Here is your five-step guide to thinking like Trump when it comes to trade.
First some background on the latest announcement of new taxes.
Financial markets dropped in sadness when Donald Trump tweeted that he would impose an additional tax of 10% against an additional $300 billion in products shipped from China to the U.S. And of course he presented it as a tax that China would pay, which is completely untrue. American buyers pay that tax. China sellers suffers too; same as you would if a thief stood in the grocery aisle demanding ten cents on the dollar of everything you buy.
But once again, he proclaimed this whole thing as great for America despite all the data showing that business investment is down, manufacturing is down, uncertainty is up, imports are devastated, and exports flat. As Max Gulker has demonstrated, the numbers confirm precisely what the theory would predict: this nonsense is not working.
The data contributed to the Fed’s decision once again to lower rates in hopes of avoiding a more severe downturn. Whether by intention or in effect – does it even matter? – the Fed is being called upon to paper over the policy errors of this administration.
Net Domestic Investment
US Exports to China
However, it is possible that Trump has a different view of what constitutes working. The day before Trump’s announcement, I was on TRT television and predicted precisely that Trump would impose more tariffs on China, on the additional $300 billion that had not yet been subject to taxation. My prediction came true sooner than I expected. Regardless, I was not shocked. Once you figure out the way the president thinks, the long-run strategy begins to make some kind of crazy sense according to his own logic.
What’s the end game? It’s not free trade, unless you want to re-render that phrase in the way that Friedrich List did. No, it’s not to gain concessions from foreign governments to stop “stealing” IP, buy more surplus agricultural products pumped out by the US’ own subsidies, end their own industrial subsidies, or stop manipulating the currency – though you will hear lots of rhetoric to this effect.
If you follow the long life and times of the mind of Donald Trump, there emerges a formula to anticipate precisely what it is he is up to. It’s not hard. You just need your decoder ring on.
Step One: Assume that the nation is a unified business
To be sure, no actual functioning businesses think of themselves as a mere division of a larger national machine of production, especially not today when global supply chains are integral to every business at every level. When you are trying to get branded t-shirts and mugs for your coffee shop, you order from a supplier who outsources to China and then you can sell to your customers a shirt and mug, and you care not where those customers are coming from, nor are you interested in using only American-source coffee beans, whatever that means. But in Trump’s mind, every enterprise within US borders somehow belongs to a collective whether the owners like it or not.
Step Two: Assume that the president is head of that unified business, the very CEO of the nation
In his business career, Trump has imagined himself to be an empire builder, taking on ever more dramatic real estate projects in ever more conspicuous locales, taller and taller buildings. Becoming president is an extension of that, with a big uptick in the geographical area he believed himself to be managing. He might be the first president the US has ever had who thinks of himself not merely as the head of state (overseer of government operations) but the head of the country (though FDR and Woodrow Wilson immediately come to mind as well).
Step Three: Forget gains from trade
As an experienced business professional, Trump’s art of the deal has always been about crushing the competition. It seems to be a wicked motivation but market forces can turn that competitive motivation toward social good, because ultimately it is the customers who decide. The pie still expands. But that’s the larger picture. The internal motive force for him imagines a world of national winners and losers, and there is only one side he wants to be on. Therefore, as CEO of a unified business, he is out to stamp out other nations in their aspirations, supposing always that their gains come at our expense. It’s untrue but you can’t convince him otherwise.
Step Four: Treat the balance of trade as a profit and loss statement
Trade is unbelievably complex, unmanageable by any single individual, thank goodness. But there are these little charts that track trade flows by financials coming and going. How much does Japan buy from “us” versus how much “we” buy from “them.” You can look it up. Trump, seeking to find some measure by which to confirm his us/them mindset landed on the trade accounts as the right measure – something Frederic Bastiat predicted that businesspeople will do, which is precisely why he favored abolishing this data. They are absolutely not the same as accounting profit but they are if you are the CEO of a unified enterprise called the nation.
Ok, so what do these charts say? If you look carefully, you see the whole Trump trade agenda laid bare:
Just to assure the reader that I’m not making this up, you need to check out the May 2019 report from the US Treasury department that made a “watch list” of countries that corresponds exactly to the list of countries running trade deficits with the US.
Step Five: Turn all trade deficits to trade surpluses.
Now we get to the final step. Every country on the list must be punished via taxes on Americans to the exact amount of the trade deficit. China is the number one target. This is why tariffs keep being raised, and why these negotiations are mostly eye wash, as Chinese trade diplomats have gradually discovered. Mexico is number two, which is why Trump keeps threatening tariffs. Germany (cars), Japan (anything), Ireland (huh?), and Vietnam (recently in the cross hairs) are all listed. This administration will not be complete with its task until the numbers flip in the other direction, and world trade as we know is completely upended.
Scary yes, but let us remember that governments are capable of amazing arrogance. Trying to think of comparable cases, the time when the Soviets tried to reverse the flow of a major river comes to mind. Bad theory rooted in ideological conviction has a way of blotting out even the most blatant evidence that the praxis is not panning out. The human imagination has a way of inventing an infinite number of reasons why the personal ego is superior to logic and evidence.