- ORIGINAL NEWS
Free trade flaws fueled Trump’s rise in 2016 — and the problems remain, top economist says
- SUMMARY
The United States has faced a decades-long trend of trade deficits and a strong dollar, creating a large group of individuals who feel they have lost out from free trade.
These individuals played a significant role in electing Donald Trump as president, who implemented protectionist policies such as tariffs.
Economists generally criticize tariffs as being counterproductive, but economist Richard Koo argues that Trump’s approach has some economic logic.
Specifically, Koo contends that the strength of the dollar incentivized foreign imports, harming American companies and leading to a growth in the number of people who considered themselves losers of free trade.
Koo suggests that the solution lies in managing the exchange rate to curb the number of losers and reduce protectionist sentiments.
He draws parallels to 1985 when President Reagan intervened in the foreign exchange market to weaken the dollar.
Koo believes this could have prevented the rise of protectionism that Trump’s policies ultimately capitalized on.
While President Biden has retained some of Trump’s tariffs, his administration has shifted the focus towards industrial policies aimed at bringing manufacturers back to the United States in key sectors like semiconductors and electric vehicles.
However, Koo emphasizes that economists need to consider the impact of exchange rates on trade imbalances and the growth of losers in the economy to prevent further protectionist backlash.
- NEWS SENTIMENT CHECK
- Overall sentiment:
neutral
Positive
“Koo said protectionism was a “horrible thing,” but that Trump’s approach “does have some economic logic.””
“That’s the kind of thing we should have been more conscious of doing. Instead of allowing [the] dollar to go wherever the market takes [it], and then these people who are not as fortunate as we are in the financial markets, end up suffering and end up voting for Mr. Trump,” Koo added.”
Negative
“Trump’s “America First” economic policies led his administration to institute a slew of trade tariffs on China, Mexico, the European Union and others, including slapping 25% duties on imported steel and aluminum.”
“Koo nevertheless argued that this rests on the assumption that trade flows are balanced or in surplus, while the U.S. has been running huge deficits for the last forty years, which have expanded the number of “losers.””