Trump’s Blind Spot on Trade

The good news is that the vast majority of Americans now have a favorable view of free trade.

The bad news is that the person with the most power over trade policy is hostile because he doesn’t understand the issue, and that’s the topic of this new video.

The video focuses primarily on how Trump doesn’t understand the irrelevance of trade deficits, which was the topic of a recent two-part series (see here and here).

I explain in the video that a trade deficit is the flip side of an investment surplus and make the point that this is largely a sign of America’s economic strength.

Unfortunately, I’m 99.9 percent confident that Trump will never see this video. And if he does see it, I’m 99.2 percent confident that it won’t change his position. He’s been bad on trade for decades.

By the way, he’s also wrong on a couple of other trade issues. He seems to think that foreigners bear the burden of his trade taxes. But that’s not the case. The tax is levied on importers, which means American consumers and American businesses are the primary victims.

He also doesn’t understand that workers don’t benefit from protectionism. Here are some excerpts from a Wall Street Journal editorial last year.

GOP protectionists are trying to sell this idea as a boon for the working class. The evidence exposes this folly: Trade wars invite painful retaliation, prop up politically favored industries at the expense of others, and raise prices on consumers like an invisible tax. They hurt the average worker. The economic literature on this point is voluminous. To pick one place to start, here was the conclusion of a study of Mr. Trump’s last trade wars, written in 2019 by two Federal Reserve economists: “We find that U.S. manufacturing industries more exposed to tariff increases experience relative reductions in employment as a positive effect from import protection is offset by larger negative effects from rising input costs and retaliatory tariffs.” …what tariffs often do in real life…is to rob some anonymous Peter to pay some politically powerful Paul. …The public also foots the bill. “U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers,” said a 2020 analysis by economists at the New York Fed, Princeton and Columbia. …The way to create prosperity for the forgotten man is to compete and innovate, not to have the government mandate hidden inefficiencies to punish some and favor others.

For what it’s worth, I showed how there were net job losses following tax hikes on imported steel and imported aluminum during Trump’s first term.

The bottom line is that a dynamic economy will always have churning and job losses in some sectors, but that will be matched by new jobs and opportunities in other sectors. Good economic policy – including free trade – is the way to make sure that there are always more jobs created than lost.