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Free Minds & Free Markets

On Trade, Trump Is Who He Claims to Be

The president is not a free trader.

When it comes to trade, we should take President Trump at his word. This is one policy area where he's been remarkably consistent over the years. That's why I'm always surprised whenever articles, TV commentators, or friends in casual conversations argue that his real goal in boldly imposing unilateral tariff hikes is to achieve freer trade.

As we embark on a trade war, let's put this question to rest. Deep down, President Trump is not a free trader.

Nothing in what the president has ever said suggests that he's anything but a diehard mercantilist. Yes, it's true that he complains loudly of the treatment of U.S. exporters abroad—treatment he no doubt wants to change. It's also true that he has endorsed dropping all tariffs around the world to zero.

But even these seemingly free-trade stances stem from fundamentally protectionist beliefs: First, that if there were no tariffs, U.S. exports would rise dramatically and surpass imports, shrinking the dreaded trade deficit. And second, that exports are great and imports are bad. In other words, America wins with low imports and high exports.

He is wrong on all counts. If the U.S. trade deficit were to ever disappear, America's economic health would take a turn for the worse. As long as the United States is growing and remains an attractive place to invest, we will continue to run a trade deficit with the rest of the world.

The reason is simple: Foreigners sell goods and services to U.S. consumers in order to acquire precious American dollars. They want these dollars in part so they can buy exports. But they also want to invest in America's powerful economy, including buying some of Uncle Sam's debt.

As long as foreigners find it profitable to invest here, they'll continue selling stuff to us—stuff that improves our standard of living. This reality means Trump's obsession with increasing exports relative to imports is misguided. The imports are a means to achieve what Mark Perry of the American Enterprise Institute calls "job-generating foreign investment surpluses for a better America."

That also means that a world with no tariffs will not necessarily translate to a lower U.S. trade deficit. Sure, it might increase our exports. But lowering the deficit would practically require an increase in imports so that foreigners can acquire the dollars to buy those additional exports. Thus the president would likely hate the outcome of a zero-tariff world, putting us back where we are today.

But at the very least, could bullying our trading partners succeed in opening up more opportunities abroad? President Trump is right that some countries' protectionist policies are making it hard for American exporters to sell their goods.

Unfortunately, the answer is probably still no.

For one thing, unilaterally increasing tariffs against other nations has never been an effective way to get them to lower theirs. Other government officials, often protectionists themselves, use the attack as an excuse to raise their own tariffs even higher to protect domestic interests. Retaliation from Mexico, Canada, China, and the European nations is proving this point once again.

Furthermore, there is something depressing in the belief, held by many exporters, that the damage here at home from import tariffs—which is paid for by thousands of companies "downstream" in the production process and their millions of workers—is an acceptable price to pay. How many Americans need to lose their jobs in the name of a few specific exporters selling more goods abroad? When do we decide that price is too high?

Historically, the only way the United States has managed to get other countries to drop their trade barriers has been through multilateral agreements where everyone commits to behaving better. It is not a perfect process, but it beats pretending that Trump's protectionism will do any good.

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  • Tyler Durden||

    Because I didn't grow up in the U.S., I've lived through periods of trade surpluses and trade deficits. I can tell you from experience that it is far more pleasant to live through a period of surpluses.

  • livelikearefugee||

    The only time the US has consistently run a trade surplus was during the depression.

    It is normal for the US to run trade deficits because of the status of the US dollar as a reserve currency. Foreigners want US dollars badly enough to sell us goods at low prices so they can obtain dollars and invest in US financial assets.

  • Tyler Durden||

    You think it is normal, because you haven't yet experienced what life is like in a free country with a trade surplus. It is a Golden Age. The working class quickly become wealthy, more so than even the middle class. Office workers start dreaming of factory work and the trades, when they see how much more money real work can make. When guys with 10th grade educations can easily make high 6 figure incomes through hard work, the entire attitude of a country changes for the better, overnight.
    Also, nobody "wants" US dollars, they are the mandatory medium of international trade, enforced at gunpoint. Any country that even talks about refusing them promptly gets invaded and destroyed.

  • livelikearefugee||

    The only time the US has consistently run a trade surplus was during the depression.

    It is normal for the US to run trade deficits because of the status of the US dollar as a reserve currency. Foreigners want US dollars badly enough to sell us goods at low prices so they can obtain dollars and invest in US financial assets.

  • JoeBlow123||

    "The imports are a means to achieve what Mark Perry of the American Enterprise Institute calls "job-generating foreign investment surpluses for a better America.""

