To say the G7 meeting yesterday was not a success is to deal in understatement. What the meeting underscored are rifts in the G7, particularly between the US and perhaps Italy, and the other members over the status quo in international trade. President Trump’s position yesterday was that he was willing to sign onto a free trade agreement that involved zero tariffs. He wasn’t willing to sign onto an agreement that disadvantaged sectors of the American economy. Disagreement over the issue, but in particular Trump being gravely offended by Justin Trudeau’s existence, led to Trump refusing to agree to the G7 communique.

This caused John McCain to take umbrage:

Today, South Carolina Senator Lindsey Graham was on This Week with aging Clintonista muppet George Stephanopoulos and both the G7 and John McCain’s response to Trump were discussed.

Via The Hill:

“The [Sen.] Bernie Sanders [I-Vt.] element of the Democratic Party doesn’t stand for free trade. Hillary Clinton said she would get out of the Trans-Pacific Partnership if she had become president. There is a movement in our party that Trump’s seized that got him the nomination, and eventually became president of the United States,” Graham continued. “So I’m not so sure a majority of Americans believe that globalization and free trade is in our interests,” he continued.

“I believe that. John McCain believes it, but the reason we’re having these problems here at home, Brexit, Italy, there’s a movement all over to look inward not outward and I think it’s a mistake, but I’m not sure most Americans agree with John McCain and Lindsey Graham.”

I can only speak for myself, but I think that Graham is correct. While Americans support free trade, they don’t necessarily support globalization. The backlash to the H-1B visa program and of outsourcing technical or business support jobs to call centers outside the US is just the tip of the iceberg. And free trade to many Americans doesn’t mean the same thing that many of our elites mean when they use the phrase.

Yesterday, Axios had a great article on this very subject and addressed why an issue that people thought had been settled since Al Gore lectured Ross Perot on the Smoot-Hawley Tariff and the NAFTA was ratified by the Senate.

https://youtu.be/K1tHV_fztR4?t=23s

The Axios piece it titled Why Trump lit the fire.

The biggest key to understanding Trump’s dogmatism on trade is that even as he switched political parties and changed his views on issue after issue, his one consistent stance over 40 years is that other countries are “ripping off the United States” in trade deals, as he put it in 1987.

This is the one thing the president really believes, with his protectionist roots going back to the union-friendly environment where his father, Fred, courted Democratic pols.

On the campaign trail, Trump’s messages on trade resonated with millions of American workers who felt cheated by globalization and low-cost competitors like China. They hooked into Trump’s promises to hit back against these countries.
  • Nobody can claim to be surprised about what Trump is now doing. It’s everything he promised during the campaign.

Another key insight to Trump: Not only is he fixated on America’s trade deficit — it’s specifically the trade deficit in goods he cares about. He doesn’t pay much attention to the services sector.

  • Trump has a vision of American workers pouring back into factories to make machinery and tangible goods. His dream: a new boom for America’s automobile sector.

This week, I put that exact question to Navarro, who told us Trump’s strategy “squarely addresses three separate but inter-related structural problems”:

  1. America’s more than $800 billion a year annual trade deficit — the gap between goods imported and exported. (Navarro didn’t include services, where we have a surplus.)
  2. “China’s strategic moves on the crown jewels of American technology and intellectual property.”
  3. The growing national security threat: “a flood of imports is posing to two of the most important industries needed for a safe and prosperous American future — aluminum and steel.”

What Trump is doing:

  • Trump’s ultimate goal is what he calls “reciprocity” — imposing matching tariffs or penalties against every country on every product. On Friday at the G7, he reportedly floated removing all tariffs and barriers, full stop.
  • So far, he’s hit China with an investigation, followed by the imminent threat of tariffs and investment restrictions. (It’s Trump’s way of fighting Chinese theft of American IP and forced technology transfer from U.S. companies.)
  • And he’s imposed tariffs on aluminum and steel imports — a move that has inflamed allies in Europe and Canada.

I asked Navarro to respond to arguments by economists and business leaders who argue the steel and aluminum tariffs were the wrong approach because they ignore — and ultimately harm — America’s competitive advantages in other sectors.

  • Navarro replied: “We on Team Trump are astonished by the argument that America’s future is in the services sector, and Americans don’t want ‘dirty’ jobs in steel furnaces.”
  • “So to the financiers on Wall Street who look down their noses at manufacturing jobs … you should get out more often to the Heartland and see what Main Street and Trump country really look like.”

I am in sympathy with a lot of points made by Navarro. Free trade is free trade. It means that if we allow you to export without tariffs, we expect to be allowed to export without tariffs. If we are not allowed to, in the case of Canada, protect our domestic steel and aluminum production, you are not allowed to protect domestic dairy farmers. This is not an economic argument. This is an argument based on mutual respect. I think Trump had it exactly right when he said yesterday that the world has been using us as a piggy bank, or, more accurately the big weak fat kid who gets his lunch money taken away so the school bullies can by cigarettes and condoms.

And there is also a strong element of elitism in the push for globalization and free trade, as currently defined. The people pushing it, like the Chamber of Commerce, are doing it in service of the pursuit of personal wealth, not because it is actually good for America or Americans. The Chamber has been the driving force behind the open borders movement and they are, 99 time out of 100, opposed to enforcing existing immigration laws. Why? Because cheap labor, expendable labor, labor that has no legal standing in US courts, is preferable domestic labor. And what is the impact on our society if we pursue an economic strategy based solely on services? How do we deal with a large portion of the population who will not only be unemployed but will actually be unemployable? And how do we adapt to the hammer blows of globalization and free trade when they are compounded by automation destroying the livelihood of many Americans and, unlike in previous eras, replacing it with nothing.

Graham is right. Navarro is right. The mass of voters, in many countries, are seeing that free trade and globalism really isn’t helping them. In fact, for every cheap TV that is available at WalMart, there is a loss of wages and economic mobility.

Working people aren’t stupid. The know a really bad deal when they see one. And, as Graham pointed out, it isn’t just Trump supporters that see it. Progressives see it. Mainstream Democrats see it. And here and in Europe, people are voting accordingly.

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