Former Senator Phil Gramm is Wrong on U.S. Trade Policy

By Bill Jones

Former Senator Phil Gramm’s recent WSJ opinion article “Trump’s Trade War Was a Loser” gets many things wrong about U.S. trade policy. Concerningly, Mr. Gramm makes numerous statements, representations, and conclusions without supporting facts and documentation. 

While I respect Mr. Gramm’s service to our nation and his passion for promoting his views regarding free trade, his views are nevertheless flawed and dangerously misleading. As such, it is necessary to examine the facts and historical data that Mr. Gramm failed to include in his criticism of President Trump.


I. Mr. Gramm falsely claims the Trump administration’s tariffs destroyed U.S. manufacturing jobs.

Mr. Gramm incorrectly claims overall U.S. manufacturing employment fell in each of the four quarters of 2019 and in the first quarter of 2020, leaving the level of manufacturing employment lower than when Mr. Trump took office.

Official U.S. government data on manufacturing job statistics does not support Mr. Gramm’s claims. The documented history of total U.S. manufacturing employment from 2013 – 2016 averaged in the range of 11.8 million to 12 million manufacturing jobs in each of the four years preceding the Trump administration. So, the baseline before Trump became President was 12 million U.S. manufacturing jobs.

Trump became President in January 2017 and began to implement various policies and initiatives to address trade distortions that were adversely impacting U.S. manufacturing. These policies and initiatives included the renegotiation of NAFTA to USMCA, implementation of tariffs on Chinese imports, implementation of steel and aluminum tariffs, and several other initiatives. 

As a result of the Trump policies, total U.S. manufacturing in fact increased significantly during the Trump administration years. By the beginning of 2019 U.S. government statistics report total U.S. manufacturing employment had increased to 12.8 million jobs. The official U.S. government statistics report an increase of almost 1 million manufacturing jobs during the first three years of President Trump’s term.

How can Mr. Gramm say there was a decline in U.S. manufacturing jobs?

More specifically, U.S. manufacturing employment did not decline during each quarter of 2019, as Mr. Gramm claims. The data shows that U.S. manufacturing employment remained steady at 12.8 million jobs throughout 2019. Mr. Gramm selectively takes incomplete snapshot data from the depths of the COVID crisis where U.S. manufacturing jobs temporarily declined to 11.4 million jobs. However, since the time of the COVID crisis, U.S. manufacturing jobs have recovered to 13 million jobs as of mid-year 2023.

Therefore, actual U.S. manufacturing employment numbers have increased significantly since Trump took office in 2017 and are likely a result of the policies and initiatives Trump implemented to mitigate trade distortions, including renegotiating NAFTA, steel tariffs, and implementation of tariffs on Chinese imports. The U.S. government reported statistics and facts contradict Mr. Gramm’s claims in his WSJ opinion piece regarding manufacturing employment.


II. Mr. Gramm falsely claims the steel and aluminum tariffs introduced by the Trump administration destroyed far more manufacturing jobs than they created.

Mr. Gramm provides no statistical data or evidence to support this claim. Furthermore, as illustrated in the numbers above, total U.S. manufacturing employment increased by almost 1 million jobs during the Trump administration.

Mr. Gramm claims to be an advocate of free trade. As such, Mr. Gramm certainly should object to any market distortions, such as direct government subsidies and investments in steel production within China. These subsidies lead to overcapacity and a temporary but unsustainable low, subsidized, non-market price for steel. The goal of the Chinese government and Chinese steel manufacturers is to drive out foreign competition from the steel industry. Once the Chinese steel manufacturers achieve their goal of dominance and competitors are eliminated, China’s steel manufacturers will increase prices to true market prices required to sustain a steel industry long term. So, the lower steel prices resulting from market distortions that Mr. Gramm advocates is a result of violation of WTO trade laws, is temporary, and would be suicidal for domestic U.S. manufacturing to tolerate or accept.

Mr. Gramm also fails to understand the interconnected interdependence that various U.S. manufacturing sectors play to support a healthy, innovative, and world leading U.S. manufacturing base. Mr. Gramm does not grasp the critical role select industries such as steel provide toward sustaining a healthy and robust U.S. manufacturing economy.

For example, when I was CEO of Cummins Allison for over thirty years, we sourced all our steel requirements from U.S. based steel mills. Cummins Allison lived through the various cycles of steel import tariffs over those thirty years, and the implementation of steel tariffs in the U.S. from time to time never had an adverse impact on Cummins Allison’s ability to obtain reasonably priced steel from U.S. steel producers.

