Fair trade vs. free trade: which is better for the US?

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Fair trade vs. free trade: which is better for the US?

Does fair trade or free trade put more money in Americans' pockets? Dr. Mark Perry has insight on 'Life, Liberty & Levin.'

This is a rush transcript from "Life, Liberty & Levin," June 24, 2018. This copy may not be in its final form and may be updated.

MARK LEVIN, HOST: Hello, America, I'm Mark Levin, this is "Life, Liberty & Levin." We have a great guest tonight. Dr. Mark Perry, how are you, sir?

MARK PERRY, PROFESSOR OF ECONOMICS AND FINANCE IN THE SCHOOL OF MANAGEMENT AT THE FLINT CAMPUS OF THE UNIVERSITY OF MICHIGAN: Very good, very good.

LEVIN: We're here to discuss capitalism, trade, commerce, good, bad. Does it create wealth? Does it eliminate jobs? Do we have imbalance problem? But before we do, you're Professor of Economics and Finance in the School of Management at the Flint Campus of the University of Michigan. You're also a scholar at the American Enterprise Institute in Washington DC. You've got your MBA Degree in Finance from the Curtis L. Carlson School of Management in University of Minnesota and both an MA and PhD in Economics from George Mason University. Great school. You're a free market oriented economics there. You're a blogger, you're a writer, you're a lecturer and I have followed you for years.

PERRY: Thank you.

LEVIN: And very, very impressive. Let's jump right into, because trade is a big issue. And some conservatives are confounded about what to say about this subject. Some are saying that tariffs are a great thing, you know, it makes America stronger and protects our industrial base. Let's begin at the beginning. Why is trade important?

PERRY: Trade is important because it gives American firms access to global markets. It gives US consumers access to global markets, and the basic concept of economics is that trade - voluntary trade is always win-win and makes both parties better off.

So, from an economics' standpoint, to create the most amount of wealth and prosperity in jobs, what we want to do is maximize the amount of trading opportunities that are available both on the buying side and on the selling side. So it's very clear from an economic standpoint using economic theory, empirical evidence that economists are pretty united on this one topic.

They might defer or diverge on other topics, but economists as a group pretty much have unanimous support for the benefits of free trade and they are almost universally and unanimously opposed to restrictions on trade in the form of protectionism and tariffs.

So trade is just a way that we increase our opportunities and it enhances our standard of living and gets us to a much higher level of prosperity and a higher standard of living.

LEVIN: The vast majority of American people, do they benefit from trade?

PERRY: Yes, of course, and I think one way to - I always encourage people to look at trade through the viewpoint of the consumer because all we hear out of Washington and Trump and the protectionists is through the viewpoint of the producer. So especially if you view international trade from the viewpoint of the American consumer, we're much better off today getting access to low cost goods from all over the world, and so especially from the consumer standpoint, the opportunities we have to shop around the world, basically, that really elevates the standard of living of every American who buys anything at a Target or a Walmart or Home Depot or travels abroad, and so, really from - especially from the consumer standpoint, Americans are much better off with trade compared to the alternative, which would be protectionism or reductions in international trade.

LEVIN: And, of course, if the American people didn't want to participate in trade, then we wouldn't have the Walmarts and these supermarkets and we wouldn't have all these things that we have today because there would be no need for them, would there?

PERRY: Well, right. And we kind of get a little off base here because we always talk about like the US and maybe a deficit with China or Japan or Canada or Mexico, but countries don't trade, individuals trade. So, I think that's also very important for people to understand that trade happens at the individual level, that the United States doesn't decide to go on vacation to Canada or vice versa, it's American tourists that might decide to go on vacation there.

So, trade always happens at the individual level from economic theory and just economic reasoning and logic, trade is win-win, and so we want to, again, to maximize the amount of trade and individuals engaged in trade and that's where I think we have to always think of the consumer as the - the viewpoint of the consumer is what's important in trade.

LEVIN: What does fair trade mean? I'm having a little trouble wrapping my head around this. What does that mean exactly?

PERRY: Usually when I hear people use the word "fair trade," that translates into protectionism for some US industries or some US companies, that they're usually people who use that term, they don't really want free trade. In their perception, they view trade as somehow being unfair, that foreign producers are somehow undercutting American producers or they're dumping goods here, and so usually, when we hear people from my experience talk about fair trade, what they want is some protectionism for American producers or American industries.

