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Trump's Economic Illiteracy Has Deep Roots

In Trump's mind, America loses when it buys too much. And it loses when we sell too.

Jeff Malet Photography/NewscomJeff Malet Photography/NewscomWhen Russ Roberts, the George Mason University economist and host of the EconTalk podcast, visited the Reason office last week to be a guest on our podcast, he was asked about President Donald Trump's economic policies. Roberts offered a succinct, and powerful, rejoinder to the president's view that America's trade deficit with China is a problem—an opinion that Trump has repeatedly expressed since well before his campaign for the presidency began, and one that seems to lie at the center of his hardball trade tactics with one of America's largest trading partners.

"It is certainly true that China doesn't play fairly in the economic game of international trade," he said. "But not because we run a trade deficit with them. That's not a result of unfairness. That's the result of the fact that we, in general, import more stuff from the rest of the world than they import from us, and at the same time they invest more in the United States than we invest in their countries."

That's neither uniformly good nor uniformly bad. It means that America is a good place to invest, and that's why people invest their money here. That capital surplus means that Americans generally have more money to spend on goods and services—hence why we run a trade deficit with other countries.

This basic dynamic of macro-economics seems lost on the current occupant of the White House. But Trump's hostility toward China—and, more importantly, the underlying idea that trade is a zero-sum game with winners and losers—is not the product of his late-in-life transformation from hotel mogul to reality TV star to politician. It fits with the rest of the nationalist economic message Trump used to catapult himself to the top of an increasingly nationalistic Republican Party, but it has roots that go deeper than that. For a man as inconsistent as Trump, he's been remarkably consistent on his views of international trade for decades.

Unfortunately, he's been consistently wrong.

Here's something Trump said in a 1990 interview with Playboy:

I think our country needs more ego, because it is being ripped off so badly by our so-called allies; i.e., Japan, West Germany, Saudi Arabia, South Korea, etc. They have literally outegotized this country, because they rule the greatest money machine ever assembled and it's sitting on our backs. Their products are better because they have so much subsidy. We Americans are laughed at around the world for losing $150 billion year after year, for defending wealthy nations for nothing, nations that would be wiped off the face of the earth in about 15 minutes if it weren't for us. Our "allies" are making billions screwing us.

If you didn't know those comments were 28 years old, you might think they were plucked from the president's Twitter feed this morning (minus the mention of "West Germany"). The basics of Trumponomics are right there. We are being "ripped off so badly" and we are being "laughed at" by our supposed friends while we are "losing" billions in trade.

In the same interview, Trump talked about how he would like to put "a tax on every Mercedes-Benz rolling into this country and on all Japanese products." He also said he could someday be president because "the working guy would elect me. He likes me." And, lest you think his tendency to praise authoritarian regimes is new, Trump also praised the Chinese for cracking down on the Tiananmen Square protests, because it showed "toughness." No wonder that Playboy interview has become something of a Rosetta Stone for understanding Trump, with foreign officials studying it for clues about how to woo the president.

Jibran Kahn, who highlighted those old Playboy quotes in a piece he wrote last week for National Review, notes, points out that there is one Trump comment in the interview that perfectly highlights his misunderstanding of trade. In describing his concern about the booming Japanese economy of the late 1980s and early 1990s, Trump said the Japanese "double-screw" Americans.

"First, they take all our money with consumer goods, then they put it back in buying all of Manhattan," he said. "So either way, we lose."

Think about that for just a second. When Americans buy consumer goods from Japan—this is the crux of Trump's current complaints about a trade deficit with China—that means America is losing. And when Japanese businesses buy real estate in America, that means America is losing again. Apparently, we are losing whether we buy or sell.

This is some sort of reverse tautology. An argument that is true solely because it is true in Trump's head. There is no arguing with that.

This is not mere economic illiteracy; it is economic illogic. And it is on this basis that Trump is pursuing policis that he doesn't seem to understand. Trump's tariffs have increased the price of steel and aluminum, which have increased production costs for myriad American businesses and left those same businesses at a competitive disadvantage against foreign competitors. Another wave of tariffs against thousands of Chinese goods is planned, and retaliatory tariffs from China will do further damage to American farms and businesses. It's not the Chinese or Japanese who are trying to "double-screw" America—it's the guy who says we need protection from the benefits of trade.

As Roberts said at Reason last week, there's good evidence that China is indeed cheating on trade with regard to intellectual property and technology. But tariffs, he added, are unlikely to solve that problem, and may in fact create many more.

