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Are Trump's claims valid with regards to Canadadian tariffs? 
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 Are Trump's claims valid with regards to Canadadian tariffs?
I cannot seem to find a straight answer about this issue so I'm throwing it out there on the BookTalk.org forums. Is Trump being honest about the trade imbalance between the US and Canada? From what I have heard him say Canada imposes 200% to 300% tariffs on US dairy imports into Canada and he is only trying to level the playing field and return the favor by jacking up our tariffs on Canadian dairy imports.

Where is the truth? On the surface it does seem unfair that Canada protects their dairy farmers yet we cannot do the same.



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Post Re: Are Trump's claims valid with regards to Canadadian tariffs?
There have been two excellent essays in the New York Times recently that help understand the issue. They are both by Neil Irwin, who seems to have been more or less hired for the purpose of explaining somewhat complicated economic concepts without Krugman's vitriol.

In "What is the Trade Deficit?" from two days ago, he gave a balanced picture of the issue, explaining why trade economists don't worry about the U.S. trade deficit (it is a counterpart to a financial inflow, if exchange rates are flexible) and even why it is a good thing for the U.S., at least on some level (as provider of the world's reserve currency, we will receive goods and services in exchange for our dollars, and this is a plus; however, the U.S. trade deficit has exceeded the amount represented by provision of world reserves for decades now.)

https://www.nytimes.com/2018/06/09/upsh ... ficit.html

He mentions, in this piece, the fly in the ointment: getting free goods is all very nice, but when people are worried about jobs a trade deficit looks like a failure: we are buying from somewhere else when we could be employing Americans to make the goods. As policy guidance this is really rather bad, but it makes for good politics. Even with unemployment below 4 percent.

In another piece earlier in the year, he observed that the trade deficit had hit a record high in January and got into the nitty-gritty.
https://www.nytimes.com/2017/03/07/upsh ... ahead.html
The main value of it is that he notes that a higher dollar could be the reason. The cut in corporate taxes is supposed to result in repatriated profits. (It's not entirely clear that it has, or indeed will). But that would be a capital inflow, probably a large one, and so it will swell the trade deficit by raising the dollar, which makes our exports look more expensive and makes imports cheaper.

The idea that the trade deficit reflects an imbalance in tariffs is bogus. It is easy to cite "spikes" left behind from the most recent round of reductions, which was 20 years ago at the WTO creation in 1995 (known at the time as the conclusion of the "Uruguay Round.") But every country has spikes, and the tariffs are very low on average (as Irwin shows with examples).

[Sorry, the numbers are not in the Irwin piece but in Krugman's comment on Quebec:
https://www.nytimes.com/2018/06/09/opin ... uebec.html
my bad]

Outside of agriculture, countries are not allowed to have barriers against a particular country's products. This non-discrimination or "Most Favored Nation" rule, requiring all member countries to be given the tariff offered to the "most favored nation", applies to all manufactured goods outside agriculture. The tariff is on a product, not depending on the origin (the other exception is that free trade areas, including the EU and NAFTA, can have lower tariffs without having to offer the same low tariff to all WTO member exporters).

One of the reasons Trump's "national security" tariffs on steel and aluminum are so disastrous is that he is ripping up the non-discrimination principle in the process. The damage to the world's system of international treaties is incalculable. I can't begin to explain what the WTO has meant to international law, or how much damage Trump is doing to it. Suffice it to say that, despite the current Republican line, the introduction of WTO discipline to the Chinese system has done more for bringing the rule of law in China than anything since Mao and the Gang of Four were ousted. It's far from perfect, but the effect has been night and day.

The idea that Canada is somehow ripping off America, or stealing from our piggy-bank, is non-sensical. Trump has been making these sorts of noises since the 90s, and that is indeed how he sees the matter, but it comes out of his general penchant for picking fights and portraying himself as champion of the little guy using symbolism even while gutting the little guy on substance.

The big substance issue on trade is China's surge since 2005. As documented by Autor, Hanson et all, their penetration of U.S. markets has had serious effects, sometimes devastating on the Rust Belt communities of Western Pennsylvania, Ohio, Indiana, Michigan and Wisconsin, which of course are the states that surprised everyone with their swing Red in the last election.

