This is from Trump's press conference at the G7 yesterday:
Q Mr. President, you said that this was a positive meeting, but from the outside, it seemed quite contentious. Did you get any indication from your interlocutors that they were going to make any concessions to you? And I believe that you raised the idea of a tariff-free G7. Is that —
THE PRESIDENT: I did. Oh, I did. That’s the way it should be. No tariffs, no barriers. That’s the way it should be.
Q How did it go down?
THE PRESIDENT: And no subsidies. I even said no tariffs. In other words, let’s say Canada — where we have tremendous tariffs — the United States pays tremendous tariffs on dairy. As an example, 270 percent. Nobody knows that. We pay nothing. We don’t want to pay anything. Why should we pay?
We have to — ultimately, that’s what you want. You want a tariff-free, you want no barriers, and you want no subsidies, because you have some cases where countries are subsidizing industries, and that’s not fair. So you go tariff-free, you go barrier-free, you go subsidy-free. That’s the way you learned at the Wharton School of Finance. I mean, that would be the ultimate thing. Now, whether or not that works — but I did suggest it, and people were — I guess, they got to go back to the drawing and check it out, right?
But we can’t have — an example — where we’re paying — the United States is paying 270 percent. Just can’t have it. ...
...
In fact, Larry Kudlow is a great expert on this, and he’s a total free trader. But even Larry has seen the ravages of what they’ve done with their tariffs. Would you like to say something, Larry, very quickly? It might be interesting.
MR. KUDLOW: One interesting point, in terms of the G7 group meeting — I don’t know if they were surprised with President Trump’s free-trade proclamation, but they certainly listened to it and we had lengthy discussions about that. As the President said, reduce these barriers. In fact, go to zero. Zero tariffs. Zero non-tariff barriers. Zero subsidies.
It's hard to know what to make of this "free-trade proclamation," because reducing trade barriers is what other countries are promoting, and Trump keeps resisting. That's what TPP was, and that's what NAFTA is. So how is everyone supposed to react to his call for such broad trade liberalization? My view is that the other G7 leaders should accept his proposal, publicly endorse it, and suggest a date to begin the negotiations. Here's why I think this is the right approach.
First of all, Trump's talk about trade deficits (mentioned elsewhere in his remarks) is nonsense, but there's nothing that can be done about his views on this. We can line up a thousand economists to explain why it's nonsense, but it won't change his mind. Note that he's not the only one who thinks this way. Many other politicians do, and you can even find 2 or 3 economists who agree. So that's a lost cause issue and we should just ignore it.
On the other hand, talk of specific tariffs, barriers, and subsidies is very helpful, and we should focus on those. Those do exist and are a problem. Trump may genuinely believe there is an imbalance here, with Canadian, EU and Japanese tariffs, trade barriers, and subsidies far outweighing U.S. ones. A negotiation would be an opportunity to show him the reality. When he points to Canadian agriculture tariffs, the Canadians can point to U.S. agriculture subsidies. When he points to European auto tariffs, the Europeans can point to U.S. truck tariffs. And then they can keep going down the list: Buy American procurement, the Jones Act, barriers to trade in legal and medical services, anti-dumping abuses, etc.
The Canadians can do this in the context of the NAFTA talks. The EU could propose new transatlantic trade talks. Japan could remind Trump about the TPP, or agree to bilateral talks. (And everyone seems to accept that subsidies have to be negotiated multilaterally, so maybe the better idea is to propose this all be done at the WTO, rather than bilateral talks.)
Now, I'm not saying there is a great chance of success on any of this. Most likely, the best we could hope for is that these talks go about the same as other talks, with a little progress on a few tariffs, trade barriers, and subsidies. That's the nature of these things.
But Trump just called for going "tariff-free," "barrier-free," and "subsidy-free," and it seems to me that accepting his suggestion and giving it a try is better than the alternative, which may be escalating tit-for-tat tariffs.
