US Policy Changes Vol.17 (Trade Vol.2)

Here are excerpts on trade from Scoring the Trump Economic Plan: Trade, Regulatory, and Energy Policy Impacts (PDF; 9/29/2016) | Peter Navarro and Wilbur Ross.

VII. The Structural Underpinnings of Trade Deficit Drag
… In contrast, Donald Trump views America’s economic malaise as a long-term structural problem inexorably linked not just to high taxation and over-regulation but also to the drag of trade deficits on real GDP growth. …(1) currency manipulation, (2) the equally widespread use of mercantilist trade practices by key US trading partners, and (3) poorly negotiated trade deals that have insured the US has not shared equally in the “gains from trade” promised by textbook economic theory.

#1: Currency Manipulation
… In a world of freely floating currencies, the US dollar would weaken and the Chinese yuan would strengthen because the US runs a large trade deficit with China and the rest of the world. American exports to China would then rise, Chinese imports to America would fall, and trade should come back towards balance. …
China’s purchases of US treasury securities are one way the Chinese government holds down their currency relative to ours. Maintaining their manipulated currency peg perpetuates the trade imbalance. Effectively, we are borrowing from China to pay for our trade deficit. It is analogous to a money-losing business borrowing money every year to stay afloat.
… In effect, the weakness of the southern European economies in the European Monetary Union holds the euro at a lower exchange rate than the Deutschmark would have as a freestanding currency. This is a major reason why the US has a large trade in goods deficit with Germany – $75 billion in 2015 – even though German wages are relatively high.
… The broader structural problem is an international monetary system plagued by widespread currency manipulation. Of course, a weaker currency stimulates the currency manipulator’s exports, discourages imports, brings about a more favorable trade balance, and the currency manipulator grows at the expense of its trading partners.
Donald Trump has promised to use his Treasury Department to brand any country than manipulates its currency a “currency manipulator.” This will allow the US to impose defensive and countervailing tariffs if the currency manipulation does not cease.

#2: Mercantilism and Trade Cheating
… The elaborate web of unfair trade practices includes illegal export subsidies, the theft of intellectual property, the aforementioned currency manipulation, forced technology transfers and a widespread reliance upon both “sweat shop” labor and pollution havens. The People’s Republic of China also engages in the massive dumping of select products such as aluminum and steel below cost. …

#3: Renegotiating Bad Trade Deals
Dating back to at least 1993, the US has entered into a series of poorly negotiated trade deals that have not distributed the gains from trade fairly. …
The analytical question is not whether trade deficits matter in the process of economic growth. We know that to be true from the simple arithmetic of the GDP equation.
Instead, the analytical questions are: How much growth might be gained from reducing America’s trade deficit as Trump has proposed to do, and how might a policy of balanced trade contribute to a balanced budget through the creation of additional income and tax revenues?