Before China was allowed to join the WTO, they were required to reduce their tariffs and other trade barriers, on the rationale that the other countries had been reducing their Most Favored Nation rates with each other while China did not participate in the negotiations. In hindsight the West seems not to have insisted on enough openness (China still had 100 million unemployed when they joined the WTO, and a GDP per capita below Peru or Thailand). No one seems to have anticipated their stunning success in manufacturing (to be fair, a lot of the income goes to foreign companies, many East Asian, some U.S. or European) - I certainly didn't. Combined with their pressure on foreign investors to share technology (a practice which Japan demonstrated first in the 70s and 80s) there has been sufficient reason to, essentially, renegotiate the terms of Chinese accession to the WTO.

But Trump is trying to be cozy with China while he negotiates with North Korea's Kim, (and may have been literally bought off in the bizarre case of the ZTE chip imports), so instead he is targeting allies. All about appearances. Unfortunately for 45, politics is often about pocketbooks instead.



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Mon Jun 11, 2018 2:11 pm
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Post Re: Are Trump's claims valid with regards to Canadadian tariffs?
Chris OConnor wrote:
From what I have heard him say Canada imposes 200% to 300% tariffs on US dairy imports into Canada and he is only trying to level the playing field and return the favor by jacking up our tariffs on Canadian dairy imports.

Where is the truth? On the surface it does seem unfair that Canada protects their dairy farmers yet we cannot do the same.
I haven't studied the dairy case in depth, but in general countries make commitments on their tariffs and these are reciprocated by other commitments, usually not in the same industry. It is not all that common for country A to have a lot of imports from country B in an industry while country B also imports a lot from country A in the same industry. So they may have lowered tariffs in, say, jets in exchange for us lowering them in dairy.

If we had somehow felt that Canadian dairy imports from us were a crucial issue, then the time to push for that was with NAFTA or the Uruguay Round (which had very little in it about agriculture, to be fair). Trump is choosing something that looks bad, knowing full well that the negotiations are about realities, not appearances, so that there will always be results that sound bad.



Mon Jun 11, 2018 2:22 pm
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Post Re: Are Trump's claims valid with regards to Canadadian tariffs?
The political and economic principle that I find interesting in trade is the relation between a tiny effect spread widely and a big concentrated effect. Slightly higher milk prices in Canada might not seem to affect consumer decisions but they do, just based on the economic laws of supply and demand. The dispersed effect of free trade adds up to a bigger overall benefit than the concentrated support to farmers. Same with higher steel prices in the USA. It is far easier for politicians to placate a noisy lobby group than to explain the diffuse and abstract benefits of free trade. Tariffs are a classic example of how bad policy can seem to be good politics, but only in the short term. Long term, good policy is good politics. Trump's medium term signal seems to be that the USA has been too soft in past trade negotiations, so we can only hope this mercantilism is just a bargaining ambit point looking toward the interest in free trade instead of self-harming trade wars of beggar thy neighbour.

One thing I don't get is why agricultural tariffs are allowed but industry support is not allowed. Surely if Canada or France believes in the cultural benefits of sustaining a smallholder farming industry, it would be better to do that through industry tax concessions rather than making all the customers of their products pay above the world market price. It is a fundamental point of economic justice that it is wrong to force customers to buy a product from someone who does not offer best value for money.


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Post Re: Are Trump's claims valid with regards to Canadadian tariffs?
Chris OConnor wrote:
I cannot seem to find a straight answer about this issue so I'm throwing it out there on the BookTalk.org forums. Is Trump being honest about the trade imbalance between the US and Canada? From what I have heard him say Canada imposes 200% to 300% tariffs on US dairy imports into Canada and he is only trying to level the playing field and return the favor by jacking up our tariffs on Canadian dairy imports.

Where is the truth? On the surface it does seem unfair that Canada protects their dairy farmers yet we cannot do the same.



I thought this article from the Atlantic provided a fairly good explanation:


"It doesn’t help that the U.S. subsidizes its own dairy industry heavily—up to $22 billion in 2015, according to one study. “The Canadians say, ‘Hey, wait a minute. You subsidize milk, too,’” Kelly, who is now a research scholar at the Sanford School of Public Policy at Duke University, said. “You’ve got all sorts of support programs for milk.”

In other words, Canada props up its dairy industry through quotas that cap the amount produced, and imposes heavy tariffs on imports. The U.S. subsidizes its dairy industry, resulting in lower costs for U.S. consumers, but a supply glut.

