Here’s another letter to White House trade alchemist Peter Navarro – an economist seemingly innocent not only of any understanding of economics, but also of the rules of logic and of the most basic of facts.
During your CNBC interview this morning you justified the Trump administration’s imposition of punitive taxes on American purchasers of imports by repeating the assertion that the U.S. trade deficit is being driven upward by foreigners “buying up our assets.” I’ve a series of questions for you.
(1) Do foreign purchasers of assets from Americans force Americans to sell these assets? If not, why do you assume that such purchases are harmful to Americans? And do you believe that, if Trump’s effort to reduce the U.S. trade deficit succeeds, the resulting reduced foreign demand for assets currently owned by Americans will somehow not reduce the value of Americans’ asset holdings? Can you name any other goods or services whose prices will not fall if government succeeds in artificially reducing the demand for them?
(2) You repeatedly implied that assets own by Americans are “our assets” – as in, ours collectively. You spoke of “American factories” and “American real estate.” Do you therefore believe that the assets that you, personally, own belong not to you but to “America” or to ‘us’? If you believe that your assets really belong to “America” or to ‘us’ rather than to you personally, do you therefore embrace the label “socialist”? (For that is exactly what you are if you hold such a belief.) If, in contrast, you believe that your assets belong to you rather than to “America” or to ‘us,’ can you tell me what right “America” – in the form of some set of U.S. government officials – has to so object to your freedom to sell your assets to foreigners that it should shrink the size of the market for your assets by artificially reducing foreigners’ demand for your assets?
(3) Do you believe that the amount of capital in the world or in the U.S. is fixed? If so, how do you explain the past 200 years of economic growth? If not, why do you care if foreigners buy from Americans some assets given that Americans might well use the proceeds from these sales to create other, more valuable assets – assets that they would be unable to create absent these sales?
(4) Are you aware that inflation-adjusted private nonresidential fixed investment in the U.S. has since the U.S. began running annual trade deficits rather steadily increased, thus increasing the U.S. capital stock and, with it, worker productivity? And did you know that, while the U.S. population is today 48 percent higher than it was in 1977 (when the current U.S. run of annual trade deficits began), real U.S. household and nonprofit net worth is today 255 percent higher than it was in 1977?* If you’re aware of these facts, how do you defend your insistence that a steady run of annual U.S. trade deficits transfers asset ownership from Americans to non-Americans? If you’re unaware of these facts, what business have you making public pronouncements about trade policy?
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
* See these data. The data at this link are, I think, in nominal dollars. So I adjusted the fourth-quarter 1977 net-worth dollar figure at this link to 2017 dollars in order to come up with the calculation in the letter. (In Q4 1977, total net worth was, in 2017 dollars, $27,850.98; in Q4 2017 it was $98,745.54.)