“Surpassingly Stupid”: Trump’s Trade War

Bottom line, Trump’s tariffs and trade war lay bare his colossal ignorance of economics. For one thing, he misunderstands what a “trade deficit” is.

At Econolog, David Henderson takes this tweet apart.

When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with.

Trump’s premise is false. You don’t lose billions of dollars on trade: you gain on trade. If people were to lose from trade, they wouldn’t trade. They trade to gain–and they do gain. Let’s say I buy a car from Japan or a toy from China–pardon me, since the Chinese government temporarily banned the use of the letter “n”–I buy a toy from Chia. I value that car or that toy at something greater than what I pay for it or I wouldn’t buy it. So I don’t lose; I gain.

Economists have been pointing out that Trump doesn’t “get” international trade, even before he was elected. See, for example, “What Donald Trump Doesn’t Understand About the Trade Deficit” by Neil Irwin in the New York Times, from July 2016. But Trump thinks in terms of winners and losers; if the U.S. has a trade deficit, it must be losing.

Paul Krugman wrote of Trump’s tweet:

Trump has always had a thing about trade, which he sees the way he sees everything: as a test of power and masculinity. It’s all about who sells more: if we run a trade surplus we win, if we run a trade deficit, we lose …

This is, of course, nonsense. Trade isn’t a zero-sum game: it raises the productivity and wealth of the world economy. To take a not at all random example, it makes a lot of sense to produce aluminum, a process that uses vast amounts of electricity, in countries like Canada, which have abundant hydropower. So the U.S. gains from importing Canadian aluminum, whether or not we run a trade deficit with Canada. (As it happens, we don’t, but that’s pretty much beside the point.)

Trump isn’t intelligent enough to grasp what stopping trade and starting trade wars with long-established trading partners would actually do to our economy. As Scott Sumner wrote at Econolog,  “How’d Smoot-Hawley work out?”

Part of the problem for working Americans is that the big, splashy trade agreements produced mixed results. Yes, they create more wealth, but some jobs are lost, and many wages are suppressed.  And it seems to most working folks that the big shots didn’t care about the parts of the economy that got left behind, and until that aspect of “free trade” is worked out, trade deals will be regarded with great suspicion. But that doesn’t mean throwing up a bunch of trade barriers to protect individual industries will necessarily help anybody, especially in the long run.

Even I can grasp that if Canada really is able to produce aluminum more efficiently than we do, it makes sense for American manufacturers to buy aluminum from Canada rather than make it ourselves. Otherwise, it becomes more difficult to make things with aluminum that are competitive with stuff made in other countries with aluminum. However, somebody’s got to think of what to do with out-of-work aluminum workers and the communities they live in.

But I digress. Steel is something Trump probably thinks he knows about, because buildings are made of steel. Back during the 2016 campaign, Kurt Eichenwald reported that for years Trump had been importing Chinese steel for his buildings. (Ironically, China is not a major steel exporter to the U.S. any more and won’t be much affected by the tariffs. The top steel importers to the U.S. are Canada, Brazil, South Korea, Mexico and Russia.) But Trump doesn’t really seem to know much of anything.

The bigger concern is that, according to many sources, nearly everybody advising Trump on trade told him not to do the tariff thing, and he did it anyway. It appears that he is kicking his perpetual tempter tantrum mode into even higher gear. Mike Allen and Jonathan Swan write at Axios that Trump is getting ready to blow off everybody:

His staff at times managed to talk him off the ledge. No more. Tired of the restraints, tired of his staff, Trump is reveling in ticking off just about every person who serves him.

Trump hates rigidity and rules. He has grown to especially hate Kelly’s rigid rules, so he purposely blew off Kelly’s process and announced planned tariffs in a haphazard way.

There are signs Trump has also had it with his National Security Adviser H.R. McMaster, who he complains is long-winded and inflexible. MSNBC’s Nicolle Wallace reported Trump is ready to bounce him.

The tariffs call was also a big middle finger to economic adviser Gary Cohn, who has fought for more than one year to kill tariffs that would provoke a trade war or higher prices for consumers, a de facto tax increase. Cohn, who stuck around to fight tariffs, now seems more likely to leave.

Zack Beauchamp wrote at Vox:

Trump has decided to put the global economyat risk because he was in a pissy mood.

