.

  4. puffo

    $1 for your new car is an outrageous, ridiculous offer; but it in no way is condusive to deal making beause i would not be taken seriously or you would be insulted.

  5. Ricardo

    Donald Trump’s trade policy is right out of the Herbert Hoover play book. World trade is down to 1957 levels and Trump wants to start a trade war with China? He is an economic imbecile.

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