Because I expect Donald Trump to win the presidency, it's important to understand the case for free trade. Even if Kamala Harris wins, she is no free trader either.
“Donald Trump doesn’t like large trade deficits. But he does like lots of foreign direct investment. He can’t have both.“
Without *actually* defending Trump’s espoused trade policy, he actually could have reduced goods/service deficits - even trade surpluses - while having lots of foreign direct investment.
There are, or at least surely have been, many countries over the years that had lots of direct foreign investment while running trade surpluses. The East Asian countries ex-Japan come to mind. China itself at one point comes to mind (it might still be true, idk).
Further, even if we can’t be ”East Asian Miracles”, if trade were managed in an (idiotic, to be sure) mercantilist fashion to be balanced in terms of goods and services, it would be possible that there was lots of cross border direct investment by the U.S. overseas, and by overseas investors here.
And you clearly do understand that when Trump talks of foreign investment he doesn’t mean investment in our bonds or in actual dollars, but rather “US plant and equipment, or they directly invest in the United States” exactly as you noted as distinct from investments in bonds. The Chinese and other countries’ nationals investing only in those, even if it meant selling their U.S. bonds, would easily allow Trump’s “both” to occur.
In fact trivially, if the rich Chinese and Europeans just used the U.S. as their (expensive, in many but not all cases) outsourcing country, with Chinese/European capital and management together with U.S. labor and raw materials in order to build stuff for not just the U.S. market but the rest of the world, surely we could have perennial large trade surpluses and large amounts of foreign direct investment. True, those Chinese and Europeans would get most of the profits, but hey they’d have to pay taxes here, and would be employing millions of Americans.
Methinks thou foundeth a great sounding line, but had a temporary brain spasm on the accuracy of it.
While it would imo surely be *bad* policy, an approach that would make us poorer, not richer - for all the reasons you’ve espoused forever, and in most of your piece - AND while I agree 100% with your piece’s well-written short conclusion, it’s simply false to claim that Trump couldn’t have both.
We don’t *want* him to have both, but that’s a completely different story.
“Game theory” using the threat of our tariffs to try to change their policy I agree with you could be a wise tactic. Even “bullying” other countries to force them to open their markets (by threatening to withhold access to our market) I believe could have merit. DH likely disagrees with me on this point.
Apart from that, however…
If Japan or any other country ain’t gonna change their import tariffs, in fact high import tariffs we impose - whatever the reason for them - hurt U.S. consumers usually more than they hurt foreigners - and at any rate definitely *always* hurt U.S. consumers at least somewhat.
Similarly, high tariffs on intermediate goods used by U.S. producers to create final products definitely hurts U.S. producers and so U.S. jobs.
Plus you risk trade wars that are lose-lose and make everyone worse off.
So “fair” trade is a misnomer, as it is actually unfair to almost all consumers and many potential job-holders to have ugh import tariffs
Great essay; thank you.
You're welcome.
“Donald Trump doesn’t like large trade deficits. But he does like lots of foreign direct investment. He can’t have both.“
Without *actually* defending Trump’s espoused trade policy, he actually could have reduced goods/service deficits - even trade surpluses - while having lots of foreign direct investment.
There are, or at least surely have been, many countries over the years that had lots of direct foreign investment while running trade surpluses. The East Asian countries ex-Japan come to mind. China itself at one point comes to mind (it might still be true, idk).
Further, even if we can’t be ”East Asian Miracles”, if trade were managed in an (idiotic, to be sure) mercantilist fashion to be balanced in terms of goods and services, it would be possible that there was lots of cross border direct investment by the U.S. overseas, and by overseas investors here.
And you clearly do understand that when Trump talks of foreign investment he doesn’t mean investment in our bonds or in actual dollars, but rather “US plant and equipment, or they directly invest in the United States” exactly as you noted as distinct from investments in bonds. The Chinese and other countries’ nationals investing only in those, even if it meant selling their U.S. bonds, would easily allow Trump’s “both” to occur.
In fact trivially, if the rich Chinese and Europeans just used the U.S. as their (expensive, in many but not all cases) outsourcing country, with Chinese/European capital and management together with U.S. labor and raw materials in order to build stuff for not just the U.S. market but the rest of the world, surely we could have perennial large trade surpluses and large amounts of foreign direct investment. True, those Chinese and Europeans would get most of the profits, but hey they’d have to pay taxes here, and would be employing millions of Americans.
Methinks thou foundeth a great sounding line, but had a temporary brain spasm on the accuracy of it.
While it would imo surely be *bad* policy, an approach that would make us poorer, not richer - for all the reasons you’ve espoused forever, and in most of your piece - AND while I agree 100% with your piece’s well-written short conclusion, it’s simply false to claim that Trump couldn’t have both.
We don’t *want* him to have both, but that’s a completely different story.
If Japan charges the US high tariffs to import our cars, you’re for no tariffs on theirs? Reciprocal trade tariffs are fair trade IMHO.
“Game theory” using the threat of our tariffs to try to change their policy I agree with you could be a wise tactic. Even “bullying” other countries to force them to open their markets (by threatening to withhold access to our market) I believe could have merit. DH likely disagrees with me on this point.
Apart from that, however…
If Japan or any other country ain’t gonna change their import tariffs, in fact high import tariffs we impose - whatever the reason for them - hurt U.S. consumers usually more than they hurt foreigners - and at any rate definitely *always* hurt U.S. consumers at least somewhat.
Similarly, high tariffs on intermediate goods used by U.S. producers to create final products definitely hurts U.S. producers and so U.S. jobs.
Plus you risk trade wars that are lose-lose and make everyone worse off.
So “fair” trade is a misnomer, as it is actually unfair to almost all consumers and many potential job-holders to have ugh import tariffs