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last week, offstage, there was in effect a real debate about economic policy between Donald Trump and Mitt Romney, who is trying to block his nomination.
Unfortunately, both men are talking nonsense. Are you surprised?
The starting point for this debate is Mr. Trump’s deviation from free-market orthodoxy on international trade. Attacks on immigrants are still the central theme of the Republican front-runner’s campaign, but he has opened a second front on trade deficits, which he asserts are being caused by the currency manipulation of other countries, especially China. This manipulation, he says, is “robbing Americans of billions of dollars of capital and millions of jobs.”
His solution is “countervailing duties” — basically tariffs — similar to those we routinely impose when foreign countries are found to be subsidizing exports in violation of trade agreements.
Mr. Romney claims to be aghast. In his stop-Trump speech last week he warned that if The Donald became president America would “sink into prolonged recession.” Why? The only specific reason he gave was that those duties would “instigate a trade war and that would raise prices for consumers, kill our export jobs and lead entrepreneurs and businesses of all stripes to flee America.”
This is pretty funny if you remember anything about the 2012 campaign. Back then, in accepting Mr. Trump’s endorsement, Mr. Romney praised the businessman (who was already a well-known “birther”) as someone with an “extraordinary ability to understand how our economy works.” But wait, it gets better: at the time, Mr. Romney was saying almost exactly the same things Mr. Trump is saying now. He promised to — you guessed it — declare China a currency manipulator, while attacking President Obama for failing to do so. And he brushed off concerns about starting a trade war, declaring that one was already underway: “It’s a silent one, and they’re winning.”
But didn’t protectionism cause the Great Depression? No, it didn’t —protectionism was a result of the Depression, not its cause. By the way, if you want an example of a policy that really did have a lot to do with the Great Depression’s spread, that would be the gold standard — which Ted Cruz wants to restore.
So Mr. Romney is talking nonsense. But so is Mr. Trump.
What can we do to fight imported economic weakness? That’s a big subject, but one thing is for sure: given the pressures from abroad, and the worrying strength of the dollar, the Federal Reserve really, really needs to hold off on raising interest rates. Did I mention that Mr. Trump wants to see rates rise? Not only that, but he’s a full-on conspiracy theorist, declaring that Janet Yellen, the Fed’s chairperson, is keeping interest rates down as a favor to President Obama, who “wants to be out playing golf a year from now.”
So there you have it. The good news is that there was a real policy debate going on within the G.O.P. last week. The bad news is that it was junk economics on both sides.
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