LEVIN: Let me give you an example. The President has been talking about dairy and Canada, and I don't know if this is accurate, it may well be. Let's say it is, 270% tariff that the Canadians put on dairy products that we seek to ship into Canada. First of all, a tariff is a tax, is that right?

PERRY: That's right.

LEVIN: So, they're taxing their own people.

PERRY: Right.

LEVIN: On the price of eggs and milk and butter, cheese, dairy product. So the Canadian government, at least, theoretically is doing that to protect their dairy markets. Does that help us? Hurt us? Does it help them? Hurt them?

PERRY: I mean, I would say, in general, as a country Canada's tariffs on average are lower than America. So, they are more of a free market trading nation, I think than the US, but if we look at a specific example, and of course, the US, we pay twice the world price for sugar because we protect our sugar producers.

LEVIN: As a matter of fact, you once wrote that we have 12,000 tariffs in place on all kinds of products all across the board from all kinds of countries, taxing the American people for all kinds of products that we use every day.

PERRY: Yes, and including the 25% tariff that started in the '60s with what's called a Chicken Tax. We have a 25% tariff on imported pickup trucks. So that gives GM and Ford and Chrysler about 83% market share of that very valuable market, more than half the vehicles sold are trucks, and so they get this protection.

LEVIN: Now does that mean the cost is higher for the American consumer because of the tariff?

PERRY: Yes, sure, I mean, that would be the logical outcome is that if a US producer is protected from foreign competition, then there's going to be less choice, and I always say Perry's law is competition breeds competence. So the more competition there is, the more competent and productive and efficient our producers would be.

LEVIN: And if there's a 25% tax on pickup trucks, that would otherwise be shipped into our country, what's to stop the domestic producer from saying, "Fine, now we're going to increase our price 23%." In other words, we're under the 25%, they talk about an open playing field. They have an open playing field then, don't they?

PERRY: That's right. And so, to the extent that they're protected from more efficient foreign producers, then they would be able to charge higher prices to Americans and basically with the 25% tariff on pickup trucks, no pickup trucks even come into the country because it's so cost prohibitive. They couldn't be competitive.

LEVIN: Let's get back to this dairy example that the President used.

PERRY: Yes.

LEVIN: My question to you is this: if one country makes it prohibitively expensive for their people to purchase something from us, aren't there other countries we can sell them to?

PERRY: Well, that's one good point is that in a global market just because Canada doesn't - if they don't really welcome our exports of dairy products, it's a big world that we can sell them elsewhere and then to extent that they're penalizing and taxing their consumers in the form of higher prices for milk and dairy products, it wouldn't make sense for us to retaliate and charge our consumers higher prices and by imposing tariffs.

So, this whole retaliation, it doesn't make sense, and if they going to commit economic suicide, it shouldn't mean that we would have self- inflicted economic suicide.

LEVIN: This is a very important point, what you're saying, just to underscore this, if other countries want to drive up taxes on their own consumers, those taxes go to their government, and I want people to understand, when we put tariffs in place, we're not only taxing the American people driving up the cost of our products, the government gets the money. You know, it's not like some industry gets the money, the government gets the money. If a country wants to do it to its own people, you're saying, why, should we do it to our people?

PERRY: Well, that's right. And it is a form of a tax. And we always like, you look at the headlines, so the US is going to impose tariffs on China, it's not on China...

LEVIN: We're going to get to China, because you and I may disagree on China, but let's talk about our allies.

PERRY: Yes, or okay, so we're going to tax steel from Canada or from Europe. That's not a tax on them, they don't pay the tax, we can't impose a tax on a foreign company. It's the American companies who would import it into the US who would pay the tax and then pass it along in the form of higher prices to American consumers and American companies who use that as an input.

LEVIN: Is there any question really that we're talking about special interest protectionism here with tariffs in many cases, whether it's the steel industry or the aluminum industry and these are something, just being blunt about, their unions have pushed for and so forth, the politicians, most of them that represent these areas - Bernie Sanders, this has been his philosophy; Chuck Schumer, this has been his philosophy. It's kind of new to conservatism, these across-the-board ideas of tariffs of our allies.

