Trump attack solves problem that doesn’t exist
Mere days after assuming office, President Donald Trump stood outside the White House praising executives from Harley-Davidson. Next to motorcycles produced at the company’s Wisconsin plant, Trump included the company as a vital cog in his “America First” trade plan.
“Thank you, Harley-Davidson for building things in America,” Trump told reporters.
But as any number of women and business partners can attest, Trump’s relationships often sour quickly. This week, Harley-Davidson announced plans to move production of bikes headed to the European Union to international facilities. The move is the company’s response to retaliatory tariffs imposed by the EU after Trump implemented his own tariffs on foreign steel and aluminum.
According to Harley, the 31% EU tariff, up from only 6% previously, could cost the company $100 million, or $2,200 per bike.
Naturally, the tariffs are opposed by virtually every Republican politician in Wisconsin, from Gov. Scott Walker to Sen. Ron Johnson to House Speaker Paul Ryan. But Trump continues to act as if he were a strongman in a socialist regime, with powers to unilaterally harm businesses that don’t pledge fealty to his economic plans.
“If they move, watch, it will be the beginning of the end — they surrendered, they quit!” Trump wrote in a Tuesday Twitter tantrum. “The Aura will be gone and they will be taxed like never before!”
Trump believed his tariffs on steel and aluminum would help balance America’s trade deficit with powerful nations like China. But in doing so, he’s prescribing a dangerous operation for a patient who isn’t sick. In the words of H.L. Mencken, “The whole aim of practical politics is to keep the populace alarmed by an endless series of hobgoblins, most of them imaginary.”
It’s not even clear at this point that Trump even understands what a trade “deficit” is. He seems to think it is a large bill that other nations owe us. In his dealings with Mexico, for instance, Trump has said the trade deficit will be used to pay for his fantastical border wall.
But while the word “deficit” is scary, trade deficits aren’t necessarily bad. When a country imports more than it exports, the deficit triggers a roughly dollar-for-dollar influx in foreign investment. As Harvard economist N. Gregory Mankiw has noted, as the United States’ trade imbalance has grown, so, too, has foreign investment back into the American economy. In fact, since 2010, foreign investment in the U.S. has rocketed from $2.5 trillion to $8 trillion.
This sets up what should be an awkward appearance by Trump in Wisconsin on Thursday, when the president will be breaking ground on a new Foxconn plant south of Milwaukee. While Trump will no doubt take credit for Foxconn’s $10 billion investment in the U.S., it is exactly that kind of investment that trade deficits incentivize. As Americans pay money to other countries to import foreign goods and services, that money boomerangs back as foreign investment in American jobs.
“The trade imbalance means other countries are bullish on America, and they think our best days are ahead of us,” state Rep. Dale Kooyenga (RBrookfield) told me, noting that Foxconn has billions of dollars that they could invest anywhere they wanted.
“If global trade was a horse race, and you were wagering on what horse was going to win,” said Kooyenga, “the trade imbalance means the smart money people believe the horse that’s going to win is America — and that’s what Foxconn is doing. They believe the greatest growth opportunity is in America and Wisconsin.”
As Donald Trump holds his shovel on Thursday, keep in mind that he isn’t breaking ground on new foreign investment, he’s burying American jobs in the name of jingoism. His anti-“insourcing” tariffs solve a problem that doesn’t exist and are only beginning to damage the economy in ways he doesn’t understand.