Washington, DC -- (ReleaseWire) -- 03/24/2016 --DAWN BENNETT: Amity Shlaes chairs the board of the Calvin Coolidge Memorial Foundation, which is an organization devoted to the advancing the ideas of the 30th President Calvin Coolidge. Amity is also an author and columnist who writes about politics and the economy. She is currently writing at Forbes magazine and until 2000, she was a member of the editorial board of the Wall Street Journal, specializing in economics, and her columns have also been carried by the Financial Times and Bloomberg. Amity is highly qualified to speak about Trump's plan to impose big tariffs on Chinese and Mexican imports. I also find it fascinating that free trade agreements, one thing that candidates of both parties seem to agree are bad, are typically highly favored by main-stream economists. Amity, welcome to Financial Myth Busting.
AMITY SHLAES: Well, thank you, Dawn.
BENNETT: Donald Trump says he's going to scrap free trade agreements and then impose tariffs, and Bernie Sanders repeatedly condemns them, and Hilary Clinton says she didn't support them at all, and Ted Cruz opposes even negotiating against them. And all these presidential candidates are odds with one of the fundamental principles of mainstream economic theory, which is the benefit of free trade. Who do you think is right, and what went wrong?
SHLAES: Well, that's why they're called politicians and not business people, right? They're not just not economists; they're politicians. So they say what they think will please people in the very short run. How did we get here, the U.S.? We got here through slow growth, and we got here in 2008. In 2008, we bailed out big business. We should've let big business fail. That's why it's called business and not government; it doesn't get bailed out, right? Small businesses don't get bailed out when they fail, unless they happen to fall into a protected group. So that was a big trust blow. Americans don't trust the government and therefore, they don't trust international agreements, especially ones that appear, in the very short term, to deprive us of jobs. That's how we got here. The other how we got here is we lack a commitment to education that is necessary. If the U.S. is to have jobs in the future, whether or not Donald Trump is president, Americans need skills. More skills, apparently, than they have. Good skills are great for most people. Why not? Why not take statistics? Why not be an actuary, in addition to your other trade? It's fantastic. Our careers now are very long; we usually do two or three things. Going to school is not a bad idea. Let's even get some support for that; greater subsidy for college, as much as I oppose it, is less damaging than killing a trade pact, killing trade freedom.
BENNETT: Donald Trump is centering his populist pitch around imposing tariffs, possibly as high as 45%, on imports from China. And I understand it's about 35% from Mexico, and perhaps other countries as well. Is there any truth to the claim that China and Mexico are taking advantage of us?
SHLAES: Well, all animals take advantage of other animals. But when China keeps its currency at a certain level, that is to say when China makes things cheap for us, China makes things expensive for its own people. So they can't buy a lot, or at least not as much as they could, if their currency is cheap, right?
SHLAES: So I wouldn't even look at it that way. The world is never fair, right? And if we have to make our exports more competitive, that's probably good, because no matter where the currency is, they will have to be competitive in future. One way to look at this is, 'Am I doing it now or later?' What those who advocate tariffs are saying is, 'You don't have to do it now,' whatever it is, get an education, make your goods more competitive. 'You can do it a little bit later,' say, after the election. 'But not really never; you certainly will have to educate yourself more as a country, United States.' So politicians play on timing. They offer stimuli now, and the effects of the stimuli—the inflationary effects or the effects upon our currency—are later, not on their watch. But our lives are not the same as the period of political life of a politician; our lives are long. So we live with what politicians promise us.
BENNETT: Trump says China is manipulating its currency, so that its goods are cheaper than ours. But doesn't China peg their RMB to the dollar? Until recently, anyways.
SHLAES: Yeah, there are many complex ways you can still manipulate. And let's ask this; and we do not manipulate our currency?
SHLAES: We've manipulated our currency forever, since before World War II, right? We've made it strong, we've made it weak. We like to make it weak, so we can sell things. All countries manipulate their currency when currencies are not on a true standard. That's why you might have someone else come on your radio show and say, 'Let's have a gold standard.' Because manipulation of currency is hard to discern where it happens, since everyone does it. You know, if they're not doing it, why are we holding them to a different standard than ourselves?
BENNETT: Amity, do you see weakening a currency actually as a viable economic strategy for any country?
SHLAES: Weakening a currency, in the short term, allows you to export more. That's what it does. Supposing, though, you export something that is no longer needed, such as fax machines, you set up eight factories to make fax machines; because of your wonderful low currency, other people buy your fax machines. Then all of a sudden, they go to the internet, and you have eight fax factories. And you're not nimble, because you, because of this currency, were lulled into thinking that you could always and forever sell fax machines to the world. That's the problem. If it's really favorable, it gives you a feeling of certainty that is counterproductive. That's what happened to Japan; think of that. If you make yourself a total export engine, some export countries re-tool, and suddenly they make computers instead of fax machines, but that's harder to do in practice. I think the better thing is to not look at the currency at all, and to look at what you can make better than other countries.
BENNETT: What's your view on the practical impact of the kind of massive tariffs Donald Trump is talking about? Now, I also understand he took that back and he says that's not exactly what he said, but do you think that's going to boost employment in the United States, or just raise our cost of living, or some combination thereof?