The evidence for this scary-sounding theory comes from a Friday afternoon report published by NBC News, tracing Trump’s recent decision to slap large tariffs on imports of steel and aluminum. These tariffs have already prompted threats of retaliation from America’s leading trade partners; European Union President Jean-Claude Juncker has discussed putting tariffs on blue jeans, bourbon, and Harley-Davidson motorcycles — three iconic American exports. Australian Trade Minister Steven Ciobo is openly warning that Trump’s actions may cause another recession.

So how did Trump come to such a monumental decision? According to NBC’s sources in the White House, it was because he got some bad press.

Here is what NBC said:

On Wednesday evening, the president became “unglued,” in the words of one official familiar with the president’s state of mind.

A trifecta of events had set him off in a way that two officials said they had not seen before: Hope Hicks’ testimony to lawmakers investigating Russia’s interference in the 2016 election, conduct by his embattled attorney general and the treatment of his son-in-law by his chief of staff.

Trump, the two officials said, was angry and gunning for a fight, and he chose a trade war, spurred on by Commerce Secretary Wilbur Ross and Peter Navarro, the White House director for trade — and against longstanding advice from his economic chair Gary Cohn and Treasury Secretary Steve Mnuchin.

Back to Zack Beauchamp:

Dig deeper into the NBC story and the picture gets even more worrisome. Even after his initial outburst, Trump apparently didn’t bother to consult with his economic and diplomatic advisers on the best way to implement these tariffs. In fact, almost no one important was warned of Trump’s monumental decision before it was made, and the White House did virtually nothing to prepare for the all-too-predictable angry response from foreign leaders. …

…The reason this kind of thing hasn’t happened before, according to report after report from inside the White House, is that Trump’s advisers have been able to keep his impulses in check. …

…The problem is that Trump’s staff is disintegrating amid a series of mounting scandals. The Russia investigation, allegations of domestic violence by a top White House staffer, reports of outlandish spending by Cabinet officials, and just general frustration with Trump’s chaotic management style have led to a number of departures from the Trump White House. This has led to a weakening of the personnel wall between Trump and his more outlandish impulses.

This whole mess played out in the tariff case: A piece in Politico suggests that Rob Porter — the former White House staff secretary who resigned amid multiple allegations of domestic abuse — had been organizing meetings designed to block imposition of new tariffs. “Porter’s resignation removed a fierce opponent of the tariffs from the West Wing and revived the chaotic policy review process that defined the early weeks of Trump’s presidency,” Politico reports.

White House staff chaos is letting Trump be Trump.

I’ll give Paul Krugman the last word:

Never mind the net loss of jobs from a full-scale trade war, which would in the end probably be a relatively small number. The point instead is that the gross job losses would be huge, as millions of workers would be forced to change jobs, move to new places, and more. And many of them would suffer losses on the way that they would never get back.

Oh, and companies on the losing end would lose trillions in stock value.

So the idea that a trade war would be “good” and “easy to win” is surpassingly stupid. And the way Trump seems to be starting his war is also remarkably stupid: start by protecting goods that are inputs to industries that employ far more people than those being protected? Do so in the name of national security – a justification that is, for good reason, almost never invoked — when the biggest source of those inputs is that hostile foreign power Canada?

In themselves, these tariffs aren’t that big a deal. But if they’re a sign of what future policy is going to look like, they’re really, really bad.

For another last word, see David Atkins, Trump’s Ignorant, Infantile Game of Civilization.

14 thoughts on ““Surpassingly Stupid”: Trump’s Trade War

  1. About Trump becoming unglued:

    As someone remarked on TV, when have we ever seen Trump glued?

  2. One of the reasons we're in this mess is the movie "Dave".  Okay, it's unfair to pick on just that one movie; let's view it as more of a symptom.  Remember the movie?  Starred Kevin Kline as some random guy who happened to look like the president, said president having unexpectedly died.  So naturally, the advisors get Dave to replace the prez.  The First Lady, Sigourney Weaver, is happy cause Dave's a nicer guy, and apparently better endowed, but the key scene here is the budget cutting scene.  Dave as prez sits down with his guy and simply draws lines through various budget items and balances the US federal budget in maybe 25 minutes.  No fuss, no drama, no one hurt.  It's so easy.

