Trump's Lousy Record on Trade
Trump's ideal of "economic independence" is the exact opposite of what economists recommend.
The Trump administration has a new agenda: bringing about a new world of free, robust, and unfettered trade. After his July meeting with the head of the European Union, the president was pleased to announce, "We agreed today, first of all, to work together toward zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods."
White House economic adviser Larry Kudlow said that Trump "wants to have no tariffs" because "he's a free trader." Yes, he is. And I'm Reese Witherspoon.
Trump is as far as you can get from a free trader. We know that from a Denali-sized mountain of evidence provided by Trump over his time in politics and business.
He hates NAFTA—"the worst trade deal maybe ever signed anywhere." He has a pathological aversion to trade deficits, which he blames for destroying jobs and hobbling growth. During the campaign, he proclaimed, "It's time to declare our economic independence once again."
Remember what NAFTA stands for? North American Free Trade Agreement. The 1994 accord eliminated virtually all tariffs between the United States, Mexico, and Canada—tariffs that were higher for U.S. goods going into Mexico than for Mexican goods coming here.
It also got rid of an array of other barriers, including import licenses and local content rules. Between 1993 and 2014, U.S. exports of goods and services to Mexico rose fivefold, and those to Canada tripled. NAFTA largely achieved its purpose: turning North America into a giant free trade zone.
Trump thinks it's a rotten deal because some American companies moved production out of the U.S. and some American workers lost their jobs. But that's how healthy markets work.
Trade deficits are part of any free trade regime worthy of the name. Some countries will import more than they export, and some won't. Assuming that the U.S. would run a trade surplus under authentic free trade is like believing that if the NFL rules were fairly enforced, your team would win the Super Bowl every year.
In a free trade environment, outcomes are not predetermined to suit particular companies, workers, or politicians. They are decided by consumers and producers pursuing their own interests. That's why it's called "free."
Trump's ideal of "economic independence" is the exact opposite of what economists recommend. Open commerce makes every nation dependent on other nations, buying and selling for mutual advantage.
As the father of economics, Adam Smith, noted in 1776, it makes no more sense for a nation to produce everything it needs than for a family to produce everything it needs. A nation that achieved "independence" by abstaining from trade with other countries would doom itself to poverty.
There is no evidence that Trump understands any of this. He imagines that only unfair deals and foreign cheating can account for trade deficits and the migration of some jobs abroad.
He made clear his view of trade at a July rally in Granite City, Illinois, asserting, "We lost $817 billion a year over the last number of years in trade. In other words, if we didn't trade, we'd save a hell of a lot of money."
True. And I'd save a lot of money if I stopped eating. The president doesn't grasp that Americans and foreigners engage in international commerce for one simple reason: It leaves them better off.
Trump has shunned the pursuit of freer trade whenever the opportunity has arisen. He pulled out of the Trans-Pacific Partnership, which would have obliterated 98 percent of the tariffs in place among the 12 signatories. Candidate Trump called this vast free trade deal "a rape of our country" that would "increase our trade deficits and send even more jobs overseas."
Trump also spurned the Transatlantic Trade and Investment Partnership with the EU, which was still being hammered out when he took office. Negotiators had already agreed to remove 97 percent of the existing tariffs and attack "unnecessarily burdensome requirements and delays at our borders."
Should Trump decide to resume those talks, he's not likely to improve on what was already done—and he doesn't really want to. What he wants is to protect favored U.S. industries while getting other countries to buy more from us.
In his world, the only good trade system is one in which we win and other countries lose. The truth that he has never been able to see is simple: Free trade enriches every country, and blocking it makes losers of us all.