I can’t believe I’m doing this, and yeah stop the presses, Trump is ignorant about something. But something stood out to me from today’s NYT transcript of David E. Sanger and Maggie Haberman’s… conversation with the Republican presidential nominee.
The headlines were rightly grabbed by Trump’s apparent willingness to violate the U.S.A.’s treaty obligations to the Baltic states. But what stood out to me were his silly statements on trade deficits. What bothered me is less that he characterizes a “trade deficit” as a self-evidently Bad Thing, which he does and I wish he wouldn’t, but that the NYT’s correspondents went along with the characterization.
They challenged him, yes, but kept the implication that trade deficits are indeed bad. Their pushback was that trade deficits are somehow the price the U.S.A. pays for keeping peace around the world? I don’t quite get that. So while I appreciate that we are probably not going to change the general public perception that trade deficits are a Bad Thing any time soon, I think it’s important that we at least try to expose Trump’s policy charlatanism as clearly as we can.
Anyway, here’s what that person who will contest the U.S. presidential election(!) said.
We have massive trade deficits. I could see that, if instead of having a trade deficit worldwide of $800 billion, we had a trade positive of $100 billion, $200 billion, $800 billion.
OK, so first of all, the opposite of a trade deficit is a trade surplus, not a trade positive. That is some high grade Orwellian doubleplusungood nonsense. So bravo I guess for some rhetorical sleight of hand to quickly imply that deficits are simply the opposite of something that is defined as good.
We’re spending money, and if you’re talking about trade, we’re losing a tremendous amount of money, according to many stats, $800 billion a year on trade. So we are spending a fortune on military in order to lose $800 billion.
This is hot garbage. “Lose”? These are the words of a person who has no idea how any of this works. A trade deficits means more imports than exports. Imports are stuff. I love stuff! A country does not “win” if it exports more than it imports. The use of the words “lose” and “win” don’t even make any sense here.
Milton Friedman said this in 1978:
The gain from foreign trade is what we import. What we export is the cost of getting those imports. And the proper objective for a nation, as Adam Smith put it, is to arrange things so we get as large a volume of imports as possible for as small a volume of exports as possible.
We need foreign currency to buy foreign stuff. Foreigners need dollars to buy U.S. exports. So all else being equal one may expect a trade deficit to mean a weaker U.S. dollar. But the U.S. is in a nice, privileged position, in that the U.S. is considered a stable and attractive destination for foreign investment, for example in U.S. Treasury Bills, and investment in U.S. firms. So there is a big demand for dollars in that way, and so the dollar doesn’t get weakened that much. The U.S. gets to have its cake and eat it too. Cool!
This, incidentally, is a factor that also works to keep borrowing costs low for the U.S. government. It is worth noting that earlier in this chaotic Trump campaign, the candidate implied that he would be quite willing to default on U.S. debt. That is one way in which this nice story I’ve just told about the U.S. getting a bunch of cool imports and being attractive to foreign investors could be undermined by ignorant policy. The attractiveness of the U.S. to foreign investors is a crucial part of the story.
For some further reading, here is another simplified explanation of why trade deficits are more Just A Thing than an Inherently Bad Thing.
My reading of this issue with this candidate, and maybe I’m wrong but this is my best guess, is that at least in this case he’s not engaging in the typical misleading or oversimplifying, but genuinely does not have the first idea how macroeconomic policy works. I think he genuinely believes that the trade balance of a country is equivalent to the balance sheet of a firm. That exports are equivalent to expenses and imports are equivalent to receipts.
Not only is Trump, as Ken Burns argues, perhaps the least qualified person ever to be a major party nominee for U.S. President, even those ways in which he is purported to be qualified—his alleged business acumen—are somewhere between nonexistent and actively harmful.