But, I guess my question is this: while it may at least temporarily protect those workers, aren't there more workers down economic stream who are using steel and when you drive up the price of steel, more and more of those industries go out of business or they cut back on R&D, they cut back on wages and benefits or they cut back unemployment, period.

PERRY: Oh sure, I mean, that's just the reality that I guess for every protected job in the US steel industry, for workers who are making steel, there's something like 25 or 30 workers whose jobs are at risk now because their companies use steel as an input, and so it drives up the price of an input and makes them less competitive because again, a lot of US companies are not only selling here, they're selling globally, so you're driving up input prices for American companies, makes them less competitive. They lose market share. They would then have less demand for workers.

So, again, that's the part that you have to kind of trace all of the effects through and not just look at the one steelworker whose job is now protected because of protectionism, we have to trace it through and look at all of the effects - the negative effects on the economy. When you do, that I don't think you can point to any case where the benefits of protectionism have outweighed the cost. It's always that the cost outweigh the benefits or that the jobs lost are greater than the jobs saved.

LEVIN: What do you say when somebody says and they ultimately do, "Well, look, it's not fair because our wages are higher, and when we're trading with the poor countries or the third world or so forth, their wages are de minimis, and so that's just not fair." What is the answer to that?

PERRY: Yes, well, again, if you look at it through the viewpoint of the American consumer, we want the lowest prices, we want the lowest labor costs. So if American companies can import products produced in another country because of lower wages in China or Mexico, that still creates this huge benefit for American consumers and to the extent then that they save money on buying imports that freeze up money that they spend on other goods and services, so there could be the stimulus effect and more jobs in these other industries that are hard to identify, but again...

LEVIN: So, I understand, you are saying, "Look, it's a complex world out there." When you're looking product for product, that's really not the way to look at it. You may import something that resonates beneficially to the American consumer, the American consumer may spend money on this industry or those services or products rather than this, or they might be buying natural resources from these poor countries, using them and again, that create jobs throughout the American economy.

PERRY: Yes, that's right. I mean, again, if you think of, again, the global marketplace that the advantages are, is that goods can be produced in the countries that have the lowest cost of production. So, ultimately that benefits the entire world economy and benefits American consumers, and also American workers from the standpoint that the higher the level of our standard of living and more economic prosperity and liberty we have, it is going to create jobs in all of these various industries. So...

LEVIN: And the economic prosperity we have in this country in the last half century is unparalleled in human history, isn't it?

PERRY: Well, that's right, yes, there has never been any other country that has had this long of a record of economic growth and economic prosperity that's benefitted more people and raised the standard of living, especially for lower income and the vulnerable populations that we have because of access to cheap products from overseas, it really, again, has this trickle-up, I guess, effect that it really helps people from the bottom all the way up by having access to world markets.

LEVIN: And back to this labor issue, and what would the answer be? Are we supposed to reduce our salaries? Our benefits? Our medical expenses for each laborer? Are we supposed to force another country to raise them? In other words, these arguments, it's not fair, that argument can wherever there is liberty, whenever there is capitalism, that is the whole notion is to spread opportunity and spread wealth, right?

PERRY: Yes.

LEVIN: So people can benefit from it?

PERRY: Well, yes, and in some cases, the wages in the United States are not really market determined wages, they are artificially higher wages like in the auto industry, you think of the UAW, where their wages and compensation packages were way out of whack based on the rest of the world. And so, that exposed that industry because their labor costs were so high.

LEVIN: It came more in line in the '70s and really the '80s and '90s. Ladies and gentlemen, we're going to come right back. But before we do, don't forget you can join us at LevinTV almost every week night by going to crtv.com - crtv.com or give us a call at 844-LEVIN-TV. We'd love you to join us over there. We'll be right back.

Dr. Mark Perry, I read that the price of steel now, since we got into this tariff stuff, has gone up 40% domestically. Now that may help the steel barons and it may help the steel unions, but when that begins to resonate throughout the economy and the consumer, does that help everyone on assembly lines? Does that help the United States military that are buying new tanks and buying new aircrafts and other armaments and right down through the economic system?