Remember, the U.S. government implemented steel tariffs on each occasion to bring the price of U.S. steel to the true market price that covered all fixed and variable costs and provided a reasonable return on invested capital. The tariffs did not enable the U.S. steel industry to charge monopoly prices. There is too much competition in the U.S. steel industry and as such U.S. steel producers offered steel at fair and competitive market prices.

Mr. Gramm does not appear to understand the important interconnection and synergies of various sectors of U.S. industry, including why the domestic U.S. steel industry is very important. During my tenure as CEO of Cummins Allison, we developed, designed, and began to manufacture a revolutionary high-speed coin sorter. At the time of our invention, competitive coin sorters offered by other manufacturers in the market could count and sort 800 to 1,000 coins per minute.

Our new coin sorting technology, known as the “Jetsort”, could count and sort coins at 6,000 to 10,000 coins per minute. Furthermore, the new innovative coin sorting machine was introduced by Cummins Allison at a selling price that was 50% of the selling price of the prior existing coin sorting technology on the market. Our “Jetsort” coin sorters had one moving part which was a rotating resilient pad that moved coins across a carefully machined stationary steel disk to accurately sort the coin at these very high speeds. For this technology to be commercially successful, Cummins Allison had to identify and select a specialty steel alloy to satisfy our rigorous technical requirements.

The selected steel alloy had to meet the following parameters:

  1. Handle the heat and friction of coins moving so rapidly over the stationary metal disk without the stationary metal disk defacing the coin.
  2. The ability to utilize automated CNC vertical and horizontal milling machines to cut the steel like a knife through butter in order to configure the metal disk for coin sorting and hold very tight tolerances necessary to sustain accurate sorting of millions of coins over the life of the machine.
  3. The ability of the alloy steel to tolerate heat treating after the milling process to obtain a Rockwell scale hardness close to that of a diamond surface. This Rockwell hardness must be achieved without any warpage or deviation from the tightly machined tolerances of the metal disk. A very hard surface was necessary so that coins passing over the stationary metal disk would not rapidly wear out the metal coin sorting disk. To define the parameters and select the desired steel alloy Cummins Allison worked with several U.S. based steel companies’ internal technical experts to identify several alloy steel candidates that might be appropriate for our rigorous coin sorting requirements. Numerous alloys were recommended and were subject to extensive experimentation and testing before the final selection was made.

Cummins Allison engineering also worked with a U.S. CNC milling machine manufacturer, HAAS Automation, to help determine the best machining cycle times in tandem with the most favorable steel alloy to be utilized in production of the metal disks.

Once Cummins Allison selected the appropriate steel alloy, we purchased the required steel alloy by the billet from U.S. steel mills for use in our production.

Cummins Allison never would have achieved successful commercial production of this revolutionary high speed coin sorter technology without the assistance of U.S. steel manufacturers and U.S. CNC milling machine manufacturers. Furthermore, the total cost of the steel as a percentage of the total cost of the coin sorting machine was insignificant. As a result of this collaboration across various U.S. industrial sectors, Cummins Allison delivered a revolutionary coin sorting machine that was six times the speed and at half the selling price of the existing competitive coin sorters available in the market. This was a huge productivity improvement for our customers, significantly driving down their cost of processing coins.

This high speed Jetsort coin sorter led to a dominant market share not only in the U.S., but also in Europe, Canada, Australia, and various parts of Asia (excluding Japan and China). The key to our success was not the price of U.S. steel as an input to our production, because the price of the U.S. steel was very reasonable. The issue was the need for a sophisticated U.S. steel industry with technical knowledge and sophisticated manufacturing capabilities that could develop and provide a specialty steel alloy to meet our technical requirements.

Cummins Allison never would have obtained our required special alloy steel through a corroboration with a Chinese or other foreign producer of steel. Furthermore, close corroboration with a Chinese steel manufacturer could result in the Chinese steel manufacturer taking the expertise to a competitive Chinese manufacturer of coin sorting machines without our consent and without compensation.

Hundreds of U.S. manufacturing jobs were created because of this revolutionary Jetsort coin sorter invention. This was the result of the close cooperation between Cummins Allison, U.S. steel mills, and U.S. manufacturers of CNC milling machines. 

