Trump Does Not Understand Trade, Chapter XXXIII

WASHINGTON, DC - APRIL 03:  U.S. President Donald Trump speaks during a joint news conference in the East Room of the White House April 3, 2018 in Washington, DC. Marking their 100th anniversary of their post-World War I independence from Russia, Latvian President Raimonds Vejonis, Estonian President Kersti Kaljulaid and Lithuanian President Dalia Grybauskaite participated in the United States-Baltic Summit with U.S. President Donald Trump at the White House.  (Photo by Alex Wong/Getty Images)
It’s gonna be great. Alex Wong/Getty Images

China’s decision to impose another large round of retaliatory tariffs on American imports has investors quaking at the prospect of a full-fledged trade war—and Donald Trump is getting defensive.

In today’s edition of Trump Tweets, the president seems to be saying that the U.S. is already in a hole, so we might as well gamble on a trade war. But based on some of his previous tweeting, I think there’s something slightly more subtle and, depending on your point of view, more disconcerting going on.

Trump believes that the United States has a built-in advantage in any trade confrontation with China, because we buy so much more from them than they buy from us. If escalating rounds of tariffs lead the two countries to cut off trade, the thinking goes, we come out on top. Or at least, that’s what he appeared to suggest when he tweeted that “trade wars are good, and easy to win” a month ago.

It’s hard to tell exactly what Trump means by “win big.” He may think that our overall trade deficit will actually fall if we stop doing business with a country like China. Or, he may simply think that we will inflict more damage on them than they will on us, giving the U.S. leverage in any negotiated cease-fire. If he believes the former, Trump is wrong. Importing less from China would probably just lead the U.S. to import more from other countries, because our trade deficit is driven by economic factors that are bigger than our relationship with any one nation. If Trump believes the latter—that we’ll be in a better position to negotiate because we can hurt them more than they can hurt us—then he’s underestimating how painful a tariff war could be for everybody involved. While China may in fact have more to lose in the fight than we do, American businesses still export $186 billion worth of goods and services to the People’s Republic, and American factories and consumers both rely on inexpensive Chinese imports to keep their own costs down. The economies of the two nations are deeply enmeshed at this point, and unbinding them will be painful—especially for industries like agriculture, for which trade with China has been a boon.

The fact that Trump doesn’t get these things speaks to the bigger problem: Our president, who has vast unilateral powers over trade, does not understand why we have a trade deficit. He does not understand why America’s past trade deals were structured as they were, and he does not appear understand who they benefit. He believes we have a trade gap because our past presidents made bad deals. In fact, our overall trade deficit is driven largely by factors that have nothing to do with free trade pacts, but rather issues like the dollar’s status as the world’s reserve currency, which drives up its value and makes imports cheap. He believes America accepted the the no good very bad deals he loathes because our trade negotiators were stupid people who got ripped off at the bargaining table. But while it’s true past administrations made some catastrophic misjudgments, those agreements were carefully shaped to benefit particular interest groups, like farmers who wanted access to foreign markets or manufacturers who wanted to make goods for less, who have reaped the rewards of globalization, even as many workers have suffered. In other words, deals can be good for some people and bad for others, but the president doesn’t do nuance.

America’s past trade negotiators did make mistakes, and there are aspects of our global trade regime that need to be fixed. China has bent the World Trade Organization’s rules to its advantage in ways almost nobody anticipated when they allowed the country to join. The North American Free Trade Agreement, which Trump loves to condemn, really does contain planks that put American workers at a disadvantage. But these issues are complicated; addressing them will require balancing the interests of Americans who’ve won from globalization and those who’ve lost. The fact that Trump doesn’t fully seem to realize how many Americans have benefitted from trade, and stand to lose if he disrupts the status quo, means he’s not equipped to take those challenges on. The president can’t fix what he can’t comprehend. Which is to say, it’s not clear he’s capable of fixing anything at all.