Trump’s bad logic on 'bad trade deals'

Yahoo Finance ^ | March 4, 2016 | Rick Newman

[reaganaut1]

Somebody please tell Donald Trump: A trade deficit isn’t a loss. You could even argue it’s a gain.

The Republican presidential frontrunner has been railing against “bad trade deals” since declaring his candidacy last summer. And he’s amplified the criticism, if that’s possible, in recent weeks. “If you look at China, and you look at Japan, and if you look at Mexico … they’re killing us,” he said during the latest Republican debate on Fox News. “With China we’re going to lose $505 billion in terms of trade …. Mexico, $58 billion. Japan, probably about… $109 billion.”

Trump is talking about the annual U.S. trade deficit with those three countries—but the amounts in question are anything but losses. Trade occurs when one party buys something from another, and trade between countries has the same mutual benefit as trade between an individual consumer and a merchant: each side gets something they want. “They’re sending us goods and we’re sending them green pieces of paper,” says Patrick Newport, U.S. economist for forecasting firm IHS Global Insight. “I don’t see how that’s a loss.”

Trump's numbers, incidentally, are off. Here are the U.S. trade deficits with each country in 2015:

China: $366 billion

Japan: $69 billion

Mexico: $58 billion

Those numbers might seem high, but in an $18 trillion economy, they don't really worry economists. What does worry economists is Trump's plan to slap tariffs of 35% to 45% on imports from China and Mexico, a tax that would be passed along almost entirely to consumers. Trump's logic seems to be this: Low-wage countries where workers get paid a fraction of U.S. wages are basically undercutting American workers, and therefore ought to be punished. But his tariffs would punish Americans too, especially lower-income consumers who benefit most from cheap imports.

[Wpin]

Trade deficits represent lost jobs and opportunity for Americans. He can try to dice it anyway he likes but hat is fact.

[JPJones]

” Goods and services are wealth.”

Flat screen TV’s are not wealth.

Factories that make them are, (means of production), and we’ve lost almost all of them to China and Mexico.

[BlackAdderess]

New whirled order... perfect :)

[datura]

You couldn’t get a new Land Cruiser from Toyota since the early 70’s for $3,300.

Nice try.

[Oatka]

. . . if the Chinese make goods cheaper for Americans, that makes the American buyers of those goods richer.

IF those Americans have decent paying jobs that result in surplus funds to buy those goods. Since many/most of the high-paying blue collar jobs went out of country, it's gonna be hard to do more than eke out a living on subsistence wages.

[Jim W N]

Agreed, and I’m a Trump supporter.

It is false and misleading to say we lose $500 billion to China every year. Our imports from China in 2015 totaled close to $500 Billion. He and the “trade deficit” folks call this a $500 billion LOSS. But of course it is not a loss because we traded dollars for goods.

Did I lose $100 when I bought my groceries the other day? Of course not. I got groceries for money. I didn’t LOSE when I paid for the groceries I needed. And what Trump is proposing is instead of me paying, say, $100 for goods from China, I’ll be forced to pay more, say, $200 for the same thing because of these tariffs (taxes) and protectionist measures.

Taxing imports to try to force companies to stay here doesn’t solve the problem. Everybody loses and the consumer now has to pay higher prices because the government has put a 35% tax on incoming goods.

Trump (and others) need to address the ROOT CAUSE of losing our businesses: the FEDERAL GOVERNMENT. The federal government has created an unfriendly business environment in the U.S. with boneheaded policies like
- minimum wage
- taxes
- regulations
- federal protection of unions

Address THESE and business will WANT to return/stay because of cost benefits. Again, the issue is the unfriendly American business environment and weak American competitiveness caused by the skyrocketing costs of doing business due to FEDERAL GOVERNMENT INTERFERENCE in the economy.

Let the voluntary cooperation of the market economy free of government interference work. Don’t layer more government interference upon that which is the root cause to begin with.