    Yeah this has worked swimmingly for the past four decades or so. Lets just repeat what has been so successful so far!! At least it will give a job to all the pundits decrying the death of the middle class and stagnating wages and all the economists can keep repeating their same tired priesthood prescriptions without change.

    I still do not understand how a publication that regularly blasts fiscal mismanagement thinks never ending, massive goods and services trade deficits is tenable. "OHHHH it is different when it is the economy, not the government or a private household!! You just need to take more macroeconomics classes and descend further into illogical indoctrination." Sure.

    By the way, how does it improve the standard of living for anyone for billions of dollars to be parked in T-bills? Perhaps you can argue it improves Americans standard of living by enabling massive government overspending on social services, but since when was that good either?

  • Shirley Knott||

    Trade deficits are matched by current account surpluses.
    The trade deficit is an accounting artifact that is meaningless.
    How are American standards of living enhanced by increased prices for scarcer goods?
    Mercantilism is no more valid or rational today than it was in the 17th century.
    It is gross fiscal mismanagement to impose taxes on American consumers who choose otherwise than a well-connected businessman might prefer.
    It is gross fiscal mismanagement to blockade our own ports, which is precisely what tariffs and trade restrictions amount to.
    Freedom works.
    More freedom is better than less.
    Managing the economy, in whole or in part is, in fact, gross fiscal mismanagement.

  • livelikearefugee||

    This.is.100%.correct.

  • JoeBlow123||

    "The trade deficit is an accounting artifact that is meaningless."

    This must be why the Greek economic model is so popular compared to the German or Japanese one!!

  • Rev. Arthur L. Kirkland||

    Guys like JoeBlow123 are always up for convening another meeting of Libertarians For Tariffs And Protectionism.

    Faux libertarians are among my favorite right-wing blowhards.

  • JoeBlow123||

    How is the anime going?

  • Elias Fakaname||

    Has Arty started his own tentacle rape hentai?

  • sarcasmic||

    Stupid libertarians don't understand. Money is wealth. Stuff is just stuff. Money is what makes us rich. Not stuff made from steel and aluminum or anything like that.

    So when more goods are exported than are imported, we have more money. That makes us rich.

    When more goods are imported than exported, we have more stuff. That makes us poor.

    Ideally what every person should do is sell all their belongings except the clothes on their back and a suitcase.
    Put the money in the suitcase and sleep on a park bench.
    Who needs a house or a car or food? You'll be rich with all that money! Just don't buy anything. That will make you poor.

  • SimpleRules||

    My faith in humanity is restored. It's been many hours and still no bites.

  • JFree||

    Foreigners sell goods and services to U.S. consumers in order to acquire precious American dollars.

    FINALLY - the implicit admission that our deficit is NOT driven mainly by our demand for cheap foreign crap but by foreign demand for reserve currency. The corollary is that this is not an issue of 'free trade for stuff' - but an issue of 'protectionism' for the producers of dollar currency. The only way those dollars can be produced is for Americans to incur non-productive debt. IOW - as long as the US continues down the road of financializing our own economy, then economists will continue to advocate that the benefits to Wall St (defined very broadly as those who benefit from either issuing debt or from subsidizing interest rates for those who already own assets) outweigh the detriments to the rest of the economy (including esp those who don't own assets).

    But they also want to invest in America's powerful economy, including buying some of Uncle Sam's debt.

    Has nothing to do with our 'powerful' economy. Our total debt load is what matters. We long ago passed the point where marginal productivity of debt is sufficient to pay for itself. We are now firmly in speculative (private debt) or ponzi (public debt) borrower territory - see Minsky. So let's keep partying and screwing our kids.

  • Weigel's Cock Ring||

    Not to mention that her claim on debt is laughably outdated. Foreigners stopped "investing" in Uncle Sam's debt ten years ago, and their share of our debt has been steadily declining ever since.

    Just in case anyone out there thinks I'm making this up and doesn't me, here are the details, complete with graphs sourced directly to the United States Treasury.

  • livelikearefugee||

    Foreigners don't just invest US dollars in public debt they also buy domestic financial assets and direct investment in real estate and businesses.

    The public debt does impact foreign investment to the extent that it competes with it.

    Reduce public debt and you will get more direct foreign investment.

  • JFree||

    Reduce public debt and you will get more direct foreign investment.

    No you won't and that was proven in the late 90's (when banks panicked about the lack of new T-debt issuance - because T-debt is what backs up or stabilizes bank loans) - and during the 2008 crisis (which was nothing more than private bank debt being transferred from private balance sheets to the public balance sheet).

