A Trade Tutorial for Trump
There is an urgent need for US President Donald Trump – or at least his advisers – to gain a far better understanding of how global trade actually works. Barring that, his administration’s reckless interventions are likely to continue, or even escalate, causing severe damage to the US and the global economy.
SAN JOSE, CALIFORNIA – US President Donald Trump has declared that America’s $500 billion trade deficit with China means that the US is “down” $500 billion. Apparently, he thinks that trade surpluses and deficits amount to profit and loss statements for countries. He could not be more wrong.
Let’s say that a developer, erecting an apartment building in New York City, purchases $50 million worth of construction material from China, and spends another $50 million on local services. If the developer then sells the building to American buyers for $110 million, he has made a profit of $10 million.
The venture, it seems clear, made good business and economic sense. The $50 million spent on Chinese imports certainly would not be considered a “loss.” Yet that is precisely what Trump’s logic implies. Worse, Trump would demand that, to “even things out,” China purchase $50 million of US products – or face tariffs that make it more expensive for future US developers to purchase construction materials from China.