Monday, March 5, 2018

Jeffrey Sachs on Trump’s Trade Fallacies

I heard on some news show an incredibly stupid statement from our President earlier today and in utter disbelief fired off this comment on some blog:
Trump equates our trade deficit with us being ripped off. Let’s do this as a simple example. You walk into Best Buy and purchase a $1000 computer but do not have cash. So you put it on your credit card incurring a $1000 liability. Even though you now have the computer and Best Buy does not – Best Buy just ripped you off as you have a $1000 financial obligation. An odd statement from someone who routinely defaulted on his financial obligations!
Never mind that as on Friday Jeffrey Sachs beat me to this:
But don't expect an impulsive and ignorant man like Trump to heed the lessons of economic history, logic of retaliation, and the basics of trade. His actions are based on three primitive fallacies. First, Trump thinks that America runs trade deficits with countries like China and Germany because the US is being swindled by them. The real reason is that the US saves too little and consumes too much, and it pays for this bad habit by borrowing from the rest of the world. The Trump theory of international trade is like a man in deep debt who blames his creditors for his spendthrift behavior. Come to think of it, that is precisely how Trump has spent his whole business career: over-borrowing, going bankrupt, and blaming his creditors.
Check out his discussion of the other two primitive fallacies! I guess Trump would argue that it was very unfair to me when Best Buy gave me a credit card. Update: Apparently Trump admires the protectionist philosophy of Abraham Lincoln who is famous for this:
When an American paid 20 dollars for steel to an English manufacturer, America had the steel and England had the 20 dollars. But when he paid 20 dollars for steel to an American manufacturer, America had both the steel and the 20 dollars.
This line reminds me of the incredibly dumb logic ala Wilbur Ross. I know he is old but could he have been one of Lincoln’s advisers?


Anonymous said...

It's more like the head of the world's biggest crime family runs up a debt with the Yakuza, the Albanians, and some smaller mafias. Then he accuses them of ripping him off while he's also killing their soldiers, arming their allies' enemies, and stirring up fights with the Triads and Russian mob. Meanwhile in Canada, Trudeau says "Hey what did we do? You can all wash your money in our real estate until it is whiter than snow."

Peter T said...

Hmm. The empirical evidence is that a well-constructed tariff policy can raise wages and, over time, drive productivity. See, eg, the UK 1700-1820, the US, Germany, France, Japan, China, the Soviet Union, Australia, NZ.... Low tariffs were the mark of either an unequal country (Latin America for most of the time, the southern US) or a subordinate relationship.

Not that this says that Trump's gestures are well-constructed, or appropriate at this or indeed any time. Just that economic theory is rather at odds with the evidence.