"The trade deficit with China is not evidence that they are cheating," says Roberts. "That part of the Trump story about the tariffs is misleading, xenophobic, and encourages them to put tariffs on our stuff. It's horrible."

Photo Credit: Jeff Malet Photography/Newscom

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  • Rich||

    Since economics is the science of explaining why your predictions were wrong, Trump is probably not that illiterate.

    *** ducks ***

  • fgsll||

    TRIPLE THUMBS UP!!!!

  • loveconstitution1789||

    That's neither uniformly good nor uniformly bad. It means that America is a good place to invest, and that's why people invest their money here. That capital surplus means that Americans generally have more money to spend on goods and services—hence why we run a trade deficit with other countries.

    This basic dynamic of macro-economics seems lost on the current occupant of the White House.

    I laugh when I see nobody doing these articles on trade and never really hit home how China actually hinders US imports into China. China is hindering trade with the USA more than the USA is hindering trade with China.

    China is also stealing US technology, so there's that.

    While completely free trade is the best, that is not the system we have. We have managed trade. Trump wants America's trade with China to be as open as China's trade with the USA.

    You people crack me up as if Trump is the bad guy here. He campaigned to make trade deals better for America and that is his plan. Are tariffs and such the fix? Most likely not but it got China to talk about the issue.

  • spec24||

    "China actually hinders US imports into China."

    And? So what if China hinders our imports? Let's pretend that China refuses ANY goods from the US into China but sells us cheap goods that we want for pieces of paper that we don't want. Is that bad? I know your argument: without our ability to trade our labor and goods for China's worthless pieces of paper we are worse off. Really? Do tell....

    "China is also stealing US technology.."

    Again I say "and?" First, it's only stealing because there are clowns who think that "intellectual property" is actual property. It's not. There is no theft. Theft involves the removal of someone's access to something because it is a scarce resource. Ideas are not scarce resources. The "theft" that China engages in only leads to cheaper products for consumers. Now, you may believe that patents are all good and that they're necessary. I don't, and there's plenty to be said about it and why patents are bad but that's for another time.

    "While completely free trade is the best, that is not the system we have. We have managed trade."

    Right... and you're advocating for it to be even more managed.

    "You people crack me up as if Trump is the bad guy here. He campaigned to make trade deals better for America and that is his plan. "

    And? Presidents campaign on a lot of things. That doesn't mean they're right or have any idea how to implement those things. Obama claimed Obamacare was going to make things all better for Americans. See how that works?

  • DajjaI||

    "Trade deficits are actually good, and all the kids are doing it," my tobacconist assured me as I swiped my credit card for the purchase of another vial of candy-flavored vape juice. "And don't worry about your credit card debt - this is a sign that you are stimulating the economy. It may seem insurmountable at times, but I have faith that if you work hard like me, you can pay it back some day."

    I have the best tobacconist.

  • spec24||

    Is there a coherent argument in here? The debt has no relation to the trade deficit. Your first "argument" is simply a childish platitude. Your second is a Keynesian claim, not one you're going to find support for here.

  • MichaeI Hihn||

    What a good thing this is capitalist free market America, where one man couldn't possibly have a large effect on 330 million consumers freely pursuing their heart's desire.

    So. How 'bout that grand solar minimum, eh?

    /da bears

  • AustinRoth||

    What I am looking forward to is 15 years from now when the Trump rehabilitation occurs so the press can hate on the latest Republican President. See GWB for the latest example.

  • Tony||

    Bush's rehab is a result of Trump being that much worse. So which pile of spoiled lunchmeat do you suppose Republicans are going to nominate next?

  • Citizen X - #6||

    Tony's getting a head start on the justification.

  • loveconstitution1789||

    Trump is far better than Obama, Boosh II, Clinton, Boosh I, Carter, Ford, Nixon, LBJ, JFK, Truman, FDR, and Wilson which is the main reason that lefties hate...hate...HATE Trump.

    The lefty dummies are trying to prop up W Bush as someone good while simultaneously blaming him for wrecking King Obama's reign as head bureaucrat.

  • Tony||

    Better at what? Being fat and orange?

  • loveconstitution1789||

    You know.... the things you hate so much.

    Nominating originalist justices like Gorsuch, rolling back parts of government, lowering taxes, encouraging or kicking lefties out of government, putting America first, pushing back with China, the EU, Russia, and NK and much much more.

  • Old Mexican - Mostly Harmless||

    Re: AustinRoth,

    What I am looking forward to is 15 years from now when the Trump rehabilitation occurs so the press can hate on the latest Republican President.


