Deficient Trump

by Don Boudreaux on February 27, 2018

in Balance of Payments, Myths and Fallacies, Trade

Here’s a letter to the Wall Street Journal:

Walter Russell Mead rightly proclaims that “protectionism remains a dangerous drug” (“Don’t Misjudge Trump’s Trade Tirade,” Feb. 27).  Yet by implicitly granting the correctness of what in fact is an essential error in Mr. Trump’s economics, Mr. Mead inadvertently promotes overdosing on this dangerous drug.

As he did in the CPAC speech to which Mr. Mead refers, Mr. Trump repeatedly insists that America’s trade deficit with China is evidence of Beijing’s nefariousness combined with official Washington’s spinelessness.  Yet what really is on display here is Mr. Trump’s cluelessness.

First, in a world of more than two countries, any bilateral trade deficit or surplus is as absolutely and indisputably meaningless as is, say, my trade deficit with my grocer and my grocer’s trade surplus with me.  The Wall Street Journal should not be party to allowing talk of such “deficits” or “surpluses” to pass as if such gibberish makes economic sense.

Second, while the U.S. has for decades consistently run trade deficits with the rest of the world, China has, since its 2001 entry into the WTO, overwhelmingly run trade surpluses with the rest of the world – a reality that means exactly the opposite of what Mr. Trump believes it to mean.  What this reality in fact means is that the U.S. continues on net to attract global investment funds while China generally is a net loser of global investment funds.  It’s bizarre that Mr. Trump interprets this reality as evidence of America ‘losing’ and China ‘winning.’  And it’s even more bizarre that this man who brags about his business acumen thinks that a net inflow of global investment funds to the U.S. weakens our economy while a net outflow of global investment funds strengthens the Chinese economy.

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


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