Ted Cruz, Respectable Mercantilist
Sen. Ted Cruz criticized Trump’s tariff proposal on the ground that it would spark a reciprocal move from China. He then used the opportunity to highlight his broad tax proposal. Although he calls it a “flat tax,” what Cruz proposes is in fact a value-added tax (VAT), that is, a national sales tax. In fairness to Cruz, he is proposing his VAT as an alternative to the income tax, but it is still a proposal for a new tax.
After talking about his visit to John Deere and the pitfalls of Chinese protectionism, Cruz noted how his tax plan would treat imports and exports differently. Importers would have to pay the tax, while exporters would not. “It’s like a tariff … [but] there’s no reciprocal tariffs that come against us. It puts us on a level, even playing field, which brings jobs here at home.”
Cruz’s proposal is more sophisticated than Trump’s 45 percent tariff, but it relies on the same mercantilist economic fallacies. Cruz’s VAT would work as a subsidy for exporters, but exports are not a magical category of goods that are better to make than other things. Like all subsidies, Cruz’s VAT would cause resources to shift toward producing things that Americans have to work harder to make but don’t use.
At the same time, the VAT would penalize imports, “like a tariff,” and so make American consumers less wealthy and American businesses less efficient. Creating “jobs here are home” through taxes and subsidies is not a recipe for economic growth.
There’s no way to characterize Cruz’s proposal as anything other than a call for protectionism. What makes Cruz different from Trump is the senator’s decision to sound respectable and deliberate while peddling bad economic policies.
John Kasich, Fair Trader
Just like Trump, Gov. John Kasich said he’s “a free trader” and then proposed government intervention to ensure that we have “fair trade.” He described trade as contest in which China is “cheating us.” Kasich then promoted a particular trade policy known as antidumping—imposing tariffs on products found to be sold at “unfairly” low prices.
The U.S. antidumping law is not only economically unsound, the lawless and abusive way it is administered means that it mostly exists to protect a handful of politically powerful U.S. industries from legitimate competition. It’s worth pointing out that most antidumping duties are imposed on basic materials used by American manufacturers. The Ohio governor’s story about his family’s work in steel mills says a lot about what industry he thinks U.S. trade policy should serve—regardless of how many jobs it destroys in downstream industries.
Jeb Bush, Trade Establishment
Former Gov. Jeb Bush thankfully noted that Trump’s 45 percent tariff would raise prices for American consumers, especially people “living paycheck to paycheck.” He then quickly shifted his focus to the costs of foreign protectionism for American exporters. He brought up Iowa soybean farmers and Boeing’s South Carolina plant as people who would be harmed by Chinese retaliation to Trump’s tariff.
This sort of rhetoric drives America’s current trade policy of opening trade through reciprocal trade agreements. He doesn’t reject the value of imports or fret over “fairness” or the trade deficit. Where Kasich supports protectionism because it furthers the interests of import-competing businesses, Bush supports freer trade because it helps exporting businesses.
On the plus side, this business-friendly approach to trade policy has contributed to decades of reciprocal trade liberalization that has opened up U.S. and foreign markets for the benefit of billions of people.
However, this export-driven model of trade liberalization is no longer working as well as it used to. Our trade agreements include various policies (like rigid intellectual property protection or investment arbitration) that help some American businesses but don’t actually liberalize trade. These controversial policies have become a political liability to achieving genuine trade liberalizing.
As interminably stalled World Trade Organization negotiations demonstrate, the political will to further liberalize trade is dwindling. Further progress may require more political daring and creativity than Bush is portraying.
Marco Rubio, Free Trader
Sen. Marco Rubio was the only candidate who responded to Trump’s tariff proposal with a genuine defense of free trade. He started with an unambiguous condemnation of tariffs as taxes on American consumers.