Mr. Gramm has spent his entire life as an academic and politician. Due to his lack of experience in real world manufacturing and his lack of intellectual curiosity to learn about manufacturing, he does not appear to understand the interdependence of the various interconnected U.S. manufacturing sectors to sustain industrial innovation, the importance of U.S. world leadership in critical technologies across major industries, and how such collaboration sustains a robust world class manufacturing economy in the U.S.


III. Mr. Gramm falsely claims the Trump administration policies failed to deliver promised reductions in the U.S. Trade deficit.

Mr. Gramm’s statement is misleading and ignores the backstory and stated goals of the Trump administration. The Trump administration was attempting to deal with several of the many adverse distortions impacting U.S. trade with other countries. The administration had to start somewhere and could not correct all the distortions simultaneously.

The renegotiation of NAFTA into USMCA, the tariffs on Chinese imports, and the steel tariffs were three of the select initiatives completed by the Trump administration. All three initiatives were effective in addressing those specific trade distortions. For example, the U.S. trade deficit with China peaked during the Trump administration in 2018 at $418 billion dollars. The U.S. trade deficit with China declined to $344 billion in 2019, and to $310 billion in 2020. This represents a 26% decrease in the U.S. trade deficit with China. Furthermore, the Trump administration initiative reversed an 18-year long trend of ever-increasing U.S. trade deficits with China.

How can Mr. Gramm say the goal was not achieved?

Furthermore, during the Trump administration, the overall year to year growth in the total U.S. annual trade deficit was effectively mitigated for the first time in twenty years. Instead of continuing to grow year after year, the U.S. trade deficit was kept in a tight range with the annual deficit running a low of $800 billion a year and a high of $900 billion in one year.

After the Trump administration ended in 2020, the U.S. Trade deficit has increased every year and in 2022 reached a record $1.2 trillion annual trade deficit. The U.S. annual trade deficit will exceed $1.2 trillion in 2023. If the Trump administration or any other subsequent administration had continued to address the several remaining trade distortions, then the U.S. trade deficit would have continued to decline just as in fact the velocity of trade deficits declined during the Trump administration years.


IV. Mr. Gramm falsely claims trade deficits are not a sign of the hemorrhaging of America’s lifeblood. Mr. Gramm falsely claims trade deficits, under international accounting rules, simply mean foreigners are investing more in the U.S. than Americans have invested abroad.

When a country such as the U.S. maintains an ever-increasing annual trade deficit year after year for over two decades due to the mercantilist trade policies of its trading partners and numerous trade distortions, then such trade deficits do actually matter. In fact, such ever increasing trade deficits are a threat and impediment to the long-term well-being of the U.S. economy and its industrial capacity.

Surely Mr. Gramm knows free trade theory teaches that trade between countries will balance over time. Free trade theory teaches that a country such as the U.S., which is running significant trade deficits year over year, should begin to see the U.S. currency value decline relative to other countries currencies. The devalued currency thus lowers the costs of the deficit country’s (U.S.) exported goods relative to the rest of the world. Therefore, with the depreciating currency, U.S. exports should theoretically increase until trade between the U.S. and other countries is once again balanced.

But the U.S. has sustained ever increasing trade deficits since the mid 1970’s. Contrary to free trade theory and expectations, the value of the U.S. currency in fact has not decreased relative to other countries’ currencies values. Therefore, the return to balanced trade as expected by free trade theory has not materialized for the U.S.

Surely Mr. Gramm knows the danger that year after year trade deficits over several decades presents. These annual U.S. trade deficits in fact are compensated for by the sale of U.S. assets to foreign investors and companies. This means the future income/rents from those formerly U.S. owned assets now accrues or is paid to foreign investors and foreign companies. Thus, there is a reduction in overall annual income and rents for U.S. investors and U.S. companies due to the reduction in assets held and owned by U.S. entities and investors.

This is equivalent to a farmer in Iowa selling a little bit of his farm acreage every year to fund his spending deficits for say a period of 30 years. At the end of 30 years there is no acreage left in the name of the Iowa farmer because all the acreage has been sold to a “foreign entity”. The foreign entity now owns the farm and the related future income generated by the farm acreage goes to the new owner. The Iowa farmer is toast.


V. Mr. Gramm claims “History supplies ample proof that trade deficits do not harm the economy. From the settlement of Jamestown in 1607 until World War I, the U.S. ran chronic trade deficits.”