PERRY: No, and we can look at the experience in 2002 when George W. Bush imposed steel tariffs and it completely backfired in a way that I think might happen again this time because the higher that steel prices go, that's a main input for manufacturers all across the economy, and there was an article I think in the "Wall Street Journal" the other day about a domestic US producer of lockers for schools and government and offices or whatever, gyms, and that's their - and their main input is steel, so now, they're really getting hammered. They're just a small company trying to survive in a globally competitive marketplace, so again, as you see those higher input prices kind of ripple through the economy, I think what we're going to see is just like in 2002, there's going to be job losses and in that case, 2002, there were more jobs lost throughout the economy than there were jobs in the...

LEVIN: I think I read 200,000 in ten months.

PERRY: Yes, something like that, so I mean, we're at the early stages of this. So, again, looking back at this a year from now, I don't see how it would be much different than it was in 2002 and all the other times one would try to impose tariffs on steel.

LEVIN: What about the impact on inflation? When you're driving up the cost of raw material like that, which is everywhere. It's in cars, it's in kitchens and appliances, and so forth and so on.

PERRY: Well, it could have an inflationary effect to a small amount, but I mean, really inflation is when all goods and services are rising simultaneously by some high rate, so that could have some impact on some of the input prices, but it wouldn't necessarily, I don't think.

LEVIN: Not across the board?

PERRY: It wouldn't lead to across-the-board inflation.

LEVIN: We hear the phrase imbalance of trade, and I think a lot of people consider the national debt where there's a big balance sheet problem with income versus expenditures and borrowing or you look at your own home, and it's best not to have great debt. You know, it's best to try to keep things under control.

And yet, I look at this, imbalance of trade, I don't know why we would keep these numbers. I'll give you an example very quickly, let's say as a nation, the people in the country, the businesses in the country buy a billion dollars worth of oil from Saudi Arabia and Saudi Arabia just saying, buys nothing, so we're in the hole "a billion dollars with Saudi Arabia" but we need the oil to finance assembly lines, to build stuff, to apply the products, to drive our cars and so forth, so why is that so bad?

PERRY: Well, it really isn't. If you think now, from the Saudi Arabian standpoint, now if they sold us a million or a billion dollars of oil and now have those American funds.

LEVIN: What are they going to do with it?

PERRY: Yes, they either have to buy something from here or invest in the United States or they have to sell those dollars on the foreign exchange market. So, that's the point that people don't always understand is that those dollars that are outside of the country.

LEVIN: They don't disappear.

PERRY: Right. And if they would accept green pieces of paper with dead Presidents' pictures, we could keep printing more of those and just send those over and get oil for green paper, but we know that they're not going to do that. So, the dollars get spent back into the United States either for our goods, our services, or for our financial assets. So, really there is no trade imbalance, once you account for all of the dollar outflows and all of the dollar inflows that the balance of payments as the Bureau of Economic Analysis calculates it is always really zero once you account for all the capital ...

LEVIN: But if we play along with the equation, I ask myself, okay, we're $600 billion, $800 billion and the numbers pop around here and there, $50 billion with this country, whatever it is, and they never break it down by products. In other words, maybe we need this stuff in order to have our economy to be a vibrant economy and so forth.

Or maybe people want to buy this stuff because it's really important to their households or whatever and we're not producing it in quantity in the United States, so whatever the reason is. I often think to myself, when we talk about this balance of trade. Okay, so what's the answer to that if we accept their argument? Does the government now decide we're going to have a balance, so we have to be exactly 100% each way with this country and that country? What would that do to an economy and how would that empower the Federal government? I don't even understand what the answer to this is.

PERRY: Yes, and so - another again, common misunderstanding about the trade deficit and Trump has perpetuated this, but I mean one really...

LEVIN: You don't like Trump, do you?

PERRY: Well, not on trade. I like him on Israel and regulation and taxes and education and Supreme Court.

LEVIN: But you could say Bernie Sanders, you like? But anyway, go ahead.

PERRY: But if anybody shops at a local supermarket and spends $100.00 a week for the rest of the life, they would have a trade imbalance with their grocer, if the grocer is never buying anything from them. So, just having a trade deficit doesn't necessarily mean that anything is bad.

