Why Donald Trump is dangerously wrong about trade

I have suggested before that Donald Trump does not actually hold many firm beliefs, at least in the sense we normally talk about a politician’s ideology or political philosophy. One exception to that, as near as I can tell, concerns trade. If Trump does hold something approximating an ideological belief, it’s that our trade deals with other countries have made us poorer as a country.

AP Photo / David Goldman

AP Photo / David Goldman

He’s wrong about that for a number of reasons. For example, the evidence shows U.S. manufacturing jobs have mostly declined because of technology and automation, not trade or off-shoring. But one crucial element of understanding international trade is knowing that a national trade deficit does not actually represent a reduction in the amount of money that nation has. Having a trade deficit doesn’t mean money is leaving the country. The money comes back — it has to, unless people in other countries are going to keep it under their mattresses or in other places where they can’t spend it — but it comes in the form of investment rather than consumption. That creates jobs here, just in a different way.

I have read various explanations of this seemingly esoteric economic principle before, but I have never read a clearer explanation than this one by Kevin Williamson published at National Review this morning:

“Trade deficits are partly a question of consumer preference — American consumers really do like Hondas more than Japanese consumers like Buicks — but they are not mainly a question of consumer preference. They are mainly a question of investor preference — and investors prefer the United States, which is why there is almost twice as much foreign direct investment in the United States as in China, even though China’s economy has grown at a much faster rate over the past 20 years.

“It works like this: Almost every advanced country does a great deal of international trade. They have lots of imports and exports because it is easier to grow sugar in Florida than it is in Norway and more efficient to sew T-shirts in Bangladesh than it is in Switzerland. When Walmart orders $1 million worth of flip-flops from a Chinese concern, those Chinese gentlemen receive 1 million delicious U.S. dollars, which they are very happy and grateful to have. But what can you do with U.S. dollars? You can buy stuff from U.S. companies or you can buy assets from sellers who take U.S. dollars, which ultimately means U.S.-based investments. (This is true even when you add in all of the real-world complications such as foreign exchange.) If you are that flip-flop entrepreneur in China, you probably have a very high rate of savings, which is normal for people in poor, backward, and unstable countries. There is lots of uncertainty in a place like China, and having a whole lot of savings — especially dollar-denominated assets — is a rational response to that. …

“Trade deficits don’t happen because the wily Japanese juke us on trade policy. They happen because intelligent people holding a fistful of dollars very often decide to forgo the consumption of American consumer goods in order to invest in American assets. In economics terms, what this means is that the trade deficit is a mirror image of the capital surplus. A capital surplus isn’t necessarily an unalloyed good (everything in economics is about tradeoffs), but it is a pretty nice thing to have around if you are, say, an entrepreneur looking to build a new facility in Houston or Jacksonville and looking for some investors to stake you.” (emphasis original throughout)

So, what would the opposite of that look like? Judging by what we hear from Trump, it would include a significant — perhaps 35 percent — tariff on goods coming into our borders. That means: a) higher prices for our consumers; and b) less money for the sellers of those goods to invest back in the U.S.

Could it also mean some more jobs here, as some manufacturing might be shifted stateside? Yes (although it’s also quite possible the newly shifted production would be carried out by robots rather than humans). But any jobs gained in that way would be offset at least in part by jobs lost due to that reduced investment. It might be a net gain, or it might be a net loss. And this is not even to delve into how a less efficient use of resources — trying to do things here at a higher cost rather than buying them from elsewhere at a lower cost — would ultimately crimp the economy and thus job growth. Or into the possibility that a wider trade war would result, costing American jobs as other countries retaliate with tariffs on the products we make. Despite all the hand-wringing about Trump’s tweets and phone calls from Taipei, this is where he has the most realistic chance to harm Americans and our relations and interests abroad.

You might think Trump, as someone who has operated businesses and invested overseas, would understand all this. We’ll all be better off if he does, and this is just one more belief he only appears to hold.

Reader Comments 0

339 comments
Nino Siciliano
Nino Siciliano

Apparently he supports many of the ideas that are not working over the last 15 years.. especially the last eight.. the entire Globe wants to sell us their products including our own companies. You don't have to be an economic genius to figure out how that's going to break down wants Trump get started.. the days of listening to left-wing liberal speculators are over.....

David Dollar
David Dollar

Let the Liberal Wackos say what they want ! President TRUMP is going to do great !

Alice Lee
Alice Lee

All he knows and understands is putting money into his pockets.

Wayne Morris
Wayne Morris

Wingfield needs to do a little studying economics and some minimal research because he obviously is clueless. Sure technology has taken some jobs but our corporate tax structure and the overbearing regulations are the major reasons manufacturing jobs have moved overseas.

Sheryl Meyer
Sheryl Meyer

Ajc would like me to send you all a nice fresh box diapers and pins?

Marcia Barth
Marcia Barth

Since Wingfield writes from the perspective of the right, this article actually shows a lack of bias. The employees of the AJC take journalism very seriously. These comments are ridiculous. Also, quit using "Christianity" as a pawn in your arguments. Are you familiar at all with the New Testament? Geez.

Steve Boudreau
Steve Boudreau

One of the dumbest things ive read in a long time

Lil_Barry_Bailout
Lil_Barry_Bailout

It's great to have Democrats on board with conservatives in supporting free trade, even if such support is politically-driven and likely to evaporate the next time we're stupid enough to put Democrats back in charge of anything.

JFMcNamara
JFMcNamara

@Lil_Barry_Bailout Uh, Democrats have been on board with free trade since the 1990s.  We have a consensus that it was the right thing to do.  


The problem is that conservatives did not want to share the wealth.  Democrats want to share the increased wealth with the people via programs.  Conservative only want tax cuts which you only really feel if you had a high income.  


