It is difficult to stop a bad idea cloaked in good intentions.

It is difficult to stop a bad idea cloaked in good intentions.

Dennis Elam.

The President is treating our neighbor like Obama treated Israel.

The Wall Street Journal WSJ on Mexico.

And then…

A US –United Kingdom trade deal may never be easier to strike than right now.

The WSJ again, but why penalize Mexican made Fords and not British made Jaguars and Range Rovers?

Trump has some good ideas in approving the Keystone Pipeline construction and re-starting the Dakota Pipeline.  But his ideas on Mexican trade are the failed ideas which have been tried before.  Mexican President Nieto cancelled a planned Washington D.C. trip on trade after a bitter Twitter exchange with Trump. Yet Trump meets with British Prime Minister Theresa May today to negotiate a trade deal!  Or as P J O’Rourke titles his new book, "What the H___ is going on Here?"

Trump, well make that President Trump, complains that the US has a $60 billion trade deficit with Mexico.  This means we buy more from them than Mexico buys from us. Well, yes, and perhaps Trump should dust off those Wharton School of Business lectures; he sure likes to brag about the degree. But where is the learning?

If two nations produce very different kinds of goods, there is a reasonable chance for balanced trade. Consider say Japan and Chile. Chile produces vegetables and fruit which cannot be grown in Japan. Japan produces economical light trucks which are useful in a developing country like Chile. So the two trade with one another on a somewhat equal basis.

Mexico produces vehicles for a variety of companies, notably Nissan and VW but now Ford and GM as well. As those cars can be assembled for less cost in Mexico than in Michigan, production gravitates to its lower cost provider. So of course we have a trade deficit with Mexico!

Elsewhere in today’s WSJ, some bone headed economists suggest NAFTA has not had that much impact on the US economy. Obviously these guys have not visited Laredo, one of the biggest trade ports in the US now, or tried to navigate I-35 between Laredo and DFW.

Trump now threatens (promises?) a 20 percent import tax on goods made in Mexico to finance his Wall on the Border. This idea has been tried before, with disastrous results. And interestingly it surfaced at about the same time in the markets.

The Smoot-Hawley Tariff Act of  1930 was signed into law June 17, 1930.   The tariffs (import duties on foreign goods) were the highest in 100 years. Trading partners retaliated slowing trade, and job growth, both places.   Exports and imports were cut by half, lengthening the Depression.   The idea then was to "protect" famers as land had been freed up from grazing livestock as America embraced the automobile.

Now consider the timing of the planning. During his 1928 campaign, Hoover promised  to "help" farmers by raising import duties on agriculture products. The thinking was that this sort of trade protectionism would lower imports and raise the market for US agriculture products.

The  House passed a version of the bill on May 1, 1929. Smoot and Hawley by the way were both Republicans as was Hoover. The Senate bill passed in March 1930, 44 to  42. My point is that the House version passed  six months before the market crashed. No doubt  in a misguided attempt to help, the Senate passed its bill just as the markets had risen 50 percent and began its historic dive to Dow 41.   My point is that this same bad idea is being floated just at the US DJIA has hit 20,000, a new record now as then in the markets.  This is a remarkable similarity, decades apart.

All of this really began back in the 1970. Japan became the leader in motorcycles and then small cars using motorcycle engine technology. Instead of meeting the competition (such as making AM FM radios standard equipment in US cars) the automakers fought with tariffs then as well.  It did not work.

The fact of the matter is that modern production techniques are such that is it just not economical to pay someone $25 an hour to assemble a washing machine or air conditioner.   Those workers need more sophisticated jobs. And so Mexico moves to where the US was after WW II with a growing manufacturing economy.   Worker wages in Mexico have grown in some cases 8x in the twenty years since NAFTA passed. In the 1980s Monterey was a sleepy town, to day you can go to the opera there.

The far better idea would be a powerful NAFTA from Vera Cruz to Montreal.  That would create a North America which was finally energy independent from the precarious Middle East. And trade would flourish.

Sorry, but Mr. Trump cannot dictate growth by Fiat any more than Hugo Chavez could in Venezuela.

Smoot and Hawley proved that 80 years ago.

Follow Professor Elam at http://www.themarketperspective.com