Profound and Destructive

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President Trump’s destructiveness requires few words here. Consider how world stock and currency markets have been shaken by the resignation on March 6 of Gary Cohn, regarded until then as Trump’s chief economic adviser. Although not a trained economist, Cohn apparently had some sound instincts derived from years of financial experience. His departure apparently and ominously leaves more influence, or echo, to Peter Navarro — look him up with Google.

This latest example of destructiveness follows the one touched off by Trump’s March 2 tweet bewailing America’s loss of “many billions of dollars on trade with virtually every country it does business with” and heralding trade wars as “good, and easy to win.”

Trump views international trade as a game, a zero-sum game in which one player’s gain is another’s loss.

I’ll spend more words on how profound Trump’s ignorance is. He considers a country’s excess of imports over exports a measure of loss. This measure applies even to trade with each foreign country separately. He counts China and Mexico among the worst offenders, deserving punishment. He does not understand the multilateral aspect of beneficial trade.

Nor does he understand how we gain in buying goods cheap from abroad. What difference does it make if steel and aluminum are cheap because of low foreign prices or because they grow cheaply on bushes at home? Money cost is a measure of opportunity cost, which means the loss of other goods when resources go instead to make the particular good in question. Opportunity cost reflects scarcity. Scarcity applies even to prosperous America, where we could enjoy still higher standards of living if food, clothing, shelter, entertainment, and other goods and services came costlessly and miraculously from heaven. Scarcity and how gains from domestic and foreign trade alleviate it are fundamentals of economics. The principle of comparative advantage goes far in explaining how.

The profundity of Trump’s ignorance goes beyond economics, extending even to the behavior of a decent human being.

Without understanding the academic presentation of the “absorption approach to the balance of payments,” everyone should be able to grasp its central idea, which is sheer arithmetic. If we as a country use more output for consumption and real investment than we produce, then the difference must come from somewhere — from abroad in the form of more imports than exports. A big item in this excess absorption, alias national undersaving, is government deficits. Yet Trump and Congress are complacent about increasing the deficit and debt by taxing less and spending more.

All too many politicians say that they are in favor of free trade if it is “fair trade” played on a “level playing field.” These slogans express Trump’s view of international trade as a game, a zero-sum game in which one player’s gain is another’s loss.

Trump does not understand how the price system coordinates economic activity, making most government planning about jobs and industries unnecessary and harmful.

The profundity of Trump’s ignorance goes beyond economics. It extends to diplomacy in domestic and foreign relations and even to the behavior of a decent human being. Yet his destructive economic ignorance remains prominent.




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Comments

Warren Platts

"The tree which bears the fruit is of greater value than the fruit itself." Trump gets this.

Luther Jett

Thank you, Mr. Yeager for not succumbing to the tu quoque fallacy, which has become all too pervasive in both libertarian and far-left/progressive circles. The argument that "Everyone else does it, so why criticize the current administration" (A.K.A. "Boys will be boys!") gets us nowhere. You have rightly and accurately pointed out the seriousness of the present danger.

Scott Robinson

The most illustrative thing to consider when thinking about trade deficits is shopping at the grocery store. I hazard to guess that 99% of the readers of this article go to a grocery store in their neighborhood and purchase about $80-$120 of groceries from that store every week. That same grocery store buys absolutely nothing from them every week. Therefore, they are in at least an $80 trade deficit per week with that grocery store. Ask yourself if it is terrible that they are in such a trade deficit. The point is that the grocery store has items that you want and need to purchase, and you have nothing that the grocery store wants or needs to purchase. All that a trade deficit is a reflection of the non-direct balance of peoples' needs and wants. Just because I want to buy something from you, doesn't mean that I lose because you don't want to buy something of equal value from me. This means that fair trade requires that there be no trade deficit, that if I buy something from you, you are now my indentured servant who has to buy some thing or things of equal value from me. This reflects that free and fair trade are not able to get along with each other.

Scott

Glen Raphael

When was the last time a US president took a strong stand *against* protectionism? Has ANY president done so in recent memory? Hasn't what Trump is saying in that tweet either implicitly or explicitly been part of US policy for decades?

The first round of antidumping sanctions against Chinese solar power started under Obama, right? Did Obama ever say anything against it?

It seems like you're taking a US President problem (or possibly a more general economic education problem) and framing it as a Trump problem, as if all we'd have to do to fix this problem is get rid of Trump. But it's far bigger than that. The problem isn't that Trump is a mercantilist, it's that Americans are mercantilists. Trump merely reflects that popular false idea back at us.

Gregory Sutton

The seceding southern states fixed the problem of protective tariffs by expressly denying the Confederate Congress any power to impose them. Perhaps we should follow their lead and make economic common sense a part of the supreme law of the land.

N. Joseph Potts

... and he is us.

Apologies to Pogo.

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