Mr. Gramm’s claim of the U.S. running chronic deficits from 1607 to World I is not historically accurate. First, it is true the American colonies ran trade deficits with the mother country Great Britain from 1607 to 1776. The trade deficits were of no benefit to the colonists living in America. The trade deficits during colonial times resulted from the mercantilist trade policies and laws of the mother country, Great Britain. The American and other British colonies were permitted to export agriculture goods and other commodities to Great Britain. Great Britain in turn would perform all the manufacturing within Britain for Britain and all her colonies. This mercantilist approach practiced by the mother country Britain resulted in Great Britain’s ascension to become the major economic power in the world by the time of the Napoleonic wars and the coming of the Victorian age.

Meantime, in the American colonies the folks were none too happy with such trade policies and laws which constrained the development of manufacturing in the colonies and limited colonial exports to basic commodities. Washington, Adams, Franklin, and many other Founding Fathers of the United States resented these restrictions during colonial days and the negative impact these trade restrictions had on the development of the American economy.

Once the American colonies achieved independence from Britain, the new American leaders including Hamilton, Washington, Treasury secretary Albert Gallatin, and members of the House and Senate began to implement policies to enhance and support the development of U.S. manufacturing. The British and other European powers pushed back at the emerging U.S. manufacturing sector and tried to kill off U.S. industry in its infancy. In response, the U.S. government implemented tariffs to protect the newly developing U.S. industry from unfair European mercantilist competition. Nevertheless, the U.S. did continue to sustain deficits in the early years of her history while continuing a policy to develop U.S. manufacturing. The War of 1812 highlighted U.S. national security vulnerabilities which in turn increased the awareness and desire of the U.S. government to further develop U.S. based manufacturing across all major industrial sectors.

After the Civil war, the U.S. congress increased the U.S. tariffs rates significantly (the “high tariff” years) and the U.S. achieved continual annual trade surpluses beginning in 1875. The U.S. ANNUAL TRADE SURPLUSES CONTINUED YEAR OVER YEAR FOR OVER 100 YEARS (TEN DECADES) FROM 1875 to 1975. During this 100-year period of annual trade surpluses the U.S. did not pursue free trade. High tariffs were in place and utilized effectively from 1870 to 1945. During the high tariff period the U.S. economy grew from a backwater economy into the largest and most prosperous economy in the world. As a result of this newfound wealth, the U.S. emerged as the most powerful military force in the world. These favorable economic benchmarks were achieved by the U.S. during a time of high tariffs and year after year U.S. trade surpluses. Mr. Gramm’s statement that the U.S. has historically sustained annual trade deficits is contrary to the actual historical well-documented facts.

Mr. Gramm states the U.S. ran annual trade surpluses during the 1930’s when Smoot Hawley tariffs dictated trade policy. The implication here is that tariffs and surpluses were major adverse contributors to the great depression. Mr. Gramm offers no evidence to support this assertion.

Furthermore, during the 1930’s the U.S. experienced some of the smallest trade surpluses as a percentage of GDP as compared to any other decade of trade surpluses in U.S. history from 1875 to 1975. During the one hundred years of annual U.S. trade surpluses from 1875 to 1975 the surpluses in all other decades as a percentage of GDP were higher than in the decade of the 1930’s. The 1930’s experienced the lowest trade surpluses as a percentage of GDP during the 100-year U.S. trade surplus run. Smoot Hawley tariff rates were also lower than U.S. tariff rates from 1870 to 1929. So, how did either U.S. trade surpluses or U.S. Tariff rates have an adverse impact on the economy in the 1930’s?

The real cause of the Great Depression in the 1930’s was the fact that the Federal Reserve committed a terrible policy blunder by tightening the money supply repeatedly after the market crash of 1929. As a result of the Federal Reserve’s actions, the U.S. experienced a severe liquidity crunch. Commercial banks lacked the needed funding and liquidity from the Federal Reserve. As a result, commercial banks in turn lacked funds and liquidity to extend adequate and much needed credit and loans to commerce. Therefore, many U.S. companies collapsed into bankruptcy. Instead of a money tightening policy during the 1930’s, the Federal Reserve should have implemented the opposite policy and should have flooded the banking system with liquidity. If the Federal Reserve had acted in a timely fashion by providing the much-needed liquidity, then the Great Depression would have been far less severe. The depression was not caused by the U.S. government trade surplus or tariff policy. The depression was a result of a terrible money tightening policy blunder by the Federal Reserve.

