Tuesday, January 10, 2017

Tim Worstall on Trade Policy: Reductio ad Absurdum

Tim Worstall makes some bizarre arguments including this one which sort of cracked me up:
As we know the President-elect, Donald Trump, tweeted that he was most unhappy that Toyota announced an investment in and expansion of a plant in Mexico. Instead, cars should be built in the US--with the idea that if not perhaps a large border tax, a trade import tariff, should or would be considered. To which we've had the answer from Toyota--they have agreed to increase the US trade deficit by $10 billion over 5 years. Obviously, that's not quite what they've said, instead, they've pointed out that they're going to invest $10 billion in the US over the next 5 years, as they did in the past 5 years. Left unsaid is the point that obviously they've not decided to do this because of a soon to be President's tweet.
Alas his explanation was nothing more than some balance of payments identities which should draw the fire of Peter Dorman. How might I have made the point instead?
With a national savings rate of only 1.75%, we should not repeat the mistake of 1981 giving the rich another massive tax break which would further reduce national savings and make the trade deficit worse. We should instead think in terms of how to get investment demand – be it public infrastructure or private investment – higher. As Brad notes, lower interest rates and infrastructure investment would be good policy.
If the shareholders of Toyota want to build more U.S. automobile plants and sell their cars to Latin America, that would be a great thing even if it is partially offset by a modest dollar appreciation. So yea Worstall made me laugh as there is way too much internet and Twitter stupidity on this topic even if his own poking fun at it involved exploiting an identity rather thinking this issue through.

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