    Just as many are still waiting for Hoover's rehabilitation as the great president he was...

  • Cyto||

    Or.... now, don't get too offended by this... or, Trump could be, you know, just blustering and threatening so that he can extract concessions. You know, exactly as it appears he is.

    I understand.. He seems to be such a buffoon that it is really hard to believe that anything he does is actually intentional or has any forethought involved.... but maybe, just maybe he's actually moving the ball down the field using different tactics.

    Kinda like Reagan being just crazy enough to start a war with the Soviets and nuke Moscow.

  • DajjaI||

    Did you see his rally a few days ago? He said something like, "China puts a 25% tariff on our cars. And they don't even want our cars. And they also have trade barriers on our cars." He actually literally thought these are 3 separate things. So yes he's an idiot but still, it actually may work out in our favor. He's like a Mr Magoo - all's well that ends well.

  • John||

    I understand.. He seems to be such a buffoon that it is really hard to believe that anything he does is actually intentional or has any forethought involved.... but maybe, just maybe he's actually moving the ball down the field using different tactics.

    But TRADE WAR!! Trade wars are the worst things ever. The end of civilization. That is why every country in the world will immediately start one if the US even asks for a change in international trade that might benefit the US.

    This is basically the Reason CATO position. But remember it is everyone else who is crazy and economic illiterates not them.

  • Tony||

    They just dogmatically support free trade. It's kind of what they do.

    As you well know there are plenty of other publications in the world who will suck Trump's nuts, so I don't know why you expect libertarians to abandon their principles in order to do the same. It's not like there's any possibility of this presidency ending well for anyone who supports it.

  • John||

    No, they don't stick up for free trade. If they did, they would have a problem with other countries not engaging in it. Instead, they claim that such policies benefit the US by giving us access to more cheap stuff. No shit, that is their position. They don't support free trade. They support cheap consumer goods by any means. There is a difference.

  • loveconstitution1789||

    John, always good on the analysis.

  • spec24||

    What fucking analysis?

  • Headache||

    That's because, if Reason and Cato was located in the EU and/or China, the writers and tinkers would either be fined for hate speech or put in jail.

  • spec24||

    Do any of you actually have an argument or do you simply let shit drip from your fingertips onto the screen. "Dogmatically support free trade," "They support cheap consumer goods," "BUT TRADE WARS!" You guys sound about as stupid as anyone on the internet can be. You don't make arguments, you simply hurl insults disguised as arguments.

  • chemjeff radical individualist||

    99th Dimensional Interstellar Underwater Chess!!!!!

  • John||

    Economic illiteracy is claiming that you get rich by buying things. Unless you then add value to those things, buying things is an expression of wealth not a creator of wealth. And borrowing money to buy things is a depletion of wealth.

    You are only as wealthy as the total amount of goods and services your economy produces. Access to cheap consumer goods doesn't make you wealthier. It at most makes the wealth you have go farther but it doesn't make you wealthier. So, treating access to cheap consumer goods as some kind of ultimate end to economic policy that trumps all other concerns is just nonsense.

    If you want to claim that access to cheap consumer goods is an overarching value because people should be free to buy what they want, fine. Freedom is a perfectly fine value to base economic policy on. But it is not the only value. And access to cheap consumer goods no guarantee of wealth. To claim otherwise is pure economic nonsense.

  • MichaeI Hihn||

    Nicely put.

  • Old Mexican - Mostly Harmless||

    Re: John,

    Economic illiteracy is claiming that you get rich by buying things.


    You get rich by not subsidizing lazy and unionized white American Workers© who insist with sticking with Buggy Whip industries.

    Freedom is a perfectly fine value to base economic policy on. But it is not the only value.


    It IS the only value. All other values you can think of stem from freedom. You just want to engage in jingoistic moralizing by shoehorning patriotism in as a "value".

  • John||

    Go away you racist fuck. Seriously, take your LaRaza bullshit and go away. Why do you not live in Mexico? 90% of your posts involve how superior you think Mexicans are to Americans.

  • Headache||

    You get rich by not subsidizing lazy and unionized white American Workers© who insist with sticking with Buggy Whip industries

    The bigot types.

    Mean while Democrats still protect labor unions.

  • Iheartskeet||

    Actually, economic illiteracy is believing that the amount of trade that crosses a border is a measure of its overall impact to an economy or value to the buyers and sellers. Or supposing that you know better than the trade participants what they should buy, and how much, and whats in their long-term interest. Because you don't, and can't. Just like you can't for the non-trade parts of our economy.