The fact is the U.S. maintained significant tariffs rates from 1776 to 1945 and such tariffs did not impede the growth and development of the U.S. economy. In fact, the U.S. economy grew from an insignificant economy into the leading economy of the world during the period 1875 to 1945 at the time of high tariffs and trade surpluses. Furthermore, the U.S. ran a trade surplus for more than one hundred years from 1875 to 1975 or almost half of our history as a nation. Therefore, I am perplexed by Mr. Gramm’s statement that the United States has consistently run deficits during most of the history of our nation. We have run surpluses for over one hundred years and the surpluses occurred during the U.S. ascension to becoming the largest economy in the world. The facts do not support Mr. Gramm’s claims about chronic deficits during most of our nation’s history. Mr. Gramm is espousing an urban myth regarding the history of U.S. trade deficits and championing an urban legend that U.S. trade deficits do not matter.


VI. Mr. Gramm states “Annual trade deficits returned with the end of the postwar period in 1976 and the U.S. has run trade deficits for the last half century. Trade deficits soared during the Reagan and Clinton booms, as foreign investors rushed to invest in America’s dynamic economy.”

First and foremost, the relative size of the deficits in the Reagan and Clinton years were much smaller than the current U.S. trade deficits.

Second, President Reagan was alarmed by the growing trade deficits and Reagan (like Trump) took action to mitigate the growing deficit. The Plaza accords, tariffs on motorcycles, and limitation on the U.S. imports of Japanese automobiles were all policies and initiatives that Reagan implemented. This forced Japanese and European auto manufacturers to establish U.S.-based auto production, thus adding additional employment in the U.S. manufacturing sector during the Reagan and subsequent administration. 

Third, and most important, the trade deficit problem experienced during the 1980’s is very different as compared to the trade deficits the U.S. is experiencing today. Numerous additional market distortions and anomalies relative to U.S. trade have come into play since the early 1980’s. These additional distortions and anomalies have resulted in the loss of over 7 million U.S. manufacturing jobs since 1980. 

To President Trump’s credit he began the task of beginning to address some of these unfair trade distortions and anomalies. Until the U.S. government aggressively addresses all the unfair trading practices by other nations our annual trade deficit will continue to balloon and grow. By ignoring the problem, our annual trade deficit has increased from $100 billion annually in the Reagan years to a $1.2 trillion annual trade deficit in the year 2022. This ever-increasing trend in U.S. trade deficits is unsustainable.

The major distortions and anomalies that are adversely impacting the annual U.S. trade deficit include the following:

A) The change from GATT Rules to the WTO Rules:

Under GATT rules when there was a trade dispute between nations the two nations in a trade dispute would have to “discuss and consult” with one other to reach a resolution. This gave each side bargaining power and leverage to reach a mutually beneficial outcome.

Under the WTO rules, trade disputes between nations are resolved by a Tribunal of so-called independent Judges who are supposed to be impartial. Unfortunately, these WTO tribunals have consistently ruled against the interest of the U.S. in most trade dispute cases involving the U.S. This is no surprise as all other countries of the world are seeking increased access to the largest market in the world: the U.S..

An example of an adverse Tribunal WTO ruling against the U.S. is the different treatment of direct taxes (income taxes) versus indirect taxes (VAT Tax) as it relates to goods exported at the border. The U.S. relies primarily on the Income tax (direct tax) while the European Union relies on the VAT (indirect tax). For years U.S. manufacturers received an income tax rebate for U.S. exports at the border. In a like manner the European manufacturers received a VAT tax rebate for European exports at the border. Under this scenario both U.S. goods and European goods were exported by manufacturers at the border free of government tax. The appropriate tax was then applied by governments to the imported goods when the goods reached the final country of destination. 

But then the EU petitioned the WTO regarding the U.S. income tax rebate at the border for exported goods. The WTO Tribunal ruled that indirect taxes (EU VAT) could be rebated at the border on exported goods, but direct taxes (U.S. income taxes) could not. This has resulted in an unfair competitive tax-driven advantage for European manufactured exports. European manufacturers continue to export products from the EU free of Government taxes (VAT) to the U.S.. But U.S. manufacturers must pay the U.S. income tax plus the European VAT tax on any product exported from the U.S. to Europe. So, a product exported from the U.S. to Europe carries the cost of two governments thus creating an unfair heavy tax burden on U.S. products exported into Europe.


