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More Trump Trade Inconsistency

Here’s a letter to the Washington Post:


Pres. Trump, wishing to punish the Chinese for the covid-19 pandemic, is “demanding billions in compensation” from them (“U.S. officials crafting retaliatory actions against China over coronavirus as President Trump fumes,” May 1.) Whether or not such punishment is justified, I can’t help but laugh at the hilarious inconsistency in Trump’s policy positions.

Having long complained that we Americans are harmed by the Chinese selling to us goods at prices allegedly too low, Trump now demands either that the Chinese hand over to us goods for free or that they liquidate their investments in America. Of course, being profoundly ignorant of trade, Trump is unaware of the nature of his demand.

For the Chinese to pay Americans “billions in compensation” the Chinese need billions of U.S. dollars. One way to get these dollars is for the Chinese to export billions-worth more goods, accept payment in dollars, and then turn these dollars back over to Americans – meaning that we would thereby get billions of dollars worth of imports for free.

The only other path available for the Chinese to get the billions of dollars needed to pay the damages that Trump seeks is for them to liquidate billions of dollars of their investments in dollar-denominated assets. Not only were these investments made possible by earlier Chinese exports – exports that Trump routinely declares to have harmed Americans – their liquidation would, as a practical matter, further lower the value of stocks and other assets in America and drive up interest rates. Punishing the Chinese in this way would thus also damage Americans.

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


The deeper point of the above letter is that the only way that any entity – a person, a company, a country – can meaningfully pay another entity is by supplying that other entity with real goods or services valued by that other entity.

If Americans had never enjoyed increased imports because of Chinese exports – imports from the Chinese directly or from other countries indirectly as a result of Chinese exports to those other countries – the Chinese could never have invested in dollar-denominated assets. Having no dollar-denominated assets to liquidate, the Chinese today – to pay the punitive billions demanded by Trump – would thus have to increase their exports by this amount (either directly to Americans or indirectly to Americans via other countries increasing their exports directly to America).

And so any demand by Trump (or anyone else) that China ‘pay’ Americans for its role in spreading covid-19 boils down to an acceptance of the reality that imported real goods and services are actually good. Although those who accept this reality might be unaware of their acceptance of it, the fact remains that for the Chinese, ultimately, to pay us Americans anything requires either that they arrange for us today to import more goods and services or that they had arranged for us in the past to have imported at least an equivalent value of goods and services.