According to The Hill, a new study shows that “isolationist trade policies” could cut $2 trillion from America’s gross domestic product (GDP) by 2022. As such, President Trump’s tariffs will not make America great again—they will make us poor. Instead, The Hill implies that America is best-off embracing “internationalism” as its modus operandi.
There are just two problems. First, The Hill’s headline is misleading. Second, the study itself is junk.
The Hill’s headline reads: “Isolationist trade policies could cut $2 trillion from GDP.” This is misleading. The study does not claim that “isolationist trade policies” would cut America’s GDP. It simply says that America’s GDP would grow faster under an internationalist model than an isolationist model—growth would occur in either case.
Likewise, the study does not equate isolationism with economic protectionism—trade policy is just one component of isolationism. As per the study, isolationism also encompasses other policy areas including immigration, defence and security, cybersecurity, and taxation. To attribute the predicted economic malaise to protectionism alone is to severely distort the study’s findings.
In a world where people mindlessly (and shamelessly) share headlines, it’s important to be as specific as possible, or at least clarify any issues in the article itself. The Hill failed on both counts.
take not the merchant at his word. . .
Aside from its clickbait headline and omission, The Hill reported the study’s findings more-or-less faithfully. The real problem is that the study itself is junk. Garbage in, garbage out.
To begin with, the study was conducted by Zurich Insurance, Ernst & Young, the Atlantic Council, and the Organization for International Investment. The first red flag is who conducted the study. Zurich Insurance is a Swiss-based insurance company. Ernst & Young is a London-based assurance and consulting firm. What are the odds that foreign companies will produce a study justifying policies that disadvantage foreign companies? Not very high. They have everything to lose and nothing to gain.
Next, the Atlantic Council is an explicitly “internationalist” think tank based in Washington DC, which seems to specialize in pedalling in Trump-Putin conspiracy theories and advocating for pointless foreign wars. They are hardly a “neutral” source.
Finally, although the Organization for International Investment is located in Washington DC, only one American-headquartered firm is represented on its Board of Directors Executive Committee; the rest are European. Furthermore, its motto is “global investment grows America’s economy”, ie. foreign investment. Basically, the OII appears to be a foreign-backed lobby group disguised as a non-partisan American think tank.
The common thread here is that the groups behind this “study” lose big-time if America embraces an America-first regime. Are such entities likely to publish a study favoring protectionism? No. This is why you never see trade unions pamphleteering to eliminate collective bargaining rights, or illegal immigrants campaigning to build the wall. This is not to say that we should dismiss the study outright, but we should approach it with an appropriate degree of skepticism.
I’ve said it before and I’ll say it again, everything you need to know is summed up in the following aphorism: “take not the merchant at his word, but trust only by the skin of his fruit.”
the myth of the time-travelling economist
The second red flag is the data used in the study.
The only new data relied upon by the study was a survey of 497 Chief Financial Officers from 29 different countries, who represented companies with an annual revenues greater than $50 million. The problem here is that only 103 of these companies (just one-fifth) were based in America, the remaining 394 were headquartered abroad.
This begs two questions: first, who cares what foreign companies think? Trump should not kowtow to foreign multinationals, he must put America first. Second, this dataset is far from neutral: of course CFOs representing foreign companies will uniformly oppose protectionism. After all, tariffs will benefit American companies at their expense. As such, the survey data is of limited value.
The remainder of the study was an analysis based on raw economic data and growth predictions from the International Monetary Fund. From the study:
Using IMF growth projections as a baseline, decreasing openness to trade depresses growth rates – although small, but cumulatively significant. In 2022, for example, the IMF projects US GDP growth to be 1.68%, but in the Isolationist scenario, it would be 1.45%; in the Atlanticist, it would be 1.60%; and the Internationalist, 1.76% growth. . .
This model estimates that, from 2017 to 2022, the Isolationist scenario would generate a loss of $1.5 trillion of cumulative nominal GDP, a loss of $502 billion cumulative nominal GDP under Atlanticism, and a gain of an additional $505 billion in the Internationalism scenario.
The study presents their models conclusions with a veneer of certainty—America’s economy will falter unless we sign “free trade” deals with authoritarian dictatorships like China. This is rubbish. Economists cannot predict the future. In fact, Phil Tetlock has shown that economists (and political pundits, investment gurus etc.) are worse than chance at predicting economic outcomes.
This is largely because economists think the economy is a washing machine, governed by simple cause-and-effect relationships—the apotheosis of which is the law of supply and demand. Essentially, they think that X will cause Y with certainty. This is very wrong.
In reality, X will often cause Y. Sometimes X will cause Z, or Y and Z, or A and B and C, or nothing whatsoever. This is because the economy is a complex system, much like a jungle, a coral reef, or your family’s decennial reunion—who could have predicted that granny would bruise her lumbago after trying to help your little cousin Tommy blow out his birthday candles, who couldn’t do it because his lungs were too weak following the asthma attack brought on by your sister Suzy’s new (forth) husband’s prescription ganja “medication”? The cause-and-effect webs in complex systems are infinitely convoluted, and no statistical model will ever be sufficiently precise to account for them.
Another problem is that economic growth is largely exogenous, and therefore cannot be modelled anyways. At best, we can forecast the likelihood of economic growth based on (i) historical precedents, and (ii) our limited knowledge of economic ecosystems. When we take this time-tested approach, and bathe in humility, our ability to forecast (not predict) economic performance improves dramatically.
In the end, economists and their water-boys (stooges like Ben Shapiro) destroyed America’s middle class, and evaporated our economic advantage by cajoling America into embracing global free trade. Why should we listen to yet another “study” produced by foreign-backed entities, and based on spurious data, that recommends more of the same? Enough is enough.
America must return to the time-tested protectionist policies that made us rich in the first place.