Here’s a letter to the Wall Street Journal (links added):
You report that Pres.-elect Trump tweeted the following threat: “Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax” (“Trump Says ‘No Way’ to Toyota Plant in Mexico,” Jan. 6).
Well now. This is the same Mr. Trump whose campaign website proclaims that part of his “vision” is to “reduce America’s trade deficit” and who, upon announcing the nomination of Peter Navarro to lead the new White House National Trade Council, promised that Mr. Navarro will work to “shrink our trade deficit.” Yet now Mr. Trump demands actions from Toyota that will cause America’s trade deficit to increase (or, at the very least, at least not to decrease*) – for more foreign investment in America, such as Mr. Trump here demands from Toyota, always puts upward pressure on America’s trade deficit.
Even if Mr. Trump is correct (contrary to the understanding of knowledgeable economists) that trade deficits are necessarily harmful, his demand that Toyota increase its investments in America – and his obvious unawareness that such investments increase America’s trade deficit – prove that the president-elect is scarily misinformed about even the most basic principles of trade.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
Trump’s economic ignorance is truly vast. Indeed, given that he so boisterously believes that trade deficits are harmful to countries that run them, and believes also that Mexico has managed to prosper over the past few decades at the expense of Americans, he should not only not want Toyota to invest more in America (given that such investment in America would put upward pressure on America’s trade deficit), he should be positively gleeful that Toyota plans to invest in Mexico (given that such investment in Mexico would raise that country’s trade deficit)!
* Yes, yes, yes: it’s possible (if not especially plausible) that every dollar that Toyota would spend to build the factory in America would be a dollar transferred out of some other foreign investment in America, with the result being no net increase in America’s trade deficit. But (1) there is zero reason to believe that such a condition is one that Trump either demands of Toyota or assumes will be the case in reality, and (2) even if such a condition happened to hold in reality, it would run counter to Trump’s promise to reduce America’s trade deficit.