Trade war spotlights Trump's unorthodox stance
Economists warn tariffs he is imposing could backfire domestically
WASHINGTON: Donald Trump ran for office on his record as a businessman, but his escalating trade war illustrates how far outside the mainstream his economic beliefs lie.
To the president, the existence of a trade deficit means other countries are “stealing” from the US. Few economists would agree, and they warn that the tariffs he’s imposing – including a round of levies on US$34bil in Chinese goods on July 6 – could backfire domestically, risking American jobs and impeding global growth.
Trade isn’t the only area where Trump has raised economists’ eyebrows. He’s cut taxes, driving the annual budget deficit toward US$1 trillion, at a time of solid economic growth and record national debt. He’s sought to curb immigration despite a tight labour market. He’s repeatedly misused and misstated economic statistics.
“He knows real estate and how to build a building, I guess, but as far as international economics, he seems to take an aggressively non-empirical view of things,” said Steven Kyle, an economist at Cornell University.
A senior administration official said that economists and lawmakers who criticise Trump’s approach are responsible for the long decline in US manufacturing jobs. The low unemployment rate and increase in economic growth over the past year offer vindication for Trump’s economic vision, said the official, who requested anonymity to discuss the president’s approach.
A White House spokesman comment.
Here are examples of Trump’s unorthodox economic policy and opinion compared with the economy as it’s widely understood.
> Trade deficits
Trump has repeatedly criticised the trade deficit between the US and other countries, including China and Canada. He pegs the total deficit at more than US$800bil annually and describes it as money the US is “losing” and that other countries are “stealing.”
The Commerce Department reported a total trade deficit for 2017 of US$553bil. The goods deficit on its own, excluding services, was US$807bil.
“It’s a tremendous amount of money being taken out of the economy,” Trump said on June 26 during a meeting with lawmakers at the White House.
But economists – including Trump’s own chief economic adviser, Larry Kudlow – say it’s an incorrect and incomplete way to view trade.
The difference between imports and exports to foreign countries is simply a measurement of movement of goods and services. The current US deficit indicates that foreign countries are selling more to the US than the US is selling to them, not too surprising for the world’s largest consumer economy. And trade imbalances can reflect a wide range of macroeconomic trends, including foreign investment, currency values and differing econom- declined to ic growth rates.
“With Trump economic growth, the trade deficit is going to get wider,” Kudlow, a former CNBC host, said on the network in March just days before joining the administration. “It’s not a good measure of the economy.”
To be sure, the American manufacturing sector has shrunk as a share of the economy over the past several decades – a point Trump repeatedly made as he campaigned in economically distressed factory towns. The senior administration official said that while previous politicians allowed other countries to maintain consistent trade imbalances with the US, Trump seeks to revitalise the manufacturing sector with his hard-line approach. > Eye on Canada
Trump often complains about a trade deficit with Canada that may or may not exist. Commerce Department data show the US had a US$2.8bil trade surplus with its northern neighbour in goods and services last year. Canadian data show a US deficit.
As with the national trade deficit, Trump appears to overlook the contribution of services to the economy, from software to education and Hollywood box office returns.
Trump has also complained that Canada treats US farmers “very poorly” by imposing high tariffs on their products. In fact, Canada eliminated most agricultural tariffs under the North American Free Trade Agreement – an accord Trump is seeking to renegotiate or abandon – though levies remain on exports of a handful of goods including dairy products.
> Beer cans to cars
When Trump imposed tariffs on steel and aluminium earlier this year, he said he was protecting industries that are key to US national security as part of the defence industrial base.
He argued that an extra charge on foreign metal would keep foreign companies from “dumping” their products and spur sales of American steel.
But it’s not so simple. US companies, some of whom have benefited from increased globalisation and free trade, formed long-term sourcing and client agreements around the world. Companies with thin margins – particularly small businesses – would struggle with price escalations.
Imposing tariffs on these metals – a key component of everything from factory equipment to beer cans to cars – means manufacturers pay more and the cost likely gets passed on to consumers.
> Tariff Pain
Trump maintains that his trade war will be brief and painless, as foreign countries rush to cut deals with the US to escape tariffs. “In the end it will all even out – and it won’t take very long!” Trump said June 26 in a tweet.
In fact, many parts of the country are likely to feel pain from tariffs over the long term. A global trade war, involving items across categories and trade agreements with foreign countries, would bolster inflation and risk slowing corporate investment, causing US growth to take a hit.
There is little support for Trump’s tariffs even in a Republican Congress, where some members of his own party have questioned his understanding of global economics.
“The problem isn’t that Harley is unpatriotic – it’s that tariffs are stupid,” Republican Senator Ben Sasse of Nebraska said in a June 25 statement after Trump criticised HarleyDavidson Inc, the Wisconsin-based motorcycle maker.
The company had just announced that it would move some of its production overseas because of European Union tariffs.
“They’re tax increases on Americans, they don’t work, and apparently we’re going to see more of this,” Sasse said. — Bloomberg