The poor didn't get anything out of it, and they have a right to be angry.  It wasn't the Democrats that caused the issue.  It was the Republicans they supported, and those same Republicans will punish them for their trust.


The only thing the working poor Americans have gotten to help them in recent years is Obamacare, and Republicans hate it to death.  Now they won't get Obamacare and social security, medicare and medicaid are at risk too.  Unless Congress changes, they signed their own death warrant.

JFMcNamara
JFMcNamara

@Lil_Barry_Bailout @JFMcNamara The article clearly says Clinton supported it, and he even held a ceremonial signing.  Clinton was clearly for the deal.  Almost as many Democrats voted formit as Republicans.  I am not sure what the point of the link was?  Are you trying to prove yourself wrong?

Lil_Barry_Bailout
Lil_Barry_Bailout

@JFMcNamara @Lil_Barry_Bailout

As with civil rights, Republicans did the heavy lifting and although the minority party, had to drag enough Democrats along to do the right thing.

And maybe if today's batstuff-crazy leftists had paid more attention to the relatively sane Clinton, they would have won something last month.

Real Americans are glad they didn't.

Lil_Barry_Bailout
Lil_Barry_Bailout

@JFMcNamara @Lil_Barry_Bailout

Nonsense.  The market tanked irrationally when the Democrat housing mess blew up.  Obama benefited from the inevitable recovery.  Stuff like that is why your linkee is meaningless.  Democrats throw big parties, the Dow goes up, reality sets in and then Republicans have to clean up the mess.  Just like Nixon had to clean up the Democrat mess in Vietnam and W had to take care of business after Clinton's eight years of doing nada about al Qaeda.

Summer Smith
Summer Smith

Absolute Garbage by this hack Wingfield and the AJC. Manufacturing jobs have changed because of technology and automation, but jobs have not declined because of it. Other countries have the same technology and automation and If that were true, other countries wouldn't be thriving in manufacturing segment of their economy and making a fortune off of our country. Manufacturing jobs were the backbone of America. American products were the best made products in the world. Manufacturing is like the running game in football...you've got to have it. Workers made a decent wage that would sustain a family and most came with some type of retirement. Most all of those major manufacturing jobs are gone overseas now mostly because of gov. regulations and the cost of producing the product. We can argue all day as to the cost of production..unions..regulations, etc, but the point is that the United States must get back to manufacturing. The United States has Become the Largest Flea Market in the World. All we do today is sell products to each other that are made in other countries. Wingfield's idea of Investment from other countries to create jobs breaks down into them buying up United States property and business, which is not an appealing alternative. And if this mentality continues, we will all be working for foreign countries and selling hamburgers to each other. Brighten up America.

Steven Oliver
Steven Oliver

Really!? "Technology and automation" drove down 350,000 auto manufacturing in the U.S. over the past 20 years while 420,000 auto manufacturing jobs were created in Mexico over the same period? BU££$#it!

Phillip Parrish
Phillip Parrish

And the only reason US auto employment figures aren't worse is the fact that non-union foreign based manufacturing has propped them up.

Rene Briggs
Rene Briggs

Stay off our sight. Put your nonscence crap on the liberals site. They believe anything

Jan Marynowski
Jan Marynowski

Wingfield you are an idiot and have no idea what you are talking about. Typical hateful reporter.

Everett Allen
Everett Allen

i hope our next president puts tartriff's on every one who is cheating our country starting with china

Joe Huss
Joe Huss

Now let me get this straight, a columnist I'd telling Trump what to do??? I don't remember any buildings with Klye Wingfield on them. Duh.

Phillip Parrish
Phillip Parrish

But you will find a highway southwest of Atlanta named after Lewis Grizzard. And AJC will likely never have so much as a MARTA station named after anyone there now.

JFMcNamara
JFMcNamara

@AndyManUSA#45 @JFMcNamara , or, you could read the article and watch the video and simply acknowledge that you don't know anything.


The worst thing about Trump winning isn't his policies.  Its that now every person who made a "D" in high school math thinks he is an economics professor. 


We are by far the number 1 economy, and it has been adding jobs at a excellent pace.  If you haven't felt the impact, its because you, personally, are not smart or hard working enough to see the benefits. 

Mike Williams
Mike Williams

Yeah, Trump is dangerous to Communism, Socialism, Islam and anything else that is violently opposed to Western Capitalism and Biblical Christianity! Go Washington, Jefferson, Adams, etc. !

Matt Quackenbush
Matt Quackenbush

Hey AJC how about you report real news, you corrupt scumbag

Cameron Reeves O'kon
Cameron Reeves O'kon

Idiot. And all those crying about race too. No one cares about color but YOU.

Meb Akasheli
Meb Akasheli

Stop bashing Trump! This country is trash now in every way.

Mary West
Mary West

Enough of this nonsense. The left is, was , & has. Ern dangerously wrong for this nation. They are subverting the underpinnings of our society.

Trevor Stricklin
Trevor Stricklin

Who's the bottom in Wingfield and Bookkman's relationship?

Hobie Jones
Hobie Jones

Wingfield only thing consistently wrong is Bookman, you and the moribund AJC. (But that Clinton Ground Game - it was really great...right?) You "political columnists" are REALLY who I listen to on business/trade - can't wait for your next criticism.

Sherry Hall
Sherry Hall

Another liberal loon who has nothing to show but his bitterness!

Doug Rea
Doug Rea

2 words kept me from reading this post. "AJC and Opinion."

JR Ransom
JR Ransom

Lol...gotta love it. The writer is a right winger and because they don't agree, they call him a liberal. Lol. You Trumpers are funny

Greg Stewart
Greg Stewart

I'd rather be funny than wierd or stupid

Mary Ann Gardner
Mary Ann Gardner

It's the only view the AJC ever prints & people get tired of it