Campbell
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- Aug 20, 2015
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The Republican presidential frontrunner has been railing against “bad trade deals” since declaring his candidacy last summer. And he’s amplified the criticism, if that’s possible, in recent weeks. “If you look at China, and you look at Japan, and if you look at Mexico … they’re killing us,” he said during the latest Republican debate on Fox News. “With China we’re going to lose $505 billion in terms of trade …. Mexico, $58 billion. Japan, probably about… $109 billion.”
Trump is talking about the annual U.S. trade deficit with those three countries—but the amounts in question are anything but losses. Trade occurs when one party buys something from another, and trade between countries has the same mutual benefit as trade between an individual consumer and a merchant: each side gets something they want. “They’re sending us goods and we’re sending them green pieces of paper,” says Patrick Newport, U.S. economist for forecasting firm IHS Global Insight. “I don’t see how that’s a loss.”
Trump's numbers, incidentally, are off. Here are the U.S. trade deficits with each country in 2015:
China: $366 billion
Japan: $69 billion
Mexico: $58 billion
Those numbers might seem high, but in an $18 trillion economy, they don't really worry economists. What does worry economists is Trump's plan to slap tariffs of 35% to 45% on imports from China and Mexico, a tax that would be passed along almost entirely to consumers. Trump's logic seems to be this: Low-wage countries where workers get paid a fraction of U.S. wages are basically undercutting American workers, and therefore ought to be punished. But his tariffs would punish Americans too, especially lower-income consumers who benefit most from cheap imports. Most economists decry the kind of protectionism Trump is calling for, because it props up inefficient firms, reduces the incentive to innovate and depresses living standards over time.
Even so, free trade has been controversial for years, especially during downturns when it seems like Americans who lose their jobs are suffering at the expense of foreign workers gaining jobs, usually for less pay. Trump is only the latest populist to blame unfair trade practices for the plight of many Americans who feel they’re falling behind. And he calls out name-brand companies who have recently decided to locate major facilities outside the U.S., including Ford (F), Carrier (UTX) and Nabisco (MDLZ).
Free trade can be tough to defend because the benefits to Americans—cheaper goods, stronger purchasing power and a more efficient economy—are spread broadly across the entire population. And those benefits are often intangible. Yet the costs of free trade, such as an individual company’s decision to close a U.S. factory and move it overseas, create concentrated loss that’s intuitively easy to understand. Free trade creates far more winners than losers, but the losers are more visible and often, more vocal.
Trump is talking about the annual U.S. trade deficit with those three countries—but the amounts in question are anything but losses. Trade occurs when one party buys something from another, and trade between countries has the same mutual benefit as trade between an individual consumer and a merchant: each side gets something they want. “They’re sending us goods and we’re sending them green pieces of paper,” says Patrick Newport, U.S. economist for forecasting firm IHS Global Insight. “I don’t see how that’s a loss.”
Trump's numbers, incidentally, are off. Here are the U.S. trade deficits with each country in 2015:
China: $366 billion
Japan: $69 billion
Mexico: $58 billion
Those numbers might seem high, but in an $18 trillion economy, they don't really worry economists. What does worry economists is Trump's plan to slap tariffs of 35% to 45% on imports from China and Mexico, a tax that would be passed along almost entirely to consumers. Trump's logic seems to be this: Low-wage countries where workers get paid a fraction of U.S. wages are basically undercutting American workers, and therefore ought to be punished. But his tariffs would punish Americans too, especially lower-income consumers who benefit most from cheap imports. Most economists decry the kind of protectionism Trump is calling for, because it props up inefficient firms, reduces the incentive to innovate and depresses living standards over time.
Even so, free trade has been controversial for years, especially during downturns when it seems like Americans who lose their jobs are suffering at the expense of foreign workers gaining jobs, usually for less pay. Trump is only the latest populist to blame unfair trade practices for the plight of many Americans who feel they’re falling behind. And he calls out name-brand companies who have recently decided to locate major facilities outside the U.S., including Ford (F), Carrier (UTX) and Nabisco (MDLZ).
Free trade can be tough to defend because the benefits to Americans—cheaper goods, stronger purchasing power and a more efficient economy—are spread broadly across the entire population. And those benefits are often intangible. Yet the costs of free trade, such as an individual company’s decision to close a U.S. factory and move it overseas, create concentrated loss that’s intuitively easy to understand. Free trade creates far more winners than losers, but the losers are more visible and often, more vocal.