    If only we had someone from outside government running things everything could be fixed so easily.  Ignore that spending cuts (unless you're doing them to our military budget) aren't going to enough to do anything major.  Ignore that deficits aren't in themselves the problem (amount of debt service can be, but what matters is does the deficit money get pumped into the economy).  

    "Dave" was a fun, light, movie, and not rightwing.  But that's why I used it as my example.  Even in movies like that, along with tv, news, punditry, the idiotic idea that fixing problems in government is easy as long as you avoid anyone with experience reigns supreme.  So, given that this dumb idea is so prevalent in the USA, on both sides (you can actually use both sides accurately in this example), why not someone like Trump.  

  3. So the idea that a trade war would be “good” and “easy to win” is surpassingly stupid.

    Just …Wow!  If that doesn't make you scratch your head in wonder nothing will.

  4. Congress could always step in and nix the tariff, but, I guess kissing the tush of Wayne Terrorist LaPierre and other important activities keep them busy. When the economy tanks, they share the blame.

  5. I don't think the movie "Dave" was that simplistic.  Kevin Kline's character called in his best friend, played by Charles Grodin, who was a CPA and who–theoretically–with no political agenda.  He had his friend go over the budget with him before a budget meeting.  Everything has to be condensed to make a good movie; and, "Dave" is one of my favorites.  However, the problem with Trump is much more serious.  Our National Security is in great danger with this man.  We could be in a shooting war with Korea next week with this angry, stupid, crazy man in charge.  I really hate him and every American who voted him in.  And, remember Swami's best description of him as a big bag of sh-t.

  6. They have some interesting stuff at Econolog sometimes, and those particular quotes seem OK to me, but I just thought I'd note that it's run by a guy who's really, really into Austrian economics. Extreme libertarian, like basically believes the government shouldn't intervene in the economy at all. Just thought it was worth mentioning, like I said.

  7. Republicans in Congress are gonna get stuck between a rock and a hard place. It's not just the Steel/Aluminum tariff which Trump saw as a club against Canada/Mexico and China, plus a lever against S. Korea who didn't consult Trump before the Olympics before they made nice with a nuclear neighbor.  

    The EU decided to operate as a block against Trump even starting down this road. Trump rebelled by threatening all autos from Europe in a Satuday AM  tweet. Trump is off the rails, and before we know what's in the first tariff, Trumps opening up the war because – surprise, suprise – the rest of the world isn't rolling over to Trump's threats. (Trump loves a good fight – as long as the other fighter doesn't punch back.)

    Our global allies have had enough of Trump. President Bone Spurs is doing a wonderful job of uniting the world – against the US (or at least Trump). But if the Dow took a hit on the rumor of Trump tariff #1, the weekend has given the stock market a glimpse of a widening war. The economic hit on Wall Street is going to be huge when/if Trump drops the hammer. Do take note: Wall Street has the first mortgage on Congress.

     Here's the thing. The tariff announcement was because Trump is in an emotional meltdown. If Congress and the court clip Trump's wings, in the emotional state he's in, I'm afraid Trump will completely redefine "unhinged". 

  8. 1. Raises taxes on the poor and middle class (“tax cut”)

    2. Causes healthcare cost inflation.

    3. Tosses an anchor to the real estate industry by torpedoing tax deductions for mortgage interest.

    4. Pisses away humongous $$$ on tax cuts for the rich and increased military spending.

    4. Jumpstarts inflation with brain-damaged tariffs 

    5. ……In a high P/E, rising interest rate, fragile economy.

    What could possibly go wrong?


  9. "Tired of the restraints, tired of his staff, Trump is reveling in ticking off just about every person who serves him."

    This is why his base loves him, because there is no personal trait they hold in a higher esteem than pissing people off, and Trump more than fills that bill for them.  Liberals in particular, but to just be a real pisser in general, is a good thing. 

    This is why Trump is constantly bragging, even when most of what he brags about is clearly not true or he never follows up on.  He wants admiration but he also wants to generate envy and jealousy, to piss people off   in a clear display of projection.

    Muhammad Ali would hype his fights by boasting about what he would do to opponents, and he would always back it up.  Trump never does.

    This is but one example of the kind of damage Trump can do.  This is "just" trade, and it carries some serious consequences.  But this man has access to the nuclear football!


