Friday, March 9, 2018

Does One Hand of This Administration Know What Its Other Hand Is Doing?

A Don Boudreaux letter to the Wall Street Journal:
Today Pres. Trump announced his request to the Chinese that they reduce their annual trade deficit with the United States by $100 billion (“U.S. Asks China for Plan to Reduce Trade Deficit by $100 Billion,” March 8).  Forget how disturbing it is that the president of the United States is so uninformed that he is frightened by an accounting artifact – bilateral trade deficit – that in a world of more than two countries has no economic significance whatsoever.
Instead ask: does one hand of this administration know what its other hand is doing? Just last week, Trump’s chief trade shaman, Peter Navarro, boasted that among the alleged benefits of the newly announced steel and aluminum tariffs is that they will prompt producers in countries slapped with these tariffs to relocate their operations to the U.S.  But because any such relocations involve foreign investment in the U.S., all such relocations will put upward pressure on the U.S. trade deficit.
So with one hand, the administration tweets of its scheme to reduce the U.S. trade deficit, while on the other hand it bangs the table about how its taxes on Americans who buy imports will spark capital inflows to the U.S. – capital inflows that fuel the trade deficit.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030
The above originally appeared at Cafe Hayek.

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