Former US President Donald Trump speaks after attending the funeral of New York City Police Officer Jonathan Diller, who was shot and killed while conducting a routine traffic stop on March 25 in the Far Rockaway section of Queens, in Massapequa Park, New York, US, March 28, 2024
Shannon Stapleton | Reuters
Decades of trade deficits and a strong dollar have created too many “losers” in the US economy who have turned to Donald Trump’s protectionist policies, according to Richard Kuo, chief economist at Nomura Research Institute – and those conditions persist.
Trump's “America First” economic policies prompted his administration to impose a slew of trade tariffs on China, Mexico, the European Union and other countries, including 25% duties on steel and aluminum imports.
As the 2024 Republican presidential nominee, Trump proposed a 10% base tariff on all US imports and a 60% minimum tax on imported Chinese products.
These policies have drawn widespread criticism from economists, who claim that tariffs are counterproductive because they make imported goods more expensive for the average American.
Speaking to CNBC's Steve Sedgwick on the sidelines of the Ambrosetti Forum on Friday, Coe said protectionism is “a terrible thing,” but that Trump's approach “makes some economic sense.”
“When we studied economics and free trade, in particular, we learned… that free trade always creates winners and losers in the same economy, but the gains to the winners are always greater than the losses to the losers, and so society as a whole always gains,” he noted. That's why free trade is good.
However, Coe argued, this is based on the assumption that trade flows are balanced or in surplus, while the US has been running huge deficits for the past 40 years, leading to a growing number of “losers.”
“By 2016, the number of people who saw themselves as losers in free trade was large enough to elect a Trump president, so we have to go back and say to ourselves: What did we do wrong to allow so many people in the United States to see themselves as losers?” In free trade? He said.
For Kuo, the main problem was the exchange rate, as the strength of the US dollar stimulated foreign imports and hurt US companies exporting around the world.
“We kind of allow the exchange rate to be determined by so-called market forces, speculators, my clients, Wall Street types, but the foreign exchange rate has to be set in such a way that the number of losers doesn't grow to a point where free trade itself is lost,” Kuo said.
He pointed to a similarly pivotal moment in 1985, when President Ronald Reagan faced the same issue of a strong dollar and rising protectionism. At that time, Reagan responded by facilitating the Plaza Agreement with France, West Germany, Japan, and the United Kingdom to devalue the US dollar against these countries' currencies through foreign exchange market intervention.
“This is something we should have been more aware of doing instead of allowing it [the] The dollar to go wherever the market takes [it]“Then those people who are not as fortunate as us in the financial markets end up suffering and end up voting for Mr. Trump,” Ko added.
He said economists need to get beyond the idea that the trade deficit is simply due to “too much investment” and “too little saving” in the United States, because that means the deficit can only be reduced by remaining in recession until domestic demand is severely weakened. So much so that American companies are able to export more goods, which would not be possible under a democratic system.
Kuo pointed back to past dealings with Japan, noting that if the argument was that foreign companies were merely filling areas where U.S. companies could not meet domestic demand, then U.S. companies that were fighting Japanese companies in the 1970s and 1970s should have posted profits. Huge because of the surplus. Requests.
He added, “But that did not happen in reality. Rather, what happened was the opposite. Many of them went bankrupt, and many of the losers in free trade were left on the streets, because it was not an issue of savings and investment, but rather an issue of the exchange rate.” He said.
“The dollar should have been much weaker, and Reagan realized that was why he took that action.”
President Joe Biden's administration has also broken with Washington's decades-long spotlight on free trade agreements and kept all measures enacted under the Trump administration.
However, instead of focusing on imposing new tariffs, Biden has bet big on industrial policies like the CHIPS, Science and Inflation Act to bring manufacturers back to the United States, especially in fast-growing sectors like semiconductors and electricity. Vehicles.