    If not freedom, then what other value are we to base an economy on ? I have a hunch it involves you having a certain, shall we say, omniscience, on economic decision making that is underserved.

  • spec24||

    "Economic illiteracy is claiming that you get rich by buying things."

    Economic illiteracy is what you've just written.

    This is one of the single stupidest claims I've ever read by someone who claims to be talking economics. "Buying things" is simply trade. If you understand that trade makes people wealthier then you wouldn't have the audacity to make such a stupid statement. The pig farmer who trades his pig for some chickens is richer because now he has pigs and chickens. Money is simply a tool to facilitate tat trade without having to lug things like pigs around. So, indeed, "buying things" does in fact make us richer. That's because trade is NOT A ZERO SUM GAME!!!! We trade dollars because we value those dollars less than we value what we are getting in exchange. This is such a basic economic principle I think you better go back and study a little more before you come on here and make these retarded arguments.

    "You are only as wealthy as the total amount of goods and services your economy produces."

    This is patently false. Ask all the poor in China how wealthy they are compared to the total amount of goods and services their country produces. I mean, this is basic shit and you sound like you've never given economics more than a passing thought.

  • spec24||

    ...cont

    "Access to cheap consumer goods doesn't make you wealthier."

    Actually, it does. Of course, you haven't defined wealth in any way shape or form but from you vapid rant I can conclude that you think having pieces of paper with green ink on them makes you wealthy. It is true that as long as you can exchange those pieces of paper for consumer goods you are wealthy. If you can't, well, you're just not wealthy. So, brainiac, wealth and consumer goods do in fact have a relationship.

    "It at most makes the wealth you have go farther but it doesn't make you wealthier."

    Wow. You just argued out of your own premise. So access to cheap consumer goods makes your wealth go farther... in other words, makes you wealthier... but it doesn't make you wealthier. HAHAHAHAHAHAHA!!!!! This would be frightening if it weren't so funny. You do understand that making your wealth go farther means increases your wealth, right? I'd really love to know how you define wealth... it would certainly be worth a laugh.

    "To claim otherwise is pure economic nonsense."

    No, you are complete economic nonsense. You don't seem to have the foggiest grasp of economics.

  • MikeP2||

    "This basic dynamic of macro-economics seems lost on the current occupant of the White House"

    Why do we care how much Trump understands about this? This is what he hired economists to do and figure out based on the administrations policy directions.
    Trump's tweets and speeches aren't policy. They are politics. Levers to manipulate the masses, like everyone politicians have been during since forever.

    Perhaps we should be asking questions like....
    How much of the NAFTA talk was simple negotiation?
    How much of the China tariff implementation was to force China to bring NK to the table? Has no one noticed the nice timeline of tariffs...then lil kim goes to China...then presumptive peace with SK?
    Perhaps it isn't just 'economics'.

  • Ken Shultz||

    Every Reason staff member should pick a side of this topic and stick with it. Those who think that Trump is dead serious but stupid on trade, on one side, and those who think he's just demagoguing, on the other.

    We shouldn't let anyone get away with playing both sides.

    Personally, I think Trump's central guiding idea is that the United States is in a better bargaining position than the terms of the trade agreements we're in allow. I know that trade restrictions hurt ourselves, and I don't like seeing trade policy used in a game of brinkmanship. I think it's reckless.

    But just because I don't like it:

    1) Doesn't mean it won't work to get us better trade deals.
    2) Doesn't mean that isn't what Trump is trying to do.
    3) Doesn't mean Trump is stupid.

  • loveconstitution1789||

    TDS is hard for some people to use the reasoning parts of their brain.

    Its why they do the things you mentioned.

    If only journalists went to writing pieces that addressed both the good and bad of an issue, so the reader could decide.

  • Old Mexican - Mostly Harmless||

    Re: Ken Shultz,

    We shouldn't let anyone get away with playing both sides.


    The implication being that stupid and economically-ignorant assholes can't demagogue?

  • Ken Shultz||

    He's either pretending to be ignorant to sell himself to swing voters in swing states (which is smart if it got him elected) or he's a real ignoramus.

    Those are mutually exclusive alternative explanations for what we see.

  • Old Mexican - Mostly Harmless||

    Trump's Economic Illiteracy Has Deep Roots


    Deep roots in a shallow mind.

  • Azathoth!!||

    It's like you don't understand the situation at all.

    The problem, for America, is access.

    We don't get the same access to their consumers that they get to ours.

    We aren't allowed to buy real estate there at the same levels they can here.

    They put strictures on us that we are excoriated for deploring.

