Here’s a note to a Facebook friend.
Mr. Kartik Chandrasekhar
Kartik:
Thanks for noting, on my Facebook page, that someone put the following challenge to you: “What would be great is if you would actually take the time to study what Trump himself has to say about Tariffs, and how he uses them, rather than immediately defaulting to criticizing him, and doing so publicly.”
I get this same challenge routinely. I respond by saying that it’s precisely because I’ve actually studied what Trump himself says about tariffs that I’m confident that he doesn’t know what he’s talking about.
Although Trump offers several different, often inconsistent, rationales for tariffs, by far the rationale he offers most frequently is that tariffs are a tool to eliminate U.S. trade deficits with individual countries. Importantly, this rationale is the one that was given for the “Liberation Day” tariffs. As reported by the New York Times, a senior administration official said that those tariffs are “based on the concept that the trade deficit that we have with any given country is the sum of all the unfair trade practices and ‘cheating’ that country has done.” This NYT summary is fully consistent with Trump’s long-standing assertions about trade and trade deficits.
No more about Trump’s trade policy needs to be discovered in order to conclude that it’s a Niagara of economic nonsense.
First, the only “US. trade deficit” that has any economic meaning at all is the U.S. trade deficit with the rest of the world. A U.S. trade deficit with an individual country or region – for example, the U.S. trade deficit with Canada or with Europe – has no more economic significance than does Donald Trump’s trade deficit with his dentist. In a world of more than two economic entities – two people, two countries, two regions, two planets, two whatever – there is absolutely no reason to suppose that any pair of entities will have trade with each other that’s ‘balanced.’
Second, U.S. trade deficits with the rest of the world are not – again contrary to Trump’s uninformed belief – a sign of U.S. decline or of foreign ‘cheating.’ These deficits are instead evidence of the continued unusual attractiveness of the U.S. economy as a destination for global investment – investment that further strengthens America’s economy. Rather than join with Trump in bemoaning U.S. trade deficits, we Americans should be proud of these ‘deficits.’
The fact that Trump finds meaning in bilateral trade deficits, along with the related fact that he’s blind to the cause of U.S. trade deficits with the rest of the world, is sufficient reason to criticize – fervently – Trumpian protectionism. To continue to suppose that some subtle yet ingenious design lies at the heart of Trump’s trade policies is akin to supposing that some subtle yet ingenious design lies at the heart of the advice of a financial counsellor whose chief recommendation for securing your retirement savings is to feed those savings into a Vegas slot-machine.
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
