Trump’s Anti-Trade Nativism

Trump’s Anti-Trade Nativism

I have mostly left the defense of free trade to others, such as Don Boudreaux. But the president’s latest statement is too egregious even for me to ignore. He posted: “If we stopped Trading with every country that we have a Deficit with, which is most of them, we would make, at least, 1.5 Trillion Dollars a year. The word ‘Deficit’ is nothing more than a fancy word for LOSS. We are ‘carrying’ almost every country in the World, and that cannot go on any longer.”

To put it kindly, this is one of the dumbest statements I have ever seen. It is almost inconceivable that a president of the United States believes it. Has Chauncey the Gardner moved into the White House? The president’s claim is that when we trade with a country and run a deficit with it, we end up poorer. Really? At this point in my life, I run a trade deficit with practically everyone: Publix, Walmart, my mechanic, the HVAC company, the plumber, the electrician, my pharmacy, my doctor, the dentist, Tractor Supply, the hardware store, and every restaurant and entertainment source. None of them buys anything from me. If the president were right, I should be impoverished and barely getting by. Instead, my standard of living is probably in the top 5 percent on the planet. I simply have nothing to trade except my money for the goods and services of others, and I am far better off for it. How can that be? The reason is simple: the president is wrong. If trade made us worse off, we would not do it. As Mr. Spock would say, “That would be illogical.”

I have made this point over and over again. People and countries trade because both sides benefit. Economists call the principle behind it comparative advantage. When another country can make something at a lower cost than we can, both sides gain from trade. We buy that good and put our own resources into producing what we do relatively best, rather than tying them up making things we could have bought more cheaply. Some critics reply that this just means we get inferior goods from our trading partners — cheap junk. That is false, too. Cheaper goods widen the market and let poorer households afford things they could not afford before. Perhaps the elites would rather the poor go without. Let them eat cake!

The president implies we are not being ripped off when we run a trade surplus. But by his own “logic,” a surplus only means we are being ripped off less, since we are still importing. That is pure mercantilism: exports are good, and every import is a loss. And given how large and wealthy this country is, it would be close to impossible for most countries not to run a surplus with us. So if trade deficits really are losses, why doesn’t the president simply order trade with a country halted whenever the balance tips into deficit? Or end trade altogether?

The president also assumes that if we imported nothing, we would have trillions of dollars more. He ignores what happens to the dollars we spend abroad: one way or another, they come back to us. Foreigners use them to buy American goods, or to buy American stocks and bonds and invest in American businesses. I thought the president wanted more foreign investment in this country. Where does he think that money comes from?

Don Boudreaux, who writes mostly about trade on his blog Café Hayek, puts it well: “Trump is as clueless to complain about the so-called U.S. ‘trade deficit’ with each of many individual countries as would be an individual American to complain about her ‘trade deficit’ with a supermarket.” His point is that whenever more than two parties trade — individuals, firms, towns, states, or countries — there is no reason to expect any pair of them to buy and sell equal amounts with each other.

Boudreaux illustrates this with a world of just three countries. Suppose the U.S. buys $1 million of maple syrup from Canada each year, paying in dollars. The Canadians use those dollars to buy $1 million of coffee from Brazil, and the Brazilians use them to buy $1 million of corn from the U.S. By Trump’s reasoning, Canada is ripping us off to the tune of $1 million a year, and we would gain $1 million by cutting Canada off — while we, in turn, are ripping off Brazil. In reality, cutting off Canada would break the whole chain: Canadians would no longer have dollars to buy Brazilian coffee, Brazilians would no longer have dollars to buy American corn, and we would lose both our maple syrup and our corn sales. And as Boudreaux notes, once you allow foreigners to invest their dollars here instead of spending them all on American exports, the absurdity of Trump’s argument only grows.

So please explain how cutting off trade makes us wealthier. It would make us poorer. We would be forced either to go without goods or to produce them ourselves at higher cost, which means lower real incomes. Is that really a good thing? The president apparently thinks so. He has said: “We could do tremendous good for ourselves by just not trading with countries. We lose with the European Union $200 billion a year. If I didn’t trade with them, we’d lose nothing. Just one swipe of the pen. We lose with Mexico $195 billion a year…They have nothing we have to have. I mean, hot tamales, tomatoes, a couple of things.”

So Mexico is ripping us off to the tune of $195 billion a year? And what “couple of things” do we get for that money? Hot tamales? Try vehicles, machinery, electronics, and farm products that American businesses and consumers rely on. Is that $195 billion worth of cheap junk? Hot tamales indeed. 

Ronald Reagan knew this was nonsense. As he put it: “Homegrown industries start relying on government protection…They stop competing and stop making the innovative management and technological changes they need to succeed in world markets…High tariffs inevitably lead to retaliation…The result is more and more tariffs, higher and higher trade barriers, and less and less competition. People stop buying. Then the worst happens: Markets shrink and collapse; businesses and industries shut down; and millions of people lose their jobs.”

Trump has done his best to paper over Reagan’s legacy. This anti-trade nativism is just his latest effort to do so.