SHLAES: Well, the United States' answer is that it might raise wages in the short term, at a cost to lower wages later, because of people being less prepared for whatever comes next, right? But this is an econ show, and normally people will come on and go on and on about the consequences to the economy. But here's the consequence I see in tariffs. One reason I think you invited me on is I wrote a book about the 1930s, which is when we had the Great Depression and a tariff. There was a tariff in the 1930s at the very beginning called Smoot-Hawley that was very famous, and it was protested by economists—even more strongly than now—and yet it went through, signed by Herbert Hoover, and the depression deepened. So why did the depression deepen? Everybody else retaliated. So stuff was expensive for us too, all of a sudden, things we wanted to buy at the equivalent of the Wal-Mart, things that came from elsewhere, and also companies failed. But the greater consequence of tariffs, even on this, an economics show, is political. What you're saying to the other party is, 'We don't care about you,' or something worse; Donald Trump would say something worse. He might use hands to say, 'We don't care about you, other country; we only care about us.' And when we do that, there's a consequence, again, not within a certain election cycle, but maybe a bit later. I'm thinking, for example, to stick with the '30s, Germany looked at us and said, 'They don't care about us. We owe them money from World War I, and they're making our recovery, our ability to pay that money back, much tougher with their American tariffs, because they're in a downturn,' around 1930. And therefore, we're looking towards a strong, manly leader, who doesn't always mean what he says, named A.H., in Germany. And the German finance minister was a monetary expert, Hjalmer Schact, a man highly educated that went to work for that strongman. Fascism arose in Europe, in part, because of American protectionism.
BENNETT: So what you're saying is railing against the international trade agreements isn't going to solve the problem, nor does the answer lie in constructing more elaborate models; it lies in rethinking of how U.S. business is conducted, right?
SHLAES: Absolutely. But I do want to underscore the politics. Wars happen because the U.S. doesn't care about other countries. One way they show they don't care, we don't care, is through tariffs. Another example - I just want to mention Cuba, because of President Obama's visit in 2016. Calvin Coolidge, whose biography I wrote, went to Cuba, and a lot of papers are reporting that. He went in the 1920s, and there was Coolidge, good will trip, we love you, except for we had terrible tariffs on Cuban sugar. And the Cubans looked at us and said, 'You hypocrites.' And the government was very unstable; the leader who was there when Coolidge went was not there soon after. And it was quite a sure path along down to the embrace of the Soviet Union. Would that the U.S. had not imposed on Cuba on its so important export sugar. Would that we had done the right thing; the entire story with Cuba would not have happened, untold Cubans would not have died and suffered because of what we did in our vanity over tariffs, to protect our sugar industry.
BENNETT: That was one of the unforeseen consequences to the kind of protectionism that the United States has had, and it just seems like Trump wants to bring that back. So let me ask you something; if you were serving as Donald Trump's economic advisor and wanted to give him ideas, what would you propose to them?
SHLAES: You know, I don't think I could propose to him, because what he's looking for is not solutions, but short term gifts to the electorate, so short term they're not even necessarily good, right? But if another candidate were running, I would propose education, I would emphasize education and I would emphasize, by the way, all the successes we've had. It's not been all so gloomy since NAFTA. Do you remember the unemployment that was predicted in past campaigns, when NAFTA was the issue, with Ross Perot and so on? It didn't materialize. The unemployment that we got was the result of the 2008 crisis; it was not the result of trade. We had pretty good 90s in free trade.
BENNETT: Do you think that's because we ran our companies better? Continuous innovation. I mean, that's what America used to be known for.
SHLAES: Partly. We can run our companies better now. What would the factors there be? I do believe education is important, especially vocational education. But in addition, you reduce regulations. When you spend time with Dodd-Frank compliance, with Sarbanes-Oxley compliance, with regulatory hassle, with being sure your workplace is equitable, you have less time to think about what your next innovation's going to be. No question. You become more of a bureaucrat and less of an inventor as a CEO. So that's a big problem as well, that we hassle our companies to a large extent, so they are chained, they are not flexible.
BENNETT: And our competitive advantages are less and less sustainable.
SHLAES: Are less and less. But you want to think. If you have something good in your life, it probably came from an immigrant. A lot of the big, new companies, I don't have a quantification in front of me, but are headed by immigrants, and they trade internationally, right?
SHLAES: Immigrants are something, too; they come in and they go out. So very important story, the benefits of free trade. They came to a country that had free trade. That's why they're here. What I do see is that we, as a country, let middle America down by our bail-outs in 2008, and by not playing fair, by making this look like a country that supports Wall Street, but not regular citizens, and by not writing tough policy that enables regular citizens to have promising careers and their children to have promising careers.
BENNETT: President Coolidge's favorite quote was, 'The business of America is business.' I know you can't communicate with the dead, but if you had to guess who might be Coolidge's preference in 2016, who do you think it would be?
SHLAES: I can't do that (Laughs). But any president that's concerned about business and its freedom, which includes exporting and importing, is the candidate of Coolidge.
BENNETT: Well, that's a safe answer. Amity Shlaes, thank you so much for being on Financial Myth Busting. And you have a book out; can you let everybody know where it's at?
SHLAES: That's right. Well, I have a cartoon book that I want to mention first, which is a cartoon history of the 1930s, with pictures, for grown-ups and kids, Forgotten Man Graphic. There's the original Forgotten Man behind it, my history of the 1930s, which does treat Smoot-Hawley on trade. And then there's the bio of Coolidge, The Protectionist. A great guy, except for that wart of protectionism upon him.
BENNETT: Thanks, Amity.
SHLAES: Thank you.
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com.
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
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