    FREE trade is the goal. If they won't give us access, then they can pay for access to us.

    Want tariffs to go away? Adopt FREE trade. Stop closing your markets to us.

  • Headache||

    A US citizen can not own property in Mexico.

  • mchughjj||

    Could we somehow send Donald Trump and Bernie Sanders to an involuntary Macroeconomics 101 class? Then again, I fear it would do know good. Trump has made good play about China and Mexico stealing our jobs, and Sanders has made good pseudo-Marxist play about the 1%ers (lacking only the bourgeois term). 'Populist' sentiment rules the day, and we're going to have to ride it out.

    Somebody, and I don't know who, will have to charismatic enough to make the case that America can only protect its high standard of living by out-competing!

  • retiredfire||

    How about we send Eric to reading comprehension class.
    The quote from 1990 was in reference to us paying $150 billion for these county's military defense while they take advantage of us, not because that figure represents a trade deficit.
    And Trump was right, then, too.
    Try again, Eric.

  • Middleman||

    ERIC! Trump won on bringing back jobs:

    "Much of Trump's rise has been based on angry blue collar voters who have seen their JOBS & wages eroded by decades of globalization." - domestic and foreign! "What people want to see is their standard of living get better, and that has to be the focus." And that's what too much immigration erodes.
    http://www.politico

    Hillary lost on DACA!

  • Headache||

    Eric is a limousine libertarian.

  • Tony||

    Yeah his voters are racist idiots.

    He didn't win the votes of poor people. His voters were wealthier than Hillary's. His support did not come from people struggling in the economy, but from people afraid of struggling in the economy. People easily manipulated by charlatans selling fear. And what better object of fear than the old standby, brown people?

  • Middleman||

    ERIC! Trump won on bringing back jobs:

    "Much of Trump's rise has been based on angry blue collar voters who have seen their JOBS & wages eroded by decades of globalization." - domestic and foreign! "What people want to see is their standard of living get better, and that has to be the focus." And that's what too much immigration erodes.
    http://www.politico

    Hillary lost on DACA!

  • Headache||

    Even old Mexicans would not tolerate Chinese wages.

  • Headache||

    It certainly seems Soros made a grand contribution to Cato and Reason.

  • uunderstand||

    This basic dynamic of macro-economics seems lost on the current occupant of the White House.

    He is in a very large group. The basics of economics is lost on most Americans. Maybe not 99%, but somewhere in the 85-90% range, I'm sure.

  • Azathoth!!||

    I'd say the basic single economic law--everyone wants the best from every transaction-- is lost on far too many of the people that call themselves 'economists'.

    The field is heavily infected with leftism and is rampant with whole hierarchies of theorizing based on economic ideas that are fundamentally unworkable.

    This entire meltdown over tariffs is based in deliberately ignoring the premise in favor of hyperventilation.

  • AD-RtR/OS!||

    Bottom line, this "economic illiterate" is a Multi-Millionaire/Billionaire (you choose) which can't be said of most economists who determine "economic literacy".

  • vek||

    The thing you geniuses miss is that WHO OWNS THE ASSETS we're selling to finance current consumption MATTERS. It's akin to taking out a home equity line against your houses equity every year to pay for your current consumption. Sure you might LIKE the jet ski, and the new clothes a lot... And technically you have the assets in the form of equity in your house to buy the stuff... But is it a good long term fiscal decision to sell off all the equity in your home to buy toys now?

    Obviously not. Those Manhattan sky scrapers are generating tons of income for their foreign owners. That income either gets sent back overseas, OR they buy still more income producing assets in the USA. You can borrow against your net worth for awhile... But sooner or later you run out of equity to borrow against! When that happens, and you're still over spending, you enter what is commonly referred to as "bankruptcy."

    We have a lot of assets, which is how we've sustained the trade deficit for so long. We're also the world reserve currency for now... But it's still got to come to an end sooner or later, as it cannot be sustained indefinitely.

  • Barry Gold||

    Having a trade deficit with one other country isn't a problem. I have a "trade deficit" with my local grocery stores: I buy a whole lot of their goods, and they don't buy anything from me. Just take my money. But that's okay, because my income exceeds my expenditures.

    "Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

    But having a trade deficit with the whole world _is_ a problem. That means the collective "we" are spending money faster than we are bringing it in. If this were a family, it would be easily recognizable: we are spending our capital, and sooner or later we will run out.

    I guess it's a self-correcting problem: when we run out of money to spend (and ability to borrow), we'll have to get by on what we have. It's not going to be much fun, though.

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