Unlike my colleague Tyler Cowen, I pay too little attention to the details of foreign affairs and policy to comment competently on Donald Trump’s recent criticisms of NATO. But I can comment competently on Trump’s assertions about trade, which of course are many. Watching PBS Newshour last evening, I was struck by this remark, given by PBS reporter John Yang, during a report titled “Why is Trump criticizing key allies to U.S. security?“:
Mr. Trump also said he’s indifferent about the European Union’s future in the wake of Britain’s vote to leave it: “Personally, I don’t think it matters much for the United States. Look, the E.U. was formed, partially, to beat the United States on trade, so I don’t really care whether it’s separate or together.”
Read again Trump’s words: “to beat the United States on trade.” These words – which are consistent with nearly every statement, speech, comment, remark, and tweet that Trump offers on trade – capture quite fully and accurately Trump’s understanding of trade. That understanding is complete misunderstanding.
Trump obviously believes that it makes sense to talk of ‘beating’ someone at trade. Yet it makes no sense at all.
You have a bunch of pears. I have some bags of peanuts. You offer to give me some of your pears in exchange for some of my bags of peanuts. I can accept or reject your offer. If I accept, then we trade. You gain; I gain. We both gain. No one “beat” the other. Voluntary trade is positive-sum.
It’s true that my gain (here, in the form of subjective utility) might be larger than your gain (also in the form of subjective utility). It’s also true that had Jones been nearby, also with bags of peanuts and in search of some pears, you might have been able to strike a better bargain for my peanuts. That is, you might have been able to get the same number of my bags of peanuts in exchange for fewer of your pears (or get even more of my bags of peanuts in exchange for the same number of your pears). In this case, your gain from this exchange is greater than it would be if peanut-selling Jones were not in competition with me for your business. But in each case, both you and I gain. No one gets “beat.” Each of us, to use Trumpian language, is “a winner.”
The bottom line is that the very fact that Trump thinks of trade as a contest in which someone gets “beat” is proof as solid as proof in such matters gets that Trump doesn’t understand trade. That Trump sees trade as a contest with winners and losers is the mistaken businessperson’s view of trade. This distorted view emerges, as Steve Horwitz recently explained, from drawing a false equivalence between a particular business competing against other businesses for consumer patronage, and a society of individuals each voluntarily choosing to accept or to reject offers to buy and to sell.
It cannot be said too often: an economy is not a business. A country is not a business. And ‘countries’ trading with each other are not involved in a contest to see which ones win and which ones lose. (I put ‘countries’ in scare-quote-marks to indicate that countries do not trade; only individuals trade.)
Now someone intent on excusing this and Trump’s many other harebrained expressions about trade might reply: ‘Perhaps Trump has in mind precisely the point above about gaining more rather than less from trade. That is, what Trump means by “beat” is that we Americans don’t get as many gains from trade as we could otherwise get. He wants us to gain even more from our trades with non-Americans.’ To which I would respond: Well, then, Trump is going about matters bassackwards.
For us Americans to gain more from trading with non-Americas requires that we give up fewer exports for any given amount of imports (or, what is really the same thing, get more imports for the same amount of exports). But everything that Trump and his trade triumvirate say about trade reveals beyond the shadow of any doubt that they all have an unreconstructed mercantilist view of trade. For them, imports are a cost (not a benefit) and exports are a benefit (not a cost).
Such a belief about trade as Trump & Co. profess is the economic equivalent of the cosmological belief that the earth really is flat and is orbited by a chunk of cheese.
The fact that the next president of the United States has such a wrong-headed, economically ignorant – indeed, completely backwards – understanding of trade is both distressing and frightening.