The longtime LSU professor of economics Loren Scott continues to teach, although now his memorable lessons take the form of his annual assessments of Louisiana's economic prospects for the coming year. In his latest forecast, the conservative Scott generally looks with favor on President Donald Trump's goals of reducing regulatory and tax burdens. But Scott parts company with the president on trade.
In his forecast, the professor found a chance to give the president and his team some Economics 101: "There is one glaring negative in Trump’s economic policies — an aversion to free trade. Here again it is helpful to revisit our principles of economics textbook."
He notes the law of comparative advantage: "when barriers to trade are reduced between two countries, the standard of living in both countries goes up. There are winner and losers within each country, but on net both countries are better off by lowering barriers to trade. The corollary is that when two countries raise barriers to trade between themselves, the standard of living in both countries goes down."
It is a concern about President Trump's views that we share.
Scott said that NAFTA remains a positive for Louisiana since 1992, though there was a negative impact on textile cutting-and-sewing jobs. "Louisiana lost its largest manufacturing employer during this time period — Fruit-of-the-Loom, which employed around 11,000 people. The law of comparative advantage says there will be losers."
However, the total impact of NAFTA was very good for Louisiana overall. Over a decade, the state added 330,000 jobs and saw its per capita income jump more than 54 percent. "On the net, the state came out ahead," Scott said.
Maybe it's a worst-case scenario, but Scott's concern about the consequences of Trump's protectionist agenda is worth noting. "New taxes on foreign goods, more import quotas and tariffs are an anathema to economic growth," Scott wrote. "Our trading partners will retaliate with higher taxes and tariffs on our goods, possibly provoking a disastrous trade war such as the one that contributed significantly to the Great Depression in the 1930s."
It is not just a worry for economists. From the World Trade Center in New Orleans to the Baton Rouge Area Chamber, business leaders have a right to be anxious about precipitous action on trade relationships that have been so beneficial to Louisiana.
"The uncertainty around NAFTA is a big concern," says Adam Knapp, president of BRAC. "Louisiana is a high-benefit state from NAFTA."
And the law of comparative advantage is still in force, and should be recognized in Washington.