“From a geopolitical point of view, the trouble with supply management is it's kind of in your face: ‘You cannot enter our market. You foreigners cannot enter our markets unless you pay tariffs of like 200 percent,’” Kelly said. “Whereas subsidies are more insidious. They … probably are anti-trade in some sense, but they’re not as glaring. … We do it more subtly.”
Those subsidies exist in the U.S. for the same reason Canada has a supply-management system: domestic politics."

www.theatlantic.com/international/archi ... MDgxNDYzS0



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Post Re: Are Trump's claims valid with regards to Canadadian tariffs?
LevV wrote:
In other words, Canada props up its dairy industry through quotas that cap the amount produced, and imposes heavy tariffs on imports. The U.S. subsidizes its dairy industry, resulting in lower costs for U.S. consumers, but a supply glut.

Good article. Thanks. The U.S. mainly used supply restrictions ("crop setasides") until the Gingrich wave in 1994. It's true that they are particularly resistant to international trade, and explains the reason for such a high tariff.

There are three ways to help farmers: a subsidy (which is what the U.S. uses now), purchase of surplus at a high price, and supply restrictions. The third is by far the cheapest for the government. But it obviously doesn't work if foreign output, including subsidized stuff from your neighboring country, is allowed to come in and push the price right back down again.



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Tue Jun 12, 2018 12:40 am
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Post Re: Are Trump's claims valid with regards to Canadadian tariffs?
Harry Marks wrote:
There are three ways to help farmers: a subsidy (which is what the U.S. uses now), purchase of surplus at a high price, and supply restrictions. The third is by far the cheapest for the government. But it obviously doesn't work if foreign output, including subsidized stuff from your neighboring country, is allowed to come in and push the price right back down again.


Thanks for the further clarification on this point of imports and subsidies.

The comments from Trump and the other WH staff are insulting and confusing to Canadians for a number of reasons. Trump stated that his main reason for imposing the tariffs on steel and aluminum (where this all started) was national security. Really? Can any rational thinking person think of a national security situation where, given our history of mutual cooperation, support, undefended border etc., Canadians would restrict the exporting of steel and aluminum to the United States?

Apparently, Canada and the United States sells each other about $335 billion worth of goods with the United States maintaining a surplus (verified from many sources eg. www.washingtonpost.com/opinions/finally ... d0755b7fa1)
And the dairy portion of these huge trade agreements represents a mere 0.2 percent of exports to Canada. So, what gives?



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Post Re: Are Trump's claims valid with regards to Canadadian tariffs?
LevV wrote:
The comments from Trump and the other WH staff are insulting and confusing to Canadians for a number of reasons.
The insults and divergence from rationality are a feature, as they say, not a bug. Our dear leader loves to look tough by insulting others, and apparently allies are prime candidates.
LevV wrote:
Trump stated that his main reason for imposing the tariffs on steel and aluminum (where this all started) was national security. Really?
In normal policy discussion, that would be a non-starter. But this guy can stretch to convincing himself of anything that is convenient and sounds combative. It is convenient because in general it is the most flexible reason for protectionism, and the WTO has not been very aggressive, over the years, about challenging particular countries on their (often bizarre) concepts of things they need to be able to produce for themselves. The Swiss, for example, restrict the rate of conversion of farmland because they fear that if they cannot feed themselves, they will once again be surrounded by hostile neighbors and this time will have to capitulate.

However, 45's total contempt for rules and order led him to violate the non-discrimination rule, and there is no way he can make "national security" stick if he is going to claim that Canadian imports are harmful to security while those from India or China are not. The WTO panel will find against him (after about a year, probably) and he may follow Bush II's example and let the tariffs go at that point, but in the meantime there will be a number of politically unpopular retaliations. The average American farmer probably knows the trade system better than the President does, and I am betting they will not put up with these shenanigans. But then, that may be why he chose to attack dairy tariffs, since many dairy farmers in the Northern tier of states probably resent those.
LevV wrote:
Can any rational thinking person think of a national security situation where, given our history of mutual cooperation, support, undefended border etc., Canadians would restrict the exporting of steel and aluminum to the United States?
Our dear leader does not care about such niggling matters as making sense. I am trying to understand him in terms of the world of New York City real estate deals, in which every one of them is unique, there is a lot of juice to be fought over in every deal, and getting the other side to sign on to a deal is to be trumpeted as a triumph even as one begins the guerrilla war to extract even more. Real estate people are not used to the notion that rules make things run more smoothly, and running smoothly is a disadvantage because it reduces the opportunities to squeeze more juice.
LevV wrote:
So, what gives?
Good of you to look at facts. How quaint. How positively Canadian of you. The best advice I can give you is, don't give an inch (except that if you work at it you can get gains on substance in exchange for the appearance of concessions, like the Wizard of Oz giving a diploma to the Scarecrow), and keep repeating the four magic words, "This too shall pass."



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