Moody’s Analytics: Trade Policy A Delicate Balance

Some things must be handled delicately, and crafting trade policy is one of them, said Moody’s Analytics in a white paper titled Pride and Protectionism:  US Trade Policy and Its Impact on Asia.

Many of President Donald Trump’s trade policies are aimed at addressing perceived adverse effects of trade on US manufacturing employment and improving trade deals he says as not being in the US’ best interests.  But Moody’s cautioned that while these are worthwhile goals, care must be taken not to do more harm than good.




Support for free trade is grounded in the belief that each country should specialize in producing goods and services in which it has a comparative advantage, the paper said.  The surplus of these goods and services are then traded with other countries producing other goods and services.

But a country has a comparative advantage only if that good or service can be produced at a lower cost, Moody’s said.  And a good or service is not imported unless its price is below the cost of producing it domestically.

Consumers enjoy more goods and services at a lower cost, and displaced production capacity goes to other goods and services – a win-win for all, the paper said.




However, the world is not perfect; trade policies are not free, and protectionism abounds, distorting the principles of free trade.

Moody’s said support for protectionism often is rooted in the idea that it saves domestic jobs.  There is no denying that when the US imports goods, domestic production suffers and jobs are lost.

Those employees can be retrained and relocated to fill other manufacturing or service voids, and fiscal policy could be used to facilitate these costs to an economy, Moody’s said.

In any event, trade is not the primary factor in manufacturing’s declining share of total US employment, Moody’s said.  It started declining in the early 1950’s and didn’t even blip when the US entered the North American Free Trade Agreement in 1994, entered the World Trade Organization in 1995 or when China joined the WTO in 2001.




Moody’s said the loss of manufacturing jobs because of trade is an overdone notion.  The bigger culprits are technology and automation, which have made many factory jobs obsolete.

Protectionism has another ally in national security, Moody’s said, and it has some validity as it prevents dependency.  However, it applies to a small number of industries, small economies and emerging industries, not to the US.

In fact, tariffs usually make more political sense than economic sense, the paper said.  They prevent a country from reaping the benefits of specialization, disrupt the movement of goods and services and lead to misallocation of resources.




Cash cattle have traded at $112 to mostly $114 per cwt on a live basis and at $178 to mostly $180 on a dressed basis in the Midwest this week.

Cash cattle trade last week waited until late Friday, and many sellers passed.  Trade ranged from $114 to $116 per cwt on a live basis, steady to up $1 from the bulk of trade the previous week.  Dressed-basis trade was reported at $180 to $197, up $6 to $17.

The USDA choice cutout Wednesday was down $0.54 per cwt at $218.22, while select was off $2.89 at $201.77.  The choice/select spread widened to $16.45 from $14.10 with 91 loads of fabricated product sold into the spot market.

The CME Feeder Cattle index for the seven days ended Tuesday, was $152.88 per cwt, down $0.44.  This compares with Wednesday’s Nov settlement of $149.92, up $0.05.