[Logical me]

I have never seen so many damn dumb jackasses. As if the answer is the import of goods from like China cost less. Damn idiots, do you not understand that this cheaper goods has cost millions of American jobs. So this poor American gets hosed with no job and living on welfare is the answer to keep goods cheep. Well, jackasses, how was your grocery bill recently? And have you looked at this cheep product how really cheaply made it is? The road we are going in will soon catch up to us and over half of Americans will not be able to support themselves.

Trump is right, Trump for President.

[stephenjohnbanker]

Well stated, and all true.

[freedumb2003]

Misfire on response?

I was speaking of voter numbers and your quote is not mine.

[Captain Peter Blood]

Which would you rather be a Creditor Nation or a Debtor nation?

China, for example, holds over $1 Trillion in U.S. Debt.
What happens when we have to Default?

We have grown addicted to cheap goods from China and other places. We have done everything to Pull Future Demand Forward, we have an economy that is unbalanced.

What we have cannot continue, sooner or later the Reckoning happens.

[Prolixus]

Why would the Chinese want to make us richer? This makes me think of the Twighlight Zone episode To Serve Man only the current situation is more aptly called "To Serve Americans."

[DannyTN]

It's a trade deficit because we import a lot more than we export. That means there aren't that many export jobs to lose. It's a loss because:

• It costs Americans jobs and then we have to support those unemployed Americans
• We lose the income and employment taxes on employed Americans and replace it with a mere 1% on average import tariff.
• We lose the manufacturing know how and the skills.
• We lose much of the ability to innovate without the manufacturing process.
• We lose all the associated jobs such as parts, repair and maintenance services, etc.
• We lose because without manufacturing we are dependent on foreign countries in times of war.
• We lose because we allow those "Green pieces of paper" to come back and buy equities in our companies and our debt. In effect we are liquidating our ownership of our businesses to be able to afford these so-called "cheap" imports.

  Government is not going to dictate who you can buy from. But if you don't buy American you should pay an import tax that is at least equal to the taxes a domestic producer would have paid. And you should pay additional import taxes sufficient to take care of the unemployed Americans. And you should pay additional import taxes because the founding fathers wanted the government funded by import tariffs, and we were stupid to get away from that.

[MNJohnnie]

Read about Brenton Woods. We don’t have FREE Trade, we have MANGED Trade and it is managed to our determent.

It made sense during the Cold War to use Trade to advance US Foreign policy, it is an anachronistic view now

[jjotto]

Apples and oranges. Until 1984, the Land Cruiser could be what was basically a WW2 design Jeep. By 1998, it started to become a high-tech luxury vehicle.

They share a name, but they are as different as a Wrangler is from a Grand Cherokee.

[MNJohnnie]

No, the author has entry level understanding of Trade and wrongly think that makes them an “expert” on the topic.

[Ohioan]

Free trade has many benefits. But “Free Trade” deals, arranged by a Government that has shown its basic indifference to the social & cultural heritage of traditional America, too easily lends itself to catastrophic damage to American communities. Just look at the small industrial towns all over the Midwest, which have lost the plants, which once employed the bulk of their rooted labor.

I am a Jeffersonian on the subject; but Jefferson would clearly favor Trump in the current conflict with the Republican "disestablishment," on both trade and immigration.

[Stentor]

A trade deficit is bad, it is an outflow of wealth from this country.

Since it's no longer reflected by the movement of actual money, it's OK. Until it isn't. And when it isn't, it's going to be very not OK.

[combat_boots]

Correct.

[slowhandluke]

Getting more for your money is great, but sometimes only in the short run. If China ends up making everything, and we make nothing, what money are you going to have?

The process has been for them to take those pieces of green paper and buy US companies, US technology (when they don't just steal it), and then undercut and kill the rest of the US competitors.

The economists think price wars are great, mostly. But the US gov't and laws do note that international price wars can be predatory, when the foreign government subsidizes some product in order to undercut and destroy their US competitors.

A trade deficit is a loss, eventually. On a gold standard, it means you run out of gold. On a paper standard, it means the value of the paper gets driven to zero.

[combat_boots]

Shanghai

https://chasingtheturtle.files.wordpress.com/2014/01/shanghai.jpg