LEVIN: You have a trade deficit with your bank if you have a mortgage.

PERRY: Well, yes, and just I think that you're right that the way they calculate the statistics, just the word "deficit" sounds like a bad thing and the word "surplus" sounds like a much better thing, but in terms of our overall balance of trade that really, once you account for all of the international transactions for goods and for services and we have a trade surplus on services, and all of the trade for financial assets, that we have a capital deficit for goods and services, we have a capital inflow that exactly offsets that for our financial assets, so there really is no trade imbalance once we account for assets - financial assets and goods and services.

So, in a way, I always argue, we get the best of both worlds. Really, a trade deficit means we have a net inflow of goods. We have goods surplus, there are more goods coming in the country than going out. We also have a net inflow of capital from our capital account surplus. So we have a net inflow of goods and a net inflow of capital and then complain that somebody is taking advantage of us or we're somehow getting duped.

LEVIN: And what else do we have a net inflow of? Knowledge, creativity, technology - that is since the beginning of mankind, you know, explorers, journeymen, they wanted to learn, they wanted to know more. Everything isn't known in New Jersey or Pennsylvania or Minnesota or the United States. There's things that we can learn, things that we can do and so, there's a back-and-forth knowledge flow too, that capitalism, that trade, that commerce is involved in, it's not like that's the intention of everybody, but, wow, look how they did this, maybe we can improve upon this and so forth and so on, am I right?

PERRY: Well, yes, that's a good point that it serves not only as our international exchange of goods and services and financial assets, but there is also an international exchange of knowledge in technology and innovation, and so that accumulates over time in ways that Thomas Solo said we have all of these natural resources, but we don't get the instruction booklets from Mother Nature on how to produce microchips from sand or something.

Yes, so we get this huge sharing of global knowledge that makes the world a better place and also makes America a better place in ways that really increase the prosperity and level of our standard of living here.

LEVIN: We'll be right back.

LEA GABRIELLE, CORRESPONDENT, FOX NEWS: Live from "America's News Headquarters," I'm Lea Gabrielle. President Trump planning to escalate the economic battle with China according to a new report in the "Wall Street Journal." The President is considering banning certain Chinese companies from investing in US tech firms and blocking more tech exports to China. The National Security Council and Commerce Department are reportedly drafting plans for the new export restrictions.

Meantime, President Erdogan of Turkey winning his re-election campaign for a second term in office. The incumbent President won with about 53% of the vote according to Turkey's election board. President Erdogan will enter his new term with greatly expanded powers. Turkey voted last year to transition from a parliamentary system to a Presidential system. Critics say, it further cements Erdogan's grip on power. I am Lea Gabrielle, now back to "Life, Liberty & Levin."

For all your headlines, log onto foxnews.com.

LEVIN: Dr. Mark Perry, if we didn't import a lot of stuff, and I don't mean just end products, I mean, things to make products and services and ideas and all sorts of things, we would be denying ourselves a lot of stuff, a lot of luxuries, a lot of necessities that we expect each and every day. So if other countries, because they have more authoritarian and autocratic governments, choose to impose their will on their people, limit what they can buy, drive up the cost of our products, limit their access to our technology and so forth and so on, that's to their detriment, not to ours, is that correct?

PERRY: That's right, and so there would be no reason for us to retaliate and somehow think we're getting back at them by making our people poor, and one thing about the goods coming into the country, people don't always realize this, we think of automobiles and TVs and computers, but about two- thirds of what comes into the country as imports are products that US firms are buying. They are raw materials and supplies and inventory and so on.

So it's really our companies that are buying inputs that make them more efficient and more productive and more competitive. So again, if we cut off imports, it really is a way that we're going to be - lead to a great detriment of our own producers.

LEVIN: Don't we have many businesses in our country with many, many middle class working Americans, some of them blue collars, some of them union members who rely on imports to make their living?

PERRY: Well, that's right, and even if you think of finished products coming in, let's say it's a TV set or something, or a computer, you still go to an American store and buy it, you go to an American car dealer to buy a Toyota. So, there's jobs being created from those imports coming in, but again, it's US companies buying imports more than US consumers. We buy it down the supply chain, but again, if we think of tariffs on imports, it's really putting our manufacturers and our producers at a significant economic disadvantage.

