Comment on “US Trade Policy in the Trump Administration”

• Date: 01 July 2018
• Published date: 01 July 2018
• DOI: http://doi.org/10.1111/aepr.12227
• Author: Mohamed Ariff

Comment on “US Trade Policy in the Trump

Administration”

Mohamed ARIFF†

International Center for Education in Islamic Finance (INCEIF)

JEL codes: F1, F13, C54

Accepted: 2 January 2018

Noland (2018) has done a remarkable service, not only putting the subject matter in

perspective, but also pin-pointing some of the risks and pitfalls, and what these mean

for the USA and the rest of the world, notably Asia.

For starters, the US policy changes will affect all its trading partners, even if these

are purely domestic, given the size of the US economy and its extensive connectivity,

what more if it involves trade policy. For one thing, it is most unfortunate that the pol-

icy changes are premised on flimsy grounds, and for another, it is also questionable

that such policy responses represent solutions.

Protectionist trade policy will not solve the perennial US trade deficit problem so

long as the US consumes more than it produces. Seen in these terms, the trade deficit

is the result of not liberal trade policy but living beyond means. The way to downsize

the trade deficit is to make the US households spend less and save more, which is eas-

ier said than done. Trade deficits are nothing new to the US economy and, in a sense,

they are a nonissue to the extent they are continuously offset by investment inflows.

The fixation on bilateral trade deficits makes no economic sense either, as the surplus

countries help finance the US trade deficit, as is indeed the case with China, Japan,

South Korea, and Taiwan.

If job losses associated with liberal trade is an issue, trade restrictions are hardly

the answer. Job losses in the USA, attributed to liberal imports, are largely in the

unskilled category, which is not surprising as freer trade tends to equalize factor prices

across countries. Trade barriers would cut both imports and exports as protectionism

is contagious. Trade restrictions may create more jobs for unskilled workers in the

USA, while slashing jobs for its high-skilled workers, when exports take a hit. Alterna-

tively, productivity gains can make the workers more competitive, raising wages and at

the same time lowering unit labor cost. The solution then is not import restrictions,

but retooling and upskilling the workforce, so that displaced workers can be gainfully

employed somewhere else.

†Correspondence: Mohamed Ariff, International Center for Education in Islamic Finance

(INCEIF), Global University of Islamic Finance, Lorong Universiti A, 59100 Kuala Lumpur,

Malaysia. Email: ariff@inceif.org

© 2018 Japan Center for Economic Research 279

doi: 10.1111/aepr.12227 Asian Economic Policy Review (2018) 13, 279–280