  10. Here we are again, Mr. zero impulse control, listens to no one, does not like the headlines and wants to please himself, and next his base who don't think or read, lashes out.

    Who will press his pants with him in them? Hope is leaving.

    Who will tell him to fire someone, as that always makes everything better? Javanka are leaving or so they say.

    When all your lapdogs are gone because frankly the price of lawyers is too high to stay on, who do you kick? Canada.

  11. I'm not sure if anyone here understands the implications of our trade deficit. Begrudgingly, I have to agree with Trump that our trade deficit is a bad thing. A billion dollars in a trade deficit has been estimated to be about 10,000 American jobs lost. 

    Understand our nations debt is an indicator of private savings, but the trade deficit is an indicator of what foreign countries own of us. Meaning, that presently one seventh of our nation's assets (properties, land use, treasuries etc.) are foreign owned. The larger the deficit, the larger that number grows. I don't see that as a good thing.

    Are tariffs the answer? Normally they are if they are being used to protect a nation's manufacturing of any specific product that the tariff is used on. That's the way we operated for nearly 150 years, following Hamilton's model (http://press-pubs.uchicago.edu/founders/documents/v1ch4s31.html). The best way to fight the trade imbalance would be to bring back manufacturing which would require at least fixing our trade deals and at most, fixing the tax code. But the way I am reading this story is that Trump is viewing the imbalance outside of what one would view to be the normal economics of the situation. And one can make fun of Trump's inability to grasp these things, but I would hope these same people understand the trade deficit needs to be dealt with and will debate what is the best method rather than how dumb the Donald is. Whether that answer be VATs or domestic content requirements or something else, I do believe we need to do something.

    After all, this same issue was addressed by Sanders and it helped both of them win a few states that have had their manufacturing depleted over the years. So while Trump is bumbling his way on the issue, hopefully it will spark discussion and maybe create legislation to deal with it in a beneficial way for both the American worker and the nation.


  12. Bonnie, the budget bit in "Dave" was super simplistic, and stupidly so.  It was lazy moviemaking built on, and promoting, an incredibly popular but really stupid idea about our federal budget.  It's just one example of how this very destructive idea* in what otherwise was a fun movie in the "Moon Over Parador" vein.


    * you recognized this even as you argued against it: you used the word "supposedly" to do an awful lot of heavy lifting.

  13. The comments express a lot of my thinking this AM.  I keep hearing on the TV news show that Trump is doing what he does to keep a campaign promise.  I say that Trump doesn't give a rat's ass about his campaign promises.  I doubt if he even remembers what he promised.  Trump  cares only about one thing, himself.  He wants adoration, approval and the ability to always get his own way because that's how he defines winning.  When he is not getting these things,  he is frustrated, blames anyone who happens to be in his field of vision and lashes out to let off a little steam from the pressure cooker or a little smoke from the volcano.  He is a very dangerous man.  He cannot think rationally.  I suspect his family recognizes this and they have learned to pacify him to keep peace and of course to maintain their own financial  security.  However, the whole world is not going to kiss his ass and do his bidding.  He has the power and ability to retaliate against other countries if they do not recognize his "unusual, outstanding, wonderful, never before seen qualities".  I could add more superlatives but I'm sure you have heard them before from Mr. Trump  himself. 

    I perceive that Hope Hicks was Trump's yin influence over his yang personality.  I suspect that she smoothed his ruffled feathers and was able to calm him down, if only temporarily.  She probably just got tired of it as it must have been very draining.  In addition, perhaps she realized she could be in deep legal trouble so she threw in the towel.  With her gone and nobody to take her place, the volcano might erupt.  I don't know much about trade or the stock market, but I do know a little bit about Asian culture.  They see Americans as barbarians and saving face is a big thing with them.  Trump  doesn't understand this.  When I lived in Santa Barbara and was practicing acupuncture, I used to go to LA and Chinatown to buy herbs.  The Chinese in the shops were very accommodating and polite because they do like to make money.  However, if I was actually being waited on and a Chinese person came into the shop, I was left alone while the Chinese person was waited on before me.  This happened more than once.  I did not interpret this as racism or prejudice.  It is simply cultural.  Trump doesn't even understand American culture, let alone the culture of other countries.  I feel sorry for anyone associated with Trump as he damages everything he touches.

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