LEVIN: The longshoreman, right? I mean, all kinds of people. We have companies now in this country that are foreign companies. We have all kinds of Americans working for these companies on assembly lines and so forth and so on, so there's a lot of people who absolutely benefit directly from international trade; not even downstream, directly from international trade and it's almost impossible to know how many, isn't it?

PERRY: Right. I mean, it's very difficult to really calculate or account for all of the advantages and disadvantages, we know on net the advantages outweigh the disadvantages. But again, if you think of the steel company coming in for a small company that makes lockers, they have a lot of American workers and so the more competitive they are and the more efficient and more productive, the more workers they're going to hire and the more they can expand.

LEVIN: We have refrigerators, washing machines, driers, toasters, hubcaps - I mean the number of products is really - and aluminum, too, is almost infinite in one way or another. If you take a fairly, not even a complex product, there's that famous video and story about iPencil. If you take that product or if you take a more complex product like a car, everything in the car cannot be made in America. Everything in the car cannot come from America. Everything in this pen cannot come from America or we wouldn't have these pens and these other items, would we?

PERRY: Yes, and often, it's just we look at where the final assembly took place. So, let's say it's for an iPhone, maybe the final assembly took place in China, but all the marketing and design and development and advertising take place in the United States and create a lot of value here. The parts might have come from all over the world, so again that's the advantage of a global marketplace is that you can take advantage of the best products at the most competitively priced products and then we all eventually get significant benefits from that. It's just always hard to trace it all through and figure out what those benefits are.

LEVIN: Protectionism used to be the big issue of the hard left, of the Bernie Sanders and so forth, because that was in part the big union bosses and so forth, part of their political constituency group, and then I am finding in America today more and more, I and you, are in the minority. When it comes to capitalism, we talk about free trade, we don't have free trade. I mean, freer trade and then all of a sudden, you must be anti- American, you don't believe in fair play and so forth and so on, what do you say to people like that?

PERRY: Yes, I mean, this whole idea of make America first, I always say, well that's making - that is putting American consumers last. So again, if you think of it from the consumer standpoint and I guess, politically, that's one of the dangers is that, protectionism sells in the political...

LEVIN: Because it's an easy headliner.

PERRY: Yes, and it looks like the politicians are doing something and there is identifiable companies or industries that are now protected. You can look at the workers who have been protected. You have photo opportunities, but then the costs that are imposed throughout the entire economy are much more difficult.

LEVIN: Let's give an example. You talk about steel. We're trying to increase defense spending, we are. Price for a tank go up? Price for a jet fighter go up? Price for a bomber go up? Price of a bomb go up? So the increased spending just as an example, you've got the government taking with one hand and spending with the other hand just on the military side. You get less, may I say, bang for the buck when you have protectionism in terms of these materials that are used to build what's necessary even for the United States military.

PERRY: Oh yes, in fact according to a source of mine, General Motors estimated that their cost of producing cars in the United States will go up by about a billion dollars because of higher costs for steel and for aluminum, and the Defense Department, you know, would be the same idea that you're imposing costs on American companies, ultimately on American consumers and American taxpayers, so we have to kind of disabuse ourselves of that notion that we're imposing these tariffs on foreigners. We are imposing them on ourselves in the form of what they really are, taxes on Americans.

LEVIN: When we come back, I want to talk about China and what I consider in many respects, a national security exception, because China, I would argue, steals a lot of our stuff. Steals a lot of our technology, manipulates its currency. I'm not talking about play fair, I'm talking about stealing and violating the law when we come back.

Ladies and gentlemen, remember, check out Levin TV on crtv.com. Almost every week night, we'd love to have you join us there. Call 844-LEVIN-TV. 844-L-E-V-I-N-T-V. We'll be right back.

Welcome back. I want to talk about China. I consider China our gravest threat right now. There's Iran, there's North Korea, there's Russia and there's others, but China is building up a significant military machine. It is trying to take control in geopolitical ways and geographical ways that at the South China Sea, other navigable waters, space, cyber warfare and they are stealing us blind.

