Here’s a letter to The Epoch Times.
Editor:
Attempting to find economic coherence in President Trump’s “Liberation Day” tariffs, Christopher Balding argues that the foundational justification for these tariffs is the president’s alleged wish to decouple the U.S economy from China’s economy and his desire to secure this decoupling by preventing China from transshipping goods to the U.S. through other countries (“Creating Two Trade Spheres in the World,” June 8).
Putting aside questions of the desirability or feasibility of such a decoupling, Mr. Balding’s attempt to make sense of these tariffs fails. The April 2nd Executive Order that details these tariffs and describes the supposed “national emergency” that justifies them is clear that these tariffs are motivated by Mr. Trump’s belief that any so-called “goods trade deficit” that the U.S. runs with any individual country is itself, and by its very nature, an economic problem for the U.S. The fact that this belief is economically ludicrous is here beside the point. There is nothing in that Executive Order to warrant Mr. Balding’s conclusion that each of the many foreign countries with which Americans trade (as Mr. Balding writes) “can continue to run a trade surplus with the United States or a trade deficit with China, but not both at the same time.”
If the Executive Order is to be believed, Trump wants Americans to export to each country at least as many goods as Americans import from each country. Full stop.
Moreover, even if the administration secretly intends only to prevent transshipment of Chinese goods through other countries, these other countries’ bilateral trade balances with the U.S. and China are useless indicators of whether or not the tariffs are achieving this goal. China could transship goods to the U.S. through, say, Vietnam with Vietnam nevertheless running a trade surplus simultaneously with the U.S. and with China. In our world of multiple countries, Vietnam can, for example, easily sell more to China than it buys from China, export to the U.S. some (or all) of what it bought from China, buy few or no U.S. exports, and either invest a large chunk of its export earnings in the U.S. or elsewhere, or spend those export earnings buying imports from a third country (say, Sweden).
Given the vast amount of economic misinformation now on the loose, this point cannot be said too often: In our real world of many countries, bilateral trade ‘balances’ – which feature prominently in the “Liberation Day” Executive Order – are economically meaningless. And they are rendered even more meaningless, if that is possible, both by being confined to goods, and by the fact that international commerce includes not only exporting and importing but also investing. Bilateral trade balances are meaningless as used in the “Liberation Day” Executive Order, and they are meaningless in Mr. Balding’s futile attempt to find a sensible rationale for that Order.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
