OPINION | ‘Trade Is Not a Four-Letter Word’ review: Bargain shopping across the globe

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FRED Hochberg may seem like an unlikely instructor in the beauties of free trade.

During eight years of the Obama administration he ran the Export-Import Bank, which promotes and finances U.S. exports with taxpayer dollars and is seldom linked with the phrase laissez-faire. Even so, the onetime direct-marketing specialist and lately a university lecturer presents a sprightly and clear-eyed testimonial to the value of globalization in “Trade Is Not a Four-Letter Word.”

President Trump and his in-house trade maven, Peter Navarro, could profit from his observation that, contrary to presidential tweets, “trade wars typically don’t have winners.” Of course, Mr. Hochberg is savvy enough to know that trade is never free of goals fashioned by politicians, and he acknowledges that trade wars, while often costly, “are nowhere near as devastating as actual wars.”

Mr. Hochberg argues persuasively that Mr. Trump, if you take him at his word, displays a “fundamental misunderstanding” of trade in his exaggerated concern over trade deficits. A longtime editor of The Wall Street Journal, Robert L. Bartley, once wrote that the way to deal with trade deficits was to ignore them. Mr. Hochberg makes the same point, noting that when Mr. Trump proposed his new tariffs on steel and aluminum in the spring of 2018, he told reporters that through trade deficits “we lost, over the last number of years, $800 billion a year...[and] we got to get it back.”

But money spent abroad, Mr. Hochberg says, isn’t “lost.” It has been “spent by American families and businesses on electronics, furniture, clothing and manufacturing equipment — as well as ‘intermediate goods,’ which are parts and non-consumer pieces that get incorporated into products we make here.” It also goes for things we no longer make here — 100 percent of our penicillin comes from China, for example — as our economy “has moved on to higher-tech goods and, especially, services.” He notes that we ran a $40 billion trade-services surplus with China alone in 2017. Foreign spending on such U.S. services, which include banking and insurance, have burgeoned over the past 15 years. Meanwhile, as Mr. Hochberg argues, jobs saved by protective tariffs on steel and other basic materials are often exceeded by those lost as fabricators using such materials become less competitive internationally.

Foreign competition, on balance, has been good for American industry by forcing lower costs and better quality. Post-World War II trade liberalization opened up America to Japanese and German auto imports and gave Detroit a much-needed wake-up call. Mr. Hochberg remembers that in his father’s time it was not uncommon for a car buyer to get stuck with a badly built, troublesome “lemon.” Today quality is so much improved that you rarely hear that term.

What is more, he writes, “there’s no such thing as an American car.” Supply chains feed into American assembly lines with components from all over the world. The most “American” car in the view of the National Highway Traffic Safety Administration, Mr. Hochberg says, is the Honda Odyssey. It is assembled in Lincoln, Ala., with 75 percent American content. On VIN tags — which give cars an official vehicle identification number — a number that starts with a “3” signals that the car was assembled in Mexico, as is usually the case with the Lincoln MKZ. The number for the Chevy Equinox starts with “2,” meaning Canada; a Ford Focus starts with “W,” meaning Germany. Reciprocally, when Germans buy a BMW sport-utility vehicle, they get it from a BMW plant in Greer, S.C.

And so it goes elsewhere in the economy, as Mr. Hochberg observes. A vital material for the circuit boards of smartphones is tantalum, a metal powder capable of holding a high electronic charges. It comes from Rwanda and the Democratic Republic of Congo. The circuit boards themselves are often assembled outside the countries where they are sold.

Politics has driven protectionism throughout American history, but it has driven free trade too. In his 1962 State of the Union address, Mr. Hochberg reminds us, President Kennedy prescribed trade liberalization to create prosperity among our allies and defeat Soviet expansionism. The result was a multilateral trade agreement — called the “Kennedy Round” — signed after JFK’s death. Boris Yeltsin, who became Russia’s first democratically elected leader in 1991, remembered years later that the biggest factor in his decision to turn against the Soviet system was “America and its supermarkets.” He had seen the cornucopia of products at a supermarket in Houston during a tour of America in 1989 and was appalled at the disparity between America’s abundance and Russia’s scarcity.

Mr. Hochberg deplores that U.S. trade policy is “spread out across a byzantine web of executive branch departments and agencies” and argues for simplifying its bureaucratic structure. Some of his other recommendations are more problematic, such as expanding so-called Trade Adjustment Assistance to help people displaced by import competition. Merited perhaps, but the U.S. is already borrowing heavily to support its entitlement programs; yet another perennial outlay seems inadvisable. Mr. Hochberg supports the claim of the Business Roundtable that corporate chieftains are overly considerate of shareholders, but in fact few modern managers ignore the interests of other “stakeholders,” employees in particular. He adds: “Let’s take a pause on creating any new trade deals until we can forge a better consensus on them here at home.”

But Mr. Hochberg is “extraordinarily optimistic” about the future of trade. He says that tariffs are already low enough that they don’t constitute a major barrier and that future deals will mostly address non-tariff matters, such as the harmonization of manufacturing standards. It will be easier to share such optimism if Mr. Trump’s new version of NAFTA is ratified later this year and his partial deal with China brings an end to trade jingoism, at least for a while.

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