Trump is misinformed when he claims that the U.S. trade deficit is a sign that everyone is taking advantage of us. The reality is much more exciting, as it signals that the country is an attractive destination for foreign investors looking to make a profit. To the president’s credit, his tax-reform and deregulatory efforts, and the resulting booming economy, have made the U.S. market even more appealing. These positive developments likely shifted foreign-owned dollars away from buying U.S. exports (especially when their prices have gone up due to retaliatory tariffs and a stronger dollar) and toward investments in the United States. Meanwhile, richer consumers can afford more expensive foreign imports. Et voila. You get more growth but also a larger trade deficit.
Yet for all the Sturm und Drang of his trade policy, the president is likely to end up being terribly disappointed by the results of his efforts. He wants to reduce the trade deficit, create new manufacturing jobs, enhance national economic security, and force China to change its policies. He is unlikely to achieve any of these objectives. In the end, his policies will likely be an exercise in frustration. Unfortunately, there could be a lot of collateral damage done along the way.
The fundamental benefits of free trade remain, even if they escape the comprehension of the president and some of his advisers. Trade allows countries to concentrate their effort and production on goods and services for which they have comparative advantage, either because of underlying endowments or because of scale benefits from products in which they have chosen to specialize. It isn’t a zero-sum game. Greater international trade benefits the whole world.
George Will ponders Oregon’s Portland. A slice:
The bacillus of past stupidities lurks dormant but not dead in the social soil everywhere, ready to infect fresh fanaticisms when they come along, as they invariably do.