Donald Trump speaks of trade deficits as if they are the equivalent of budget deficits. That’s about as silly as someone who thinks salad dressing should only be stored in dressing rooms. The words are the same, yes, but the meaning is different enough that no one really needs to worry about spilling Thousand Island on their Hamlet tights.
When the government has a budget deficit, they have a shortfall between the amount of money they spend and the amount of money they take in. We buy, say, two or three trillion dollars worth of stuff, but we don’t have enough cash to cover that extra $500 billion or so. So we stick the rest on the credit card and hope that the bill arrives in the mail when the American people aren’t looking.
A trade deficit, however, is the difference between the amount of stuff we buy as opposed to the amount of stuff we sell. So if someone sells you their old comic book collection for fifty bucks, you have just racked up a staggering $50 trade deficit with them.
But that really doesn't matter. You don’t owe them, anything; you’ve already paid them. And you’re okay with the arrangement, because you decided that you wanted those dog-eared comics more than you wanted the fifty bucks. And thus, through the magic of capitalism, both parties walked away happy.
During the 2016 campaign, Donald Trump, ostensibly a savvy capitalist himself, proved that when it comes to this fundamental tenet of economics, he doesn’t know salad dressing from comic books. Speaking to a rally of true believers, then-Candidate Trump mocked the people who were worried that his proposed tariffs and taxes would start a trade war.
“Trade war?!” he sniffed, the extra exclamation point dripping from his scowling smirk. “We’re losing $500 billion in trade with China. Who… cares if there’s a trade war?!”
Kindly consider the depth of ignorance found in Trump’s statement. We’re “losing” $500 billion in trade with China. So when we trade with China, we hand them $500 billion, and they hand us… nothing, apparently, because that money is lost. LOST! We’re losing it. So who cares about a trade war?
Of course, that money is not lost. We handed them half a trillion bucks and they handed us all kinds of stuff – shoes and umbrellas and refrigerators and iPhones and Trump-brand neckties, all made in China. (Yes, before he inflicted himself on the American electorate, Trump was making America great again by relying on cheap Chinese labor.)
That $500 billion isn’t “lost.” It’s been traded.
And it wouldn’t have been traded if we didn’t prefer having iPhones to having the money we paid for them. And very often, we resell that stuff at a profit, which means we’re wealthier than we were before the trade took place.
In his inaugural speech, Trump got most passionate as he was describing “American carnage” caused by the horrors of other countries “making our products.” No more, he said. It’s time to rebuild the “rusted-out factories scattered like tombstones across the landscape of our nation.” It’s going to be “America First.” Two rules: “Buy American and Hire American.” And that, my friends, is how we’re going to make America great again.
Or, at the very least, make America as great as North Korea.
North Korea, you see, has a philosophy called “Juche!” It’s a word that roughly translates into “self-reliance,” but in practical terms, it means that North Korea follows two simple rules: Buy North Korean and Hire North Korean. International trade is considered a betrayal of the Hermit Kingdom’s revolutionary principles.
And the result? Widespread poverty, massive repression, and famines so bad that vast swaths of populace have had to survive by eating grass.
Trade is good. It creates wealth. And, like it or not, we live in a global economy. Pretending we don’t won’t return us to the 1920s, when we didn’t. Back then, the now-rusted-out factories were rust-free and churning out Model Ts built by 100% American labor. But now Ford can churn out sedans and SUVs that are exponentially more sophisticated than the Model T, and they can do it with a tiny fraction of the labor force. Why? Automation. Those assembly line jobs have been made obsolete by technology, and, Trump’s populist, protectionist rhetoric aside, they’re not coming back.
Markets are efficient. If labor is going overseas, it’s because the market has found a more efficient use of capital. If government jumps in and tries to stop it, it’s a bit like tearing up all the modern car-building machinery and forcing Toyota to make all its Priuses by hand, complete with hordes of seamstresses sewing up the leather seats. Will that create jobs? Well, yes, but it will also destroy other jobs, destroy a great deal of wealth, and ultimately make Toyota so non-competitive that they’ll go out of business, thereby destroying the short-term Prius-leather-seat-sewing jobs that made Trump look like a hero when he created them.
The party of Reagan was a party of free markets and free trade. Those are the principles that deserve support, and they’re principles that aren’t welcome in the party of Trump.