This was a poorly negotiated agreement between the U.S., Mexico, and Canada that did not serve the interest of American workers. Mexico and Canada both negotiated favorable exclusions for their respective domestic economies. At the time of NAFTA approval and implementation, the U.S. Trade experts in academia and politics told the American public NAFTA would be a boon for American manufacturing as well as an increase in U.S. manufacturing jobs. NAFTA proved to be a bust for the U.S.. The implementation of NAFTA has significantly increased the annual U.S. trade deficit with both Mexico and Canada. U.S. manufacturing jobs did not materialize as forecasted. Instead, U.S. manufacturing jobs declined.

To the credit of the Trump administration and congress, the U.S., Canada, and Mexico renegotiated NAFTA into the USMCA. This new agreement was completed only after the Trump administration threatened Canada and Mexico to end NAFTA and restrict their access to the U.S. market. Neither Mexico nor Canada wanted to renegotiate a treaty that was so favorable to Canada and Mexico. Canada and Mexico finally agreed because USTR negotiators stood up for U.S. interests and were willing to penalize Mexico and Canada if changes were not made by the parties to the existing NAFTA agreement. This endeavor should serve as a model for resolving the numerous remaining U.S. trade disputes with other U.S. trading partners.

C) U.S. Grants PNTR and MFN to China:

In late 2001 the U.S. federal government granted PNTR to China and access to MFN treatment for trade and dutiable goods. Free trade advocates stated the benefits would include:

  1. Access to the Chinese market and the significant volume of sales of U.S. manufactured goods exported to China would lead to a boom in the growth of U.S. manufacturing and U.S. employment.
  2. China’s CCP government would develop, mature, and reform into a more open and democratic government with the growth of the Chinese economy and increased trade with other countries.
  3. The integration between the U.S. and Chinese economy would enhance America’s national security.

Opponents of PNTR warned that the following would happen:

  1. China is not a market economy, and the Chinese market is controlled by a communist government. China will use mercantile trade policies to promote Chinese industry. Access to the Chinese market will be limited via use of tariffs and quotas by the Chinese government. As a result, the U.S. will develop very significant trade deficits with China.
  2. Trading with China will not change the behavior of the CCP government into a more open democratic nation. The CCP is a command-and-control government that oppresses minorities and tolerates no opposing views. The U.S. should first require the Chinese government to enact the required internal political reforms to reduce control and oppression and become an open democracy prior to providing PNTR to China. There will be no leverage upon or incentive for the CCP to change and implement reforms once the U.S. grants PNTR to China.
  3. The CCP may use their newfound wealth to increase control and oppression of Chinese citizens. The CCP may use the expanding economy and GDP to build up the CCP military and increase U.S. National Security risks.

Twenty some years later we can see the promises and forecasts of the free trade advocates were dead wrong about China. China has stolen U.S. technology and built up their industry at the cost of many U.S. companies and U.S. manufacturing jobs. Furthermore, the CCP has used their newfound wealth to increase oppression and control of the Chinese people. The CCP has also used this increase in GDP wealth to build up the CCP military forces to a point where the CCP military and CCP policies are now the greatest threat in the world to U.S. National Security and U.S. stability.

How can Mr. Gramm be so passive and unconcerned about the U.S.’s serious trade deficit with and national security issues with China? The U.S. has an urgent need to decouple from China for the sake of our own national security. In recognition of problems with China, the Trump and Biden administrations have correctly imposed tariffs on Chinese imports. The next steps should be for the U.S. government to restrict investment in China and Chinese entities, as well as revoke MFN and PNTR with China.

D) China joins the WTO 

China is not a market economy. China has many barriers to entry to the Chinese market. China has stolen U.S. and other advanced countries’ technology. China requires transfer of technology and expertise from U.S. and other Multinational companies to a “partner company in China” in order to operate within China. China enjoys certain exemptions at the WTO as an “underdeveloped country.” At the same time China uses the WTO to leverage and gain unfair advantage against the U.S. Open market economies like the U.S. and closed economies like China are incompatible and cannot operate in the same rules-based organization such as the WTO. China must change or alternately the U.S. should exit the WTO. After the WTO exit the U.S. and a select group of other nations that qualify as true market and rules-based economies should join together to establish a new trade organization based upon the former GATT model.

