The above-linked story appeared a few days ago, warning of a 0.2% “hit” on U.S. GDP (gross domestic product) if the U.S. walked away from NAFTA, the North American Free Trade Agreement, which has resulted in a huge trade deficit with Mexico. The argument is that the U.S. will be less competitive with the rest of the world without access to the cheap labor in Mexico. Making autos and parts in the U.S. will raise costs, making American autos more expensive relative to imports from Japan, South Korea and Europe.
That’s probably true, but the answer to that is fairly simple. Raise tariffs on products from those regions as well. The trade deficit has never been about “competitiveness.” Rather, it’s the result of attempting to trade freely with badly overpopulated nations who come to the trade table with a gross over-supply of labor and markets plagued by low per capita consumption. I’ve always maintained that a piece-meal approach to addressing this problem can never work. Tariffs need to be applied universally to every country whose emaciated markets are out of balance with their over-supply of labor.
One might question whether this will result in higher prices for American consumers. Sure it will. But the explosion in the demand for labor to make all these products in the U.S. once again, as we did decades ago, would drive wages higher even faster, making products more affordable in spite of higher prices.
President Trump has long promised to “put America first” in trade by withdrawing from NAFTA and even the World Trade Organization, and by then levying tariffs as necessary to restore a balance of trade. During his recent trip to Asia, he made it clear once again that that will be our approach to trade from now on. This is exactly what’s needed to halt the parasitic drain of the life blood from our economy. The time has come, Mr. Trump. Do it.