On the Economy: Trump 0

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The Trump Slump Donald Trump created when he took office has come home to roost.

President Donald Trump hates the trade deficit. On the campaign trail back in 2016, he argued that this gap—the imbalance between the value of America’s imports and exports—was a sign that China, and others, were “stealing our businesses, stealing our jobs, stealing our money.” If elected, he promised, he would “end our chronic trade deficits.”

Many politicians make promises on the campaign trail but never really try to deliver on them. Unfortunately, Trump really did make the reduction of the trade deficit a top priority as soon as he got into the White House. His policies to achieve this: an erratic mix of angry tweets, unilateral tariffs hikes, and threats to tear up trade agreements if the original signatories refuse to renegotiate them on Trump’s terms.

As these moves set off a global trade war, Trump’s defenders formulated—or, more accurately, dusted off—protectionist arguments for forcing other nations to import more from, and to export less to, the U.S. This, they told us, would bring factories back to the U.S.

That was the plan, anyway. What happened instead followed the path that free traders predicted.

As they explained, a country’s trade balance is determined overwhelmingly by factors such as the U.S dollar serving as a reserve currency, the ratio of savings to investment opportunities at home and abroad, and the relative attractiveness of that country’s investment climate. As long as the United States is growing and remains an attractive place to invest, we Americans will continue to run trade deficits with the rest of the world.

What tariffs can do, they continued, is affect bilateral trade balances with the individual countries against which the tariffs are applied. But this mostly leads American buyers to shift their purchases of imports from one nation to another—say, from China to Vietnam—so U.S. manufacturing is not increased and America’s overall trade deficit isn’t affected. If there is a reduction in our trade deficits, that won’t be because manufacturing is “returning.” It’ll be because both imports and exports are falling, with the former coming down more than the latter.

Underneath Trump’s policies is a profound ignorance of the tight connection between imports and exports. Foreigners sell goods and services to U.S. buyers in order to acquire American dollars. They want these dollars, in part, to buy American exports. So when U.S. imports grow, so do U.S. exports. The reverse is also true: reducing American imports causes Americans to shrink […]

Trump 0, Nerds 1

Click here to read the full story on reason.com

Emphasis ours

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