They are compelling our companies that do business in China to cough up their technology and their proprietary information. By joining with these companies which was basically state-run companies. They are stealing our technology here by buying up companies and taking the technology and the latest twist is, they're now flooding our patent office with patent challenges to try and slow down our ability to get our own patent.

So, they're not playing by any kinds of rules and it seems to me, there is a point at which, and we have export control regimes in place, the Commerce Department and State Department to make sure we don't give our enemies our cutting-edge technology so they can improve their nuclear weapons systems and so forth. So I consider this to be a national security exception. Do you agree or disagree?

PERRY: Well, to a certain extent, yes, I do agree that China is a very unique situation. We don't have to worry about the same situations with Canada or Europe. So, it is a unique situation. There are some very, you know, as you say, national security concerns, so then the question is how do we deal with that? Do we engage in protectionism to force them to change or do we use international courts or something or World Trade Organization? So, that's where I'm just a little not sure exactly what I would recommend as the best solution.

LEVIN: Do you agree it's different?

PERRY: It's different, yes.

LEVIN: There was a decision in an international court with China and the Philippines, over islands, they're really rocks, that the Chinese stole from the Philippines and the ruling was against the Chinese and the Chinese said, "Now, go ahead and enforce your ruling." In other words, "The hell with you." That's the problem when you have a rogue state.

You know, let's give our example. We talked about buying a car or buying food. Buying, not breaking into the store and stealing it or breaking onto the car lot and stealing the car. To me, that puts it in a different category.

PERRY: Yes, and I guess thinking back to like Reagan who you worked with before, you know, he was a true free market person, although in reality because he was a politician...

LEVIN: Some exceptions.

PERRY: Yes, there were some exceptions, but you could trust his instincts, because in his core of his belief system, he supported free trade and he was not a protectionist. Now, the dangers I see is under Trump, he has none of those same principles of free trade that Reagan had, in fact the "Wall Street Journal" called him the first authentic protectionist in the White House since the 1920s.

So, if he's a protectionist at his core, then I'm not sure I can trust what he wants to do about China.

LEVIN: But I like what he's doing with China.

PERRY: Okay.

LEVIN: In other words, I'll tell you why, because if he doesn't do it, nobody's going to do it. We've had Republican President after Republican President, quasi free market, whatever the label is for them, and they've basically let China get away with it. We've had Republican Congresses that basically let China get away with it, why? Because the corporate instinct, which I like, is profit and in some cases, profit at all costs. Got it, good.

But sometimes, it's just like with the Constitution when it comes to national security, we have to look at a country. I mean, I don't believe we should have had free trade with let's say the third Reich. I don't think we should have had free trade with Tojo's Japan or Mussolini's Italy, or anything like that even before war broke out.

When China is making it obvious with these phony islands and all the rest that it is a threat to us to, I think a President or a government has a responsibility to try at least and find ways to protect the American people from them.

PERRY: Yes, and actually, in the international trade theory, one of the exceptions to free trade and one of the reasons you might want to have some kind of restrictions is national security. So to the extent that that's an issue now, we should really think about that seriously. The danger is I think that is that then every industry can always make some kind of a national security argument.

LEVIN: That's different. I agree with you. But I'm not talking about the industries making the argument. I'm talking about there's that country over there that's dangerous, I don't really care what this industry, that industry or the other industry said, and you say you don't trust the current administration to do that?

PERRY: Well, I'm just thinking because as a protectionist, I think Trump is always going to favor protectionism over any other kind of solution. So in the case of China, maybe I would support what he's doing there, I am just not quite sure what he's doing.

LEVIN: And yet, I think when it comes to China, he's doing the right thing. I think so. They're trying to limit the technology that's flying to China. They're punishing China domestically in our courts and elsewhere for stealing our technology. He is putting tariffs in place, he said, for national security reasons because they're stealing our technology. They do not pay attention to international agreements or international court rulings.

PERRY: Yes, so maybe there is some justification there. What maybe I would differ a little bit if we're claiming that they subsidized their producers or they manipulate their currency, then I would say that's fine that they do that because they're really subsidizing American consumers and American companies if they are subsidizing their producers or if they are manipulating their currency. When those claims were being made, it was that they were making the dollar too strong, making their goods cheap. So, there were some benefits for that type of trade policy that they implemented that people complained about.

