At the start of this video, I explain why I don’t worry about my trade deficit with the local grocery store.
For today’s column, I decided to create a very simple visual.
Here’s a depiction of what I describe in the video.
If you want things spelled out, here’s what’s happening.
- I give money over and over and over again to my local grocery store.
- That grocery store never buys anything from me, but does send money to workers, suppliers, and investors.
- There are then billions of other transaction in the economy.
- Thanks to some generous libertarians, some of that money is contributed to the Center for Freedom and Prosperity, allowing me to keep a roof over my head.
Needless to say, my economic interactions are a very tiny slice of everything else that is happening. So here’s big-picture visual of how money and value flows in an economy.
I’m one of hundreds of millions of households and my grocery store is one of tens of millions of producers.
So why am I sharing some very basic information about economic relationships?
Because the United States has a president who obviously never took (or never understood) basic economics.
This is not a new insight. I wrote Part I of this series in 2019. Trump had issued a tweet with six sentences and I had to make six corrections.
If possible, today’s examples are going to be even worse.
We’ll start this tweet, which shares Trump’s view that ending trade with Canada would “save” $90 billion.
By the way, the U.S. trade deficit with Canada is $27 billion, so I have no idea why Trump is claiming $90.
But the actual number doesn’t matter. Because the flip side of the trade deficit is an investment surplus. And there’s nothing wrong with Americans and Canadians engaging in cross-border trade or cross-border investment.
The president made the same illiterate observation about trade with Mexico. Which generated a very appropriate response from Jessica Riedl.
The good news is that Trump actually was reasonably accurate about the size of the trade deficit with Mexico.
But everything else, as Jessica noted, was economic illiteracy.
Speaking of economic illiteracy, Trump also is threatening more protectionism if the Fed doesn’t deliver easy-money monetary policy.
As Phil Magness tweeted, this is loony.
For all intents and purposes, Trump is threatening the Federal Reserve (again) that he will cripple global trade and hurt Americans unless we get an inflationary monetary policy (which would hurt Americans in a different way).
What a wonderful choice.
Every so often, I write a column that disagrees with other people’s headlines.
It’s now time to criticize one of my headlines. I wrote last year about “Trump’s Blind Spot on Trade.”
That’s now the world’s most understated headline. I should have written about “Trump’s Giant Chasm of Nonsense on Trade.”
P.S. One former president is probably happy since Trump may replace him as winner of the Worst Trade Policy Award.