Now that we’ve seen most of the results of President Trump’s renegotiations of NAFTA with Mexico, we can understand the basis of the policy there: A few bits of red meat for the auto unions back home, change the name of the treaty, declare victory, and go home. Not exactly the grand deal originally promised, but useful enough in motivating the base.
It’s the contradictions inherent in the approach to the Canadian case which are much more interesting. It’s at least claimed that the sticking point is Canada’s protection of the local dairy industry – what they euphemistically call supply management – or what rational and reasonable people would call ripping off the consumer to the benefit of the producers.
[More: Trudeau says NAFTA deal possible by Friday]
The whole system is planned and works about as well as you’d expect a planned economy to work – it doesn’t. To protect that system, import duties of up to 200 percent are imposed. The protection means that farms are woefully too small to be economic. In this modern world no one at all should be trying to make a living off 35 dairy cows. That’s like saying someone should be trying to live off farming 2 acres of Iowa. Just not the right size at all. A hobby maybe, but just not a business at all.
Trump is quite right to be saying that this system should go. The benefit to American dairy farmers in greater exports is going to be trivial but still, it is true that Canadian dairy protection is a bad system which should be abolished.
The thing is, and here’s the contradiction in Trump’s policies, who will be the beneficiaries of a change in Canada’s policies? Why, that would be Canadians themselves. For they are the people paying for this idiocy. As it always is, consumers within tariff walls and trade protections pay those costs. As I’m not a politician on the stump, I don’t know the price of milk but this site says that in the US milk is $0.84 a liter, and in Canada it’s $1.72 a liter. This protection, this support of hobby farmers, those tariffs and trade protections – they come out of the pocket of the mother trying to moisten her childrens’ breakfast cereal. Yes, we would like that system to go, and if Trump achieves it then good on him.
But do note, again, that it’s the Canadian mother and children that benefit. Because the trade protections stop those lovely cheap foreign goods flowing into Canada.
The contradiction? That Trump says exactly the opposite about tariffs and trade protections on lovely cheap imports coming into America. By some alchemy, these are supposed to make Americans richer when the truth is as above. Tariffs and trade protections always come out of the wallets of the consumers within them. Sure, local producers are aided by them, but the people doing the paying are the citizens of the government doing the protecting.
We’ve got Trump insisting that Canada lowers trade protections because that will make Canadians richer – he’s right so far. But then he says that American trade protections must rise to make Americans richer. That’s not just wrong, but we’ve got to wonder at the ability to believe both things at the same time. What would be rather better is if the president applied that same logic to what makes Americans poorer – those tariffs and trade protections which cut them off from those lovely cheap foreign goods. Let’s just abolish them all and make all us consumers richer.
After all, the only logically valid trade policy to have is one of unilateral free trade – there is no other stance that makes sense at all.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at The Continental Telegraph.