LEVIN: So essentially, we agree to disagree, in part.

PERRY: Yes, of course.

LEVIN: All right, we'll be right back. I want to get back to this word "fair." Fair. Some companies live, some companies die. Some companies expand, some retract. On what basis are we supposed to subsidize companies and subsidize workers to the detriment of other companies and other workers and the taxpayers?

PERRY: Well, yes, I mean, the whole notion of fair or fairness is just so swishy and so subjective that there's no real definition for that. So if we talk about fair wages or fair trade, from an economic standpoint it always is just never quite as a good concept as just to have freedom and allow the free market and the principles of a market economy to kind of determine the direction of where the economy is heading.

LEVIN: Is it pro-American to be in favor of fair trade?

PERRY: Well, it is, unless like I said before, when people use the term "fair," it is almost always followed by some kind of government intervention to impose fairness on a situation that they have determined to be unfair.

So I think in principle, it's a fine ideal to have everything be fair in people's minds, but usually fair translates into government intervention whereas freedom and free trade usually means the absence or less government control on regulation.

LEVIN: Do you think if we as a country proposed let's eliminate all barriers, all subsidies, all tariffs, all taxes of every kind, in every product or service we trade with Canada, if they will do the same, do you think our government would go along with that? I don't think our government would go along with that?

PERRY: No, I think that would be a great way to approach it. Because when we talk about free trade, like with NAFTA or something, it's some of the negotiated 2,000-page contract or something like that, but yes, and then again, the politicians get a payoff from their voters and supporters when they impose protectionism in ways that they don't get when they support free trade. So, I think politically, it's not viable, but from an economic standpoint, it would be a great...

LEVIN: How many tariffs again do we impose on the American people's taxes? How many tariffs?

PERRY: I think it's in the thousands, there's some - I don't know...

LEVIN: I think you and I have counted 12,000. They've been slipped into bills for political reasons to protect certain industries. They give certain donations, and then you want to talk about the swamp, you want to talk about entrenched bureaucracy, isn't that it?

PERRY: Oh, yes, the idea that America is this big open market to the rest of the world and everybody is mean and bad and cuts off our products, again, the 25% tariff on trucks, the fact that we don't allow any foreign sugar in to protect our sugar beet farmers. We pay twice the world price for sugar, it's not as if we come into this discussion with clean hands, and so we have to be realistic about what's going on.

LEVIN: We'll be right back. Dr. Mark Perry, here's the final question for you, please, do you see the country abandoning capitalism - market capitalism moving toward socialism?

PERRY: Well, I see some promising signs under the current administration in terms of - in the areas of let's say energy, and education, and regulation, and taxes, so I think we're moving in the right direction in some of those areas. I think the danger now in terms of moving away from free-market capitalism is the trend towards this greater protectionism that we are seeing because I think that is moving us in the wrong direction.

So, the biggest challenge that I see right now and the biggest threat to free-market capitalism is this wave of protectionism that we are seeing now.

LEVIN: But what about the body politic? Do you think the wave of protectionism we're seeing is a reaction to that, because I'm starting to think it is?

PERRY: Well, I mean, I think there has been some resistance in Congress to Trump's authority on his own to unilaterally impose these perfectionist policies, and so I think there is some blowback in Congress.

LEVIN: At the voters?

PERRY: Well, the voters are being, I think, you know, are being, I think, a little bit influenced now by this wave of protectionism and that is the danger that I see is that people are now kind of buying into the make America first protectionism.

LEVIN: How about the conservative movement?

PERRY: Conservative movement, you know, I think, it has to remember its principles going back to Reagan and heroes like Milton Friedman who kind of really showed us the way to think about the economy, and so I think if we can keep that legacy in mind with some of those intellectual heroes of mine and yours, I think, then, I think we will be okay in this.

LEVIN: And isn't that why we have the wealthiest nation on the face of the earth after all?

PERRY: Oh, yes, I mean, our prosperity is directly because of our free market capitalism - the democratic capitalism.

LEVIN: It has been a great pleasure.

PERRY: Thank you, Mark.

LEVIN: Thank you very much.

PERRY: All right.

LEVIN: See you next time on "Life, Liberty & Levin."

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