President Trump’s Bargaining Prowess Is a Liability, Not an Asset

A bizarre but mostly beneficial invisible-hand process has been at work since the end of World War II. I refer to the series of multilateral trade negotiations, and the resulting trade agreements, among many of the world’s governments, including that of the United States.

Largely orchestrated through the General Agreement on Tariffs and Trade and its successor, the World Trade Organization, each participating government has agreed to exercise ever-greater restraint when using trade restrictions to abuse its own citizens in exchange for other governments’ agreeing to exercise similar restraint when using trade restrictions to abuse their own citizens.

You can see why I describe this process as bizarre. When aggression is military, each government attempts to protect its citizens from that which is unleashed by foreigners. But when aggression is economic, it is unleashed by each government against its own citizens. Tariffs, for example, are punitive taxes each government uses to impede its citizens’ access to goods and services. But through trade negotiations, each government is persuaded to moderate such aggression chiefly at the behest of foreigners.

The happy result of this bizarre process has been a slow but steady global reduction in the incidence of governments abusing their citizens with tariffs and other trade barriers. Not surprisingly, consumers worldwide have benefited.

A Producers’ Policy

Yet the intention driving all of this negotiation has not been to help consumers. It has been to help relatively small handfuls of existing producers. This fact is why a government’s agreement to lower its tariffs is described as a “concession” to other governments. Tariff cuts are regarded as the price each government pays to persuade other governments to cut their tariffs — that is, to persuade other governments to let citizens of those foreign countries buy more goods produced by politically influential firms in those countries.

In short, the overriding economic intention driving each government that participates in these trade negotiations is to arrange for its citizens to produce as much as possible for the enjoyment of foreigners and to receive in exchange as little as possible for their own enjoyment from foreigners. But global tariffs nevertheless fall and international trade expands because each and every government must grant the “concession” of tariff reductions to induce other governments to lower their tariffs.

The mistaken notion at the heart of this topsy-turvy process of reducing trade barriers is that the ultimate goal of trade is to enrich producers. Each government treats consumers as bargaining chips — as hostages to be held for the benefit of home-country producers and to be freed only on the condition that other governments free from captivity a like number of their consumers.

Every word out of President Trump’s mouth regarding trade reveals that he deeply believes this mistaken notion to be valid.

Understanding this fact about President Trump is necessary to make sense of his recently expressed support for a world without tariffs. Superficially, his call for global tariff rates of 0 percent makes Trump appear to be, as Washington Post columnist Marc Thiessen described him, a champion of “radical free trade.” But this description is nonsense when considered in light of three indisputable facts about Trump.

The first is his belief in the above-described conventional notion that a country wins at trade the more it exports relative to the amount it imports.

The second springs from his American braggadocio. He’s convinced that the only reason we Americans have for decades imported more than we’ve exported is that our government has been weak and excessively generous when negotiating trade deals while other governments have been strong and greedy.

The consequence, Trump thinks, has been a series of deals that are unfairly and heavily tilted against Americans — deals that, by undermining America’s natural economic superiority, fuel our consistent trade deficits. But with trade deals of more equal terms, Trump is sure Americans’ inherent economic superiority will prevail and we’ll once again dominate the world economically.

The third fact about Trump that is necessary to keep in mind is his fixation on manufacturing and his refusal to understand both that U.S. manufacturing is thriving, and that the decline in manufacturing employment is due overwhelmingly to the use of labor-saving technologies rather than to trade.

A False Ideal

Holding these beliefs, Trump surely predicts that a tariff-free world would be one in which manufacturing employment soars, exports surge relative to imports, and consistent trade deficits turn into consistent trade surpluses.

In fact, however, these beliefs are false. Because eliminating tariffs worldwide would not rid American factories of labor-saving technologies, a tariff-free world would not result in any appreciable increase in U.S. manufacturing employment. Nor would such a world be marked by American export dominance of the sort Trump anticipates.

Indeed, because in such a world America would almost certainly continue to be an especially attractive place to invest — a distinction that causes America to run trade deficits — a tariff-free world is unlikely to be one in which America no longer runs the consistent trade deficits about which Trump obsessively, if erroneously, complains.

So if tariffs were eliminated worldwide, while the economic consequences for everyone, including Americans, would be splendid, Trump would interpret these consequences for Americans as dire. Seeing no export dominance of the sort he desires, seeing no surge in manufacturing employment, seeing some industries nevertheless diminished by, and some jobs destroyed by, imports, Trump would quickly conclude that a tariff-free world, after all, is not good for America.

His mercantilist beliefs and values would, you can be sure, incite him to raise American trade barriers unilaterally.

In the end, the trade outcome for which Trump is bargaining — namely, a vast increase in exports relative to imports — is one that would make us poorer and not richer. And because Trump seems intent on bargaining with unprecedented harshness to achieve this outcome, whatever bargaining prowess he does possess is a danger to Americans and non-Americans alike.

The mix of Trump’s bargaining toughness with his utter ignorance of the economics of trade threatens to destroy the highly imperfect and bizarre, yet ultimately beneficial, multilateral trade-negotiation processes that have reduced trade barriers across the globe.

Sign up here to be notified of new articles from Donald J. Boudreaux and AIER.

Donald J. Boudreaux

Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalization, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.