Here’s a letter to a long-time Facebook friend.
Mr. Sam Grove
Sam:
Commenting on Facebook you write that “Trump’s take on trade deficits is that of a businessman thinking of ledger of his business accounting. In that case, a deficit means something’s missing. That’s where his thinking abides.”
Exactly correct. Trump is bewitched by an old mercantilist superstition, namely, that the purpose of good trade policy is to maximize the excess of exports over imports. This superstition has been debunk by economists countless times.
But Trump takes this superstition to a new and even more wildly illogical level, one that no sane business person would ever do. While every business person strives to have his or her firm’s total sales exceed that firm’s total costs, no business person – not even Trump – runs his or her business with the goal of having ‘balanced’ trade with every other firm with which it deals. G.M., for example, would immediately bankrupt itself if it announced that, from here on in, it will buy supplies only from other firms each of which commits to buy from G.M. as much as G.M. buys from it.Consistency with this outlandish business model would also have G.M. employ only those workers who agree to spend their entire salaries buying G.M. automobiles.
Obviously, no business could survive by pursuing ‘balanced’ trade with every economic entity with which it deals. Yet by attempting to arrange for the U.S. to have ‘balanced’ trade with each and every other country with which Americans deal, such a policy is the one that this allegedly skilled businessman is imposing on Americans. It’s nuts.
Sincerely,
Don
