This past summer, I was at a wedding reception talking to a guy who was terrified about the trade deficit.
“Did you KNOW,” he said, speaking in capital letters, “that the TRADE DEFICIT last year was 700 BILLION DOLLARS?!!” (That’s him verbatim. You could absolutely hear the extra exclamation points after the question mark.)
I told him I didn’t know – I still don’t, as that number sounds like it was a number pulled out of the ether – but even if that were true, I told him I couldn’t care less.
He was aghast. “But WHERE is AMERICA going to come up with THAT kind of money?!”
It was then I realized that the word “deficit” had convinced him that a “trade deficit” is exactly the same thing as a “budget deficit.” That’s about as stupid as someone who thinks salad dressing should only be stored in dressing rooms. The words are the same, yes, but the meaning is different enough that no one really needs to worry about spilling Thousand Island on their Hamlet tights.
When the government has a budget deficit, they have a shortfall between the amount of money they spend and the amount of money they take in. We buy, say, two or three trillion dollars worth of stuff, but we don’t have enough cash to cover that extra $500 billion or so. So we stick the rest on the credit card and hope that the bill arrives in the mail when the American people aren’t looking.
A trade deficit, however, is the difference between the amount of stuff we buy as opposed to the amount of stuff we sell. So if I sell you my old comic book collection for fifty bucks, you have just racked up a staggering $50 trade deficit with me. WHERE are YOU going to come up with THAT kind of money?!
As you can see, the question makes no sense at all. You don’t owe me anything, since you were already stupid enough to blow fifty bucks on a piles of rotting newsprint with pictures of Green Lantern drawn on them. But you’re okay with it, too, because you decided that you wanted those dog-eared comics more than you wanted the fifty bucks. And thus, through the magic of capitalism, both of us walked away happy.
Donald Trump, ostensibly a savvy capitalist himself, consistently proves that when it comes to this fundamental tenet of economics, he doesn’t know salad dressing from comic books. In May if 2016, long before his dreadful tariffs went into effect, then-Candidate Trump mocked the people who were worried that his proposed tariffs and taxes would start a trade war.
“Trade war?!” he sniffed, the extra exclamation point dripping from his scowling smirk. “We’re losing $500 billion in trade with China. Who the hell cares if there’s a trade war?!”
(Wait, it’s $500 BILLION, not $700 BILLION?!! Why didn’t TRUMP tell the GUY at the WEDDING RECEPTION ?!)
Kindly consider the depth of ignorance found in Trump’s statement. We’re “losing” $500 billion in trade with China. So when we trade with China, we hand them $500 billion, and they hand us… nothing, apparently, because that money is lost. LOST! We’re losing it. So WHO the HELL cares?
Of course, that money is not lost. We handed them half a trillion bucks; they handed us all kinds of stuff – shoes and umbrellas and refrigerators and iPhones and Trump-brand neckties, all made in China. (Yes, before he inflicted himself on the American electorate, Trump was making America great again by exploiting cheap Chinese labor.) That $500 billion isn’t “lost.” It’s been traded. And it wouldn’t have been traded if we didn’t prefer having iPhones to having the money we paid for them. The trades were voluntary – both parties are satisfied. No bill for $500 billion is going to arrive in the White House mailbox unless Melania decides to surprise Barron by buying Guam for him as a birthday present.
Trade is good. It creates wealth. And, like it or not, we live in a global economy. Pretending we don’t won’t return us to the 1920s, when we didn’t.
Back then, the now-rusted-out factories were rust-free and churning out Model Ts built by 100% American labor. But now Ford can churn out sedans and SUVs that are exponentially more sophisticated than the Model T, and they can do it with a tiny fraction of the labor force. Why? Automation. Those assembly line jobs have been made obsolete by technology, and, Trump’s populist, protectionist rhetoric aside, they’re not coming back.
I’ve said many times that the entirety of the MBA I earned can be summed up in three words – markets are efficient. If labor is going overseas, it’s because the market has found a more efficient use of capital. If government jumps in and tries to stop it, it’s a bit like tearing up all the modern car-building machinery and forcing Toyota to make all its Priuses by hand, complete with hordes of seamstresses sewing up the leather seats. Will that create jobs? Well, yes, but it will also destroy other jobs, destroy a great deal of wealth, and ultimately make Toyota so non-competitive that they’ll go out of business, thereby destroying the short-term Prius-leather-seat-sewing jobs that made Trump look like a hero when he created them.
This is the real danger of Trump, folks. He’s mandating that the economy operate like it did fifty years ago, and if he gets his way, we’ll ALL be forced to eat GRASS!!
Hopefully, we’ll still have some SALAD DRESSING.
Do you agree? Do you like salad dressing? Join a camp below.