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Re: Edwin S. Rubenstein's article Fletcher On Free Trade—But Not, Alas, Immigration
Thanks for your generous review of my book Free Trade Doesn't Work: What Should Replace It and Why.
However, I must respectfully object to your claim that I do not address the question of what would happen if our trade partners simply devalued their currencies in response to a tariff. I address this very issue on p. 242 (edited for brevity below):
"Another common objection to a tariff is that our trading partners would just shrug it off by increasing subsidies to their exporters. However, such subsidies by our trading partners would be restrained by the fact that they would be very expensive in the face of an American tariff. Right now, these subsidies are relatively affordable only because they don't have to climb an American tariff wall. Currency manipulation is probably the only subsidy that is affordable over prolonged periods of time (and even then problematic in the end), as it involves buying foreign assets and debt, thus accumulating wealth rather than just expenditures. But other subsidies amount to a give-away from the exporting to the importing nation. While this doesn't prevent them absolutely, it does tend to set a limit. This is all we need, especially as we have no hope of eliminating or countervailing all foreign subsidies no matter what we do, tariff or no tariff. The same goes for the objection that our trading partners would just devalue their currencies. As previously noted, we can end foreign currency manipulation at any time simply by restricting or taxing foreigners' ability to lend us debt and buy our assets. We would need to raise our own savings rate if we did this (or face rising interest rates), but we need to do this anyway."
I would also like to add that, since the book went to press, the Tea Party movement has surprised me with a significant anti-free-trade push inside the Republican Party.
The Republican leadership remains pro-free-trade, but it now has serious grass-roots opposition on its hands.
Since, as I note in my book, the Republican Party was already trending anti-immigration at the Congressional level (and has moved further in this direction in the last election), this opens up the possibility that the Republicans are gradually becoming a nationalist party: anti-free-trade and anti-immigration.