Trump's Deep Misunderstanding of Trade Policy Is Threatening the American Economy

The president's bizarre and counterproductive obsession with tariffs could spell economic catastrophe.


In one of the stranger incidents to occur under the current administration—which is saying something—President Trump yesterday took a piece of paper out of his pocket, flashed it at reporters, and claimed it was some sort of secret immigration deal with Mexico.

Trump wouldn't show it to reporters, saying that he couldn't, because if he did, it would be analyzed—as if examining the details of any such agreement would somehow render it useless.

But a picture snapped by a Washington Post photographer appears to show some sort of agreement between the U.S. and its southern neighbor, though it remains unclear exactly what it entails. Trump claims the deal was a result of his tariff threat: "Without the tariffs, we would have had nothing," he said.

Given the lack of details, and the president's history of, let's say, over-claiming when it comes to trade and immigration deals, it's hard to know what, if anything, he actually has. The Mexican government, meanwhile, continues to insist that there is no secret component to any agreement with the United States. Trump's acting chief of staff, Mick Mulvaney, said today that the public may never see the secret deal.

Is this real secrecy, intentional obfuscation, or simple confusion? Most likely, it's some combination of all of the above. In any case, it is yet another sign of a bizarre and counterproductive obsession with tariffs, a warning about the ways in which Trump's deep misconceptions about trade continue to threaten the country's economic health.   

News of Trump's supposed secret deal comes on the heels of an impromptu call-in interview with CNBC on Monday, in which the president griped about the Chamber of Commerce's opposition to the tariffs his administration has imposed.

The interview consists mostly of Trump ranting wildly and inaccurately about how cross-border trade works. At times it is flat-out incoherent. It nevertheless serves as a revealing look at how Trump conceives of tariffs and their role in international relations.

"Without tariffs, we would be captive to every country," Trump said during the call, "and we have been for years." He went on to complain about the size of America's trade deficit, saying, "We lose a fortune with virtually every country. They take advantage of us in every way possible, and the U.S. Chamber is right there with them."

He portrayed tariffs not only as a way to bring other countries in line, but as a tool for economic growth at the expense of foreign rivals. "We've picked up trillions of worth since I've been elected. China has lost many, many trillions of dollars. They're way behind. They were going to catch us," he said. And he essentially refused to accept that tariffs function as a tax on American consumers, because of the control that China's government exercises over its economy.  

This, too, was cause for grumbling. "I'm winning. But I'm not winning on a level table," Trump said, complaining that the Federal Reserve isn't supporting his policies. Notice the first-person: Trump has personalized the nation's trade arrangements, viewing them as zero-sum games—wins or losses for himself. Trump's trade war is not just a series of disastrous real-world policy choices; it is a virtual construct inside his mind.

What these two incidents underscore is that when it comes to trade—which, along with immigration, is one of this administration's defining issues—Trump is living in a fantasy world, and forcing Americans to accept the consequences of his inability to deal with reality. 

He imagines that tariffs make him a more powerful dealmaker who is able to dominate foreign rivals; in reality, Trump's tariff threats and trade deals have won him little, if anything. The USMCA, his replacement for NAFTA, which he once called "perhaps the worst trade deal ever made," mostly tweaked the original deal around the margins; the deal with Mexico that Trump said last week was brought on by his tariff threats consisted "largely of actions that Mexico had already promised to take in prior discussions with the United States over the past several months," officials from both countries told The New York Times.

Trump believes trade deficits are a sign of weakness; in fact, exports help keep the economy—which Trump often brags about—strong. An estimated 11 million American jobs depend on exports. Trump's trade war is putting those jobs at risk.

He believes that tariffs improve the American economy, yet the economy has shown signs of weakness as his trade war has dragged on, and the tariffs threaten to cost most Americans more than they have gained from Trump's tax cuts. Even in cases where the tariffs have either not gone into effect or been eliminated, the lingering uncertainty stemming from the president's erratic behavior has rattled bond markets and left the economy shaken. The trade war has been so tough on farmers that Trump has put together a $16 billion subsidy package to bail out those harmed by his policies. When he made the announcement, he falsely claimed that China, not Americans, would pay it.

Trump's approach to trade is delusional and deranged—a war inside his head that bears little relationship to the destructive reality he is forcing Americans to endure. And it is cracking the foundations of the American economy.