According to a recent article in Fortune Magazine President Donald Trump is getting everything wrong with his trade policies. And they quoted a Nobel Prize-winning economist who summarized the risk to the American economy by saying: “Right now, corporate America should be terrified.”
What is terrifying is that Trump is:
- Wrong about the facts,
- Wrong about his interpretation of the facts, and
- Wrong about what should be done to correct the situation.
For example, Trump made the following incorrect statement to justify his proposed tariffs: “We as a nation lost $817 billion dollars on trade. That’s ridiculous and it’s unacceptable.”
According to the New York Times Trump has incorrectly referred to an $800 billion trade deficit more than 50 times. But this number only includes trade in goods, excluding services.
The United States exports hundreds of billions of dollars more in services than it imports. If Trump correctly included services the cited trade deficit would be hundreds of billions of dollars lower. But by imposing tariffs on manufactured goods, and protecting American manufacturers, Trump may be threatening the hundreds of billions of dollars of services provided globally by Americans.
Another thing Trump gets wrong is his thinking that the trade deficit is bad for America when it is actually a good thing.
According to Fortune:
“Ignoring services isn’t the only problem here – Trump’s obsession with the trade deficit seems to be based on some misunderstanding of what that metric truly represents.”
“Trump’s belief that America “loses” the amount of trade deficit is not true. Deficits are financed partly by loans from abroad, which do result in interest payments to foreign countries. But a lot of that money circulates through the broader global economy, increasing stability and prosperity, including in the many countries, including Brazil and Australia, where the U.S. has a trade surplus. Some of it also comes back to the U.S. as foreign investment.“
“A portion of the U.S. trade deficit actually goes to create jobs and improve infrastructure in America.”
Even if the trade deficit were bad and needed to be fixed, what Trump is proposing is not the way to fix anything. According to Fortune,
“The tariffs and subsidies that Trump says other countries have imposed on the U.S. don’t play a primary role in setting the trade balance, so imposing tariffs on the U.S. side will lead to chaos rather than rebalancing.”
In summary, Trump is creating chaos and American businesses should be terrified. Paul Krugman is the Nobel Prize-winning economist who posted his concerns on Twitter after Trump’s G7 speech:
“Really, really bad. Trump is throwing a temper tantrum, threatening dire retaliation against our allies for high tariffs THAT DON’T EXIST. You can’t reach a deal with someone who demands you stop doing something you aren’t doing.“
“It’s sort of the trade equivalent of basing immigration policy on a crime wave by undocumented immigrants that exists only in Trump’s fevered racist imagination. But unlike little kids torn from their parents, major economies can and will strike back.”
“The intellectual basis for this tantrum, to the exten”t there is one, is a basic misunderstanding of how VATs work. But Trump will never admit that he was wrong, and was listening to the wrong people. Right now, corporate America should be terrified.“
The intellectual basis for this tantrum, to the extent there is one, is a basic misunderstanding of how VATs work. But Trump will never admit that he was wrong, and was listening to the wrong people. Right now, corporate America should be terrified 3/
— Paul Krugman (@paulkrugman) June 9, 2018
It is amazing that corporate America still seems to support this outrageous president. They are doing this because they want low taxes and no regulations. But they may end up paying a very steep price for this support, as Trump is threatening to throw the world economy into chaos, which would have dire consequences for all.