    Like it or not - ALL of the 'no-pain' economic remedies to that debt will fail now. PERIOD. Continuation of the status quo - continuing to leverage and/or rollover in advance of the next financial crisis - is nothing more than continuing to deliver that pain to the next generation so that we don't incur the pain/sacrifice ourselves. And it no longer matters whether that initial debt is private or public because ultimately its all gonna be transferred to the public.

  • Shirley Knott||

    That is literally insane.
    The pay for my work is not debt.
    When I purchase wine from Argentina, Szechuan Peppercorns from China, or an iPad made in China for an American company from those wages, I do not incur a debt.
    We run a trade deficit and a current account surplus.
    Our total debt load is not due to foreign trade. It is due to gross fiscal irresponsibility by the US government. Limiting trade is not going to fix it. It is going to make us worse off.

  • JFree||

    The pay for my work is not debt.

    Yes it is. Our money system is entirely debt-based now (except for coinage which has been rendered irrelevant). Your deposits in a bank or the FR banknotes in your pocket are nothing but a claim on the FR systems outstanding loans. If those mortgages (mostly) were ever paid off in full, then bank money would cease to exist.

    When I purchase wine from Argentina, Szechuan Peppercorns from China, or an iPad made in China for an American company from those wages, I do not incur a debt.

    Agree - you pay for that by transferring your claim on those bank loans to them so they now have claim on those bank loans

    We run a trade deficit and a current account surplus.

    We run a trade deficit (roughly $568 billion/year) and a current account deficit (roughly $460 billion/year). The difference between those two is trade in services rather than trade in goods - where we do run a surplus (which is partially real and partially accounting BS by multinationals). Nonetheless - we run a current account deficit and have since the 1970's.

    Limiting trade is not going to fix it. It is going to make us worse off.

    I agree that limiting trade is not going to fix our debt load (which is NOT just a 'govt debt' problem). You don't want to know what is going to 'fix' our debt load.

  • JFree||

    add to the last point - the Trumpistas don't have the slightest clue what they are doing re trade. They do however have a much better gut notion of where the debt problem will lead as long as we let that play out via trade. It will lead to foreign ownership of the US. And that in turn leads to serious issues of sovereignty, self-governance -- and inevitably war since that is how virtually all previous debt supercycles resolve themselves. The globalizing crowd is simply oblivious to all of that - as they are to the debt load problem as well.

  • JoeBlow123||

    See JFree, this is where you err. Borders do not exist, sovereignty is a myth.

  • gphx||

    So go visit Somalia or Iran since it's the same exact thing as here.

  • AmendmentXMigrant||

    We will face a shortage of labor if trade deficits are reduced since our productivity would need to increase in order to stabilize the dollar.

  • Robert||

    This is a factor I wish Ms. de Rugy would take acc't of.

    Mercantilism—accumulating gold ownership by those of a certain country—is stupid. But that doesn't mean that its opposite is smart, esp. when it's to keep up demand for a fiat currency.

    The trade deficit is a symptom of a money & debt problem, not a cause of it, but that doesn't mean it's good news. Protectionism is stupid & doesn't address the underlying problem, but the persistent trade deficit of this magnitude is indeed a sign of a problem.

  • Weigel's Cock Ring||

    We've gone over this before.

    Unfortunately, almost nobody truly believes in total, unfettered free trade, especially not our so-called "friends", "allies", and "partners". Sure, they will pay lip service to it when it suits them, but what almost all of them truly believe in is doing what they think is best for their people.

  • Shirley Knott||

    Let them.
    We are better off if we stop harming ourselves with the self-inflicted wounds of tariffs.

  • Azathoth!!||

    On Trade, Trump Is Who He Claims to Be

    Okay.

    he has endorsed dropping all tariffs around the world to zero.

    And we're done. Right?

    No.

    Because he wants it for the wrong reasons. For reasons that, let's be honest here, can't be corrupted by the creeping perogressivism that is turning Reason into a leftist fever swamp.

    And how dare he call for ACTUAL free trade instead of another managed trade agreement with the word 'free' in it's name. How dare Trump be more for free trade and free markets than people who've been lying about wanting both for deacdes!

    I'm starting to think that Reason needs a razor blade and a nice warm bath.

  • livelikearefugee||

    If Trump is really, secretly, down in his heart a free-trader why did he appoint 17th century mercantilist Peter Navarro as his trade advisor and mentor?

  • loveconstitution1789||

    He offered our trading partners that the USA would end trade restrictions if they ended trade restrictions. They refused.

