Wednesday, March 16, 2016

Trump is Completely Wrong About the U.S. Trade Deficit

By Mark Perry

Thomas Sowell once explained that economists visit the dentist so often because we gnash our teeth hearing so much “ignorant nonsense about the economy.” Thanks to the gibberish spewed almost daily about international trade, dentists must be having an especially busy year.

Virtually all economists support free trade and oppose protectionism. For example, a 2014 University of Chicago survey found that 93% of the country's top economists agreed with the statement “Past major trade deals have benefited most Americans” and none disagreed (7% were uncertain).

Despite that consensus, Sen. Bernie Sanders proudly proclaims that he has voted against every United States trade agreement starting with the North American Free Trade Agreement. Donald Trump tells us routinely that we're getting “ripped off,” “absolutely crushed” and “killed” on trade with China, Japan and Mexico — countries that are “laughing at us” as they are “beating us economically.”

We also hear from Trump that we're “going to lose $500 billion in terms of trade” to China, $58 billion to Mexico and more than $100 billion to Japan. Oh dear. Those figures aren't even correct. Our trade deficits last year were $366 billion with China, $58 billion with Mexico and $69 billion with Japan.

Let's start with two basic economic principles. First, countries don't engage in trade with each other — only businesses and consumers do. Second, when individuals engage in a voluntary market exchange, both parties — the buyer and the seller — are almost always made better off, because both parties get something they want. Trade is win-win, not win-lose as so many politicians these days would have us believe.

To understand how economically backward Trump's position is on trade, imagine him standing in the parking lot of a Walmart, Home Depot or Best Buy and shouting to Americans as they leave with their merchandise, “Hey, you just got absolutely crushed by those merchants who sold you cheap products made in China, Japan and Mexico. People overseas are now laughing at you.” That's ridiculous. Consumers who voluntarily purchased those products, and who probably said “thank you” to the cashier as they left, did so because they valued the merchandise they selected more than the dollars they left behind.

Read the rest here.


  1. No, let's not say that. Let's say you run a business and I impose a million dollar regulatory overhead on you and not your competitors. How will you compete?

  2. NAFTA and TPP are not free trade.

  3. vert short sighted analysis. Here's an alternative viewpoint. China is a soft dictatorship that controls business enterprise very strictly to favor their ruling oligarchy. They do not tolerate dissent or competing interests that would benefit their common people. Their people are largely held as slave labor due to the imposition of economic controls over competing business interests. As a result, their ruling class harms their people significantly. This is akin to doing business with your neighbor who sells something you need at a very low price because he keeps slaves who do the work. Is it right to do business with a slave holder? No. It supports the slave owners while maintaining the plight of the slaves in perpetuity. We should have trade rules that reflect the level of freedom enjoyed by the people composing the nation to be traded with. We should maintain complete trade bans on countries that practice dictatorial government and who do not respect property rights of others at all. This will force the dictatorships to respect their people or at least create a self containing economy that will either motivate people to rebel or provide them a level of comfort necessary for them to accept their situation.

    1. Re: David Cox,

      --China is a soft dictatorship--

      So what?

      --This is akin to doing business with your neighbor who sells something you need at a very low price because he keeps slaves who do the work.--

      So what, even if the allegation was true? How does that affect the economics of trade?

      --Is it right to do business with a slave holder? No.--

      Of course, but that's a moral judgment, not an economic conclusion. You just said the analysis above is "short sighted" yet so far you have advanced not a single economic counterargument, but rather your own personal opinions about China.