This Is What Sound Economic Policy Should Look Like

This article is longer than those we usually post and somewhat more technical. Still, it’s the best single treatment of the most important economic policies of the coming Trump administration.

It’s a profile of Robert Lighthizer, who was U.S. Trade Representative during the first Trump administration. (Lighthizer was also Deputy U.S. Trade Representative during the Reagan administration). At the same time, it discusses Lighthizer’s views on trade balances, exchange rates, interest rate policy, tariffs, consumption, and savings.

These views are not mere theories or academic talking points. Trump is likely to appoint Lighthizer to one of the top cabinet level positions in his next administrations, possibly even Secretary of the Treasury. Lighthizer lives near Trump in Palm Beach and often hitched a ride on Air Force One when Trump was commuting between the White House and Mar-a-Lago. When Lighthizer talks, Trump listens.

Lighthizer’s policies may be heterodox from the perspective of mainstream neo-Keynesian economists, but they are highly pragmatic and much more effective than what the academic eggheads propose. He was the driving force behind the renegotiation of NAFTA and the imposition of tariffs on China in Trump’s first term. He believes that free trade does not exist because of cheating, subsidies, favoritism to local industries, exchange rate manipulation, and the mobility of capital that blows a hole in the theory of comparative advantage.

Lighthizer will fight fire with fire starting with high tariffs on Chinese imports. He will also seek to end currency wars with a new consensual framework modeled on the Plaza Accord of 1985 and the Louvre Accord of 1987 engineered at the time by James Baker.

His main goal is to eliminate trade imbalances entirely except for short-term swings. This will create more jobs, better jobs, and higher pay for workers in the United States. Lighthizer made his reputation in the Reagan administration with tariffs on Japanese auto imports that saved the U.S. auto industry.

This time he’ll target China and seek to save other industries including steel, solar panels, batteries, and autos (again). It’s highly likely that Trump will win. If that happens, the Lighthizer playbook described in this article is your best guide to what economic policy will be.

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