  • Homple||

    Who gives a shit? There will never be free unfettered international trade.

  • loveconstitution1789||

    Trump offered our trading partners the deal that the USA would end trade restriction if they ended trade restrictions. They refused.

  • Echospinner||

    Trump plays hardball in negotiations. It is the only tactic he knows. He also believes in his gut instinct to guide him.

    If you want concessions without giving anything then create a crisis. I think the idea is we create all these new tarrifs. If you want them to go away we want A B C... concessions.

    Nothing wrong with hardball per se. Like any other negotiation it may not get what you want. You need to be clear in your mind what you want and what is the bottom line if negotiations do not work. No plan of battle ever survives first contact with the enemy, as the saying goes.

    Trump believes trade deficits are bad. He is wrong about that but no changing his beliefs. That is the first concern. The whole strategy is based on a false premise, many of them, such as the belief that restoring heavy manufacturing jobs is an important goal.

    The second question is what if the other side does not back down. If you are negotiating purchase of a car or something it is simple. You just walk away having lost nothing and find another one. Can't do that here because we are stuck with these tarrifs and counter tarrifs so we have lost something. The other side can eventually find other customers.

  • buybuydandavis||

    When it comes to trade, we should not take Reason at their word.

    They are not for free trade, or free markets. They are for corporate profits.

    It's Free Market Uber Alles, except...
    Corporate limited liability
    Government monopolies in "intellectual property"
    Differential tax treatment for wages and capital gains
    Tax on income instead of property
    Violation of Lockean Proviso

    A lot of rage against violations of the free market. Except when it helps those who Own over those who Labor.

  • buybuydandavis||

    Benjamin Tucker's critique of Herbert Spencer in 1884 applies to most Reason articles:

    It will be noticed that in these later articles, amid his multitudinous illustrations (of which he is as prodigal as ever) of the evils of legislation, he in every instance cites some law passed, ostensibly at least, to protect labor, alleviate suffering, or promote the people's welfare. He demonstrates beyond dispute the lamentable failure in this direction. But never once does he call attention to the far more deadly and deep-seated evils growing out of the innumerable laws creating privilege and sustaining monopoly. You must not protect the weak against the strong, he seems to say, but freely supply all the weapons needed by the strong to oppress the weak. He is greatly shocked that the rich should be directly taxed to support the poor, but that the poor should be indirectly taxed and bled to make the rich richer does not outrage his delicate sensibilities in the least. Poverty is increased by the poor laws, says Mr. Spencer. Granted; but what about the rich laws that caused and still cause the poverty to which the poor laws add? That is by far the more important question; yet Mr. Spencer tries to blink it out of sight.
  • buybuydandavis||

    " But they also want to invest in America's powerful economy, including buying some of Uncle Sam's debt."

    One thing Reason doesn't get is that investments are not gifts, but ownership. Ownership gives control gives power. Investment is a euphemism for selling off your capital base to your creditors.

  • fgsll||

    I use to believe all this stuff but I noticed that somehow 'free trade' always meant 'we will charge no tariff and if your country does, that proves we are morally superior to you' -- for some reason, when we charged a 0% tariff, other countries (Canada comes to mind) would have no problem slapping us with a 285% tariff on milk. But I am tired of being 'morally superior' and watching my country go down the drain. Jobs left, businesses left, there was nothing left. President Trump said we can have free trade as long as it is free BOTH ways, we charge 0% and you charge 0% -- but if you won't: welcome to an American tariff. Some people say 'customers will just walk away and just find other markets'. All I say to that is China imports 1.4 billion bushels of Soy Beans each year -- I suppose they can wait a year for other countries to grow them -- but won't a whole bunch of Chinese be upset with not eating for a year? I believe in Free Trade, President Trump believes in Free Trade, but Free Trade is 0% for EACH side.

  • Tyler Durden||

    The deeper issue here, and the reason why the author and Reason are on the wrong side of this issue, is that comparative advantage can only exist in a world without the free movement of capital or people. Closed borders and mercantilism (David Ricardo's world) is the only economic system in which free trade is advantageous.

  • turco||

    Ugh. THis is depressing. People misunderstanding the basis of free trade ( Comparative Advantage) on a libertarian board of all places.

    Comparative advantage applies inside the UNited States.

    Author of the article is 100% correct and Trump is wrong on this one. Bigly.

  • gphx||

    'He has endorsed dropping all tariffs around the world to zero'.

    ...And that's all it takes to get Reason to argue against free trade because NeverTrump butthurt.

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