E) The U.S. dollar has been overvalued relative to other nations currencies for the last twenty years:

As a world reserve currency, the dollar is estimated to be overvalued by somewhere between 10% and 15% relative to other nations’ basket of currencies. Furthermore, many nations act in the currency exchange markets to intentionally undervalue their domestic currencies relative to the value of the U.S. dollar. This type of currency manipulation increased after the U.S. abandoned Brenton Woods and permitted the market to determine the relative value of the exchange rate between currencies of various nations. 

In theory if a country runs a consistent trade deficit (like the U.S.) then that country’s currency should decline in value relative to the currencies of trading partners. This in turn would make U.S. exports less costly for other nations to purchase and as a result would move the trade deficit back to balanced trade. But in the case of the U.S. this has not happened even after twenty years of ever-increasing annual trade deficits. This is primarily because of the U.S. dollar reserve currency status. Therefore, the free market “revaluation theory of currency exchange” does not appear to function for the world reserve currency (i.e., the U.S. dollar).

Since the revaluation of the dollar to a lower relative value to balance trade does not function then it would be prudent for the U.S. to utilize tariffs or other means to offset the overvalued dollar’s adverse impact on U.S. trade. 

F) Other countries use mercantile trade practices that serve to increase the U.S. Trade deficit

While Mr. Gramm has little to no concern about such practices, the mercantilist trade activities of other nations have an adverse impact on U.S. manufacturing activities and U.S. manufacturing jobs. Countries such as Germany, Japan, South Korea, Taiwan, and Singapore have limited market access to their own domestic markets and intentionally run large trade surpluses year after year. These practices began after the end of World War II. To their credit these nations have enjoyed a phenomenal increase in their national GDP as well as growth in GDP per capita since the end of World War II. 

The Germans for example maintain a 10% tariff on the import of U.S. automobiles. The Japanese have a closed market for many imports including automobiles through various policies. 

The only way to change the behavior of these mercantile trading partners is for the Us Government to deny access to the U.S. market until these nations implement market access reforms in their home countries and cease their mercantile trading policies with the U.S..

If Mr. Gramm truly is an advocate of free trade, he should be opposed to the mercantilist activities of other nations. These activities distort free and fair trade between nations. However, Mr. Gramm is silent in his article about this distortion and many other distortions impacting free and fair trade.


VII. Conclusion

Mr. Gramm is critical of the Trump administration’s initiatives to address the distortions, anomalies, and unfair trade practices of many nations that trade with the United States.

President Trump, along with President Reagan and President Biden, in fact deserve credit and recognition for taking on these distortions and anomalies in trade. Each of the administration’s initiatives may have some shortcomings, but history teaches it is better to act than to ignore a serious economic problem that threatens the long-term economic well-being of the U.S.

In his WSJ opinion, Mr. Gramm offers no policy solution or legislative initiatives to deal with the serious trade problems that are negatively impacting the U.S. economy. Instead, he argues trade deficits do not matter and there is nothing to worry about. In other words, don’t worry, be happy.

Mr. Gramm is an advocate of free trade, and he surely knows that even free trade theory does not tolerate distortions and anomalies in the trade between nations. Such activities undermine the proper functioning of trade and as a result the desired benefits of trade between nations are lost or at least significantly diminished.

However, in Mr. Gramm’s WSJ opinion, he is silent about the distortions in trade and the problems this creates for the U.S. economy. He ignores the real facts about these distortions. Furthermore Mr. Gramm cites various so-called “facts” in his article to support his views that are false or myths at best.

I would encourage Mr. Gramm to take his own advice which he gave to President Trump at the beginning of his WSJ opinion. Mr. Gramm is critical of the Trump administration and states “President Trump boasts about his trade policies in a manner which suggests he thinks he is exempt from the old dictum that we are entitled to our own opinions but not our own facts.”

Mr. Gramm, look in the mirror and take heed of your own advice about opinions versus facts. You will be a better man for it.


William J. Jones is a former chairman of Cummins American Corporation, where he served 29 years as CEO of his 40 years with the then privately held manufacturing company headquartered in Mt. Prospect, Illinois. He retired in 2019. Cummins American designs, manufactures, and distributes high-tech commercial currency and check processing equipment such as coin sorters, coin wrappers, currency counters, currency sorters, as well as currency and check scanners and ATM’s which are used by banks, governments, casinos, armored carriers, and retailers around the world.  These products help to count, sort, and authenticate U.S. and foreign currencies.

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