Donald Trump just jumped the shark calling himself, “Mr. Tariff.” He believes a trade deficit is akin to stealing the wealth of a nation. It isn’t.
Under normal conditions a trade deficit is simply a reflection of the difference in comparative advantage of one country’s workers over anothers. And the value of the currency is supposed to rise and fall to offset that state of affairs over time.
Donald Trump has, in the words of David Stockman, “A 17th century view on global trade.”
It is one born of a complete misunderstanding of how and why trade imbalances occur, why they will re-balance if allowed and why, ultimately, they are irrelevant.
But, Trump can’t or won’t see it that way. He refuses to accept that we are the creators of our persistent trade deficit with China. That the trade deficit stems from running budget deficits and applying Keynesian counter-cyclical monetary policy or, worse, QE to protect domestic asset prices.
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It also stems from our being the world’s reserve currency which places an insane demand on the Fed to keep the flow of dollars rising to liquefy global trade.
He complains that international tariffs regimes are unfair. But, as Stockman has consistently pointed out tariff levels globally are nearly non-existent running at around 3% on average. This is the period of freest trade we’ve seen in the era of the modern nation state, but Trump looks at these niggling things, these small things and can’t see the forest for them.
It speaks of ideological possession on the subject. It speaks to inflexibility of mind.
“Germany taxes our cars too high, slap a tariff on them.” He’s…