Trump would have us believe that our recent history has been predominantly comprised of other countries taking advantage of us in foreign policy and trade. This of course ignores how the United States has regularly thrown its weight around in its dealings with other nations. Throwing ones weight around, i.e. being a bully, is Trump's preferred way of making "deals". Like a lot of rich guys with seemingly bottomless resources, he has taken advantage of contractors, suppliers, and even local governments by tying them up in court, knowing that their funds would run out before his did. He has taken this strategy with him into the realm of international trade, betting that, since the U.S. is a larger market than most other countries, other nations need our business more than we need theirs. The problem is that Trump doesn't really understand the basics of economics. Part One of "America First" will look at this slogan as it relates to economics and trade.
One of Trump's selling points to (in his words) the poorly educated was that he was a successful businessman. If he knew how to run a business and make billions for himself, then surely he would be able to take that same savvy to running the country. This idea doesn't hold up for several reasons. Running a business, especially a privately owned business with no non-family shareholders, isn't the same as serving as President of the United States. The CEO of a private company is a virtual dictator, answerable to no one. Trump's authoritarian leanings betray a lack of understanding how how the government is supposed to work, that there's a Congress, that there are courts, that there is a whole executive branch full of experts, that there are semi-independent agencies and inspectors general.
Then there's the indications that he wasn't a successful businessman. Oh sure, he always managed to get paid himself. At least in the case of the casinos, funding them primarily with junk bonds after explicitly telling the gambling commission that he wouldn't fund them with junk bonds. The ownership structure ensured that Trump would benefit if the casinos did well, but since he hadn't put up any of his own money, a loss would not affect his personal bank account. (It would allow him to claim the loss on his tax returns, reducing his tax liability). He made his money in salary, bonus and by shifting personal debts to the businesses. The casinos are only one example. Trump's real estate outings reveal more bankruptcies. The truth is that Trump was a terrible businessman, but was very skillful at enlarging his own bank account.
The myth that Trump was some kind of business genius came about because if there's one thing Trump is good at, it's self-promotion. "The Art of The Deal" probably should have been classified as a work of fiction. "The Apprentice" painted Trump as some kind of savant and helped build the myth of "Trump". His continuing business "success" mainly consists of licensing the Trump name to other businesses and trading on the name, all the while performing the same kind of fraud upon contractors and local governments that he practiced in Atlantic City, propped up by hundreds of undocumented workers.
International trade is complex. Economics is complex. Trump is smart enough to hire smart accountants and aggressive lawyers, but not smart enough to understand any of it himself. Of course, no one expects the President of the United States to be an expert on anything, let alone everything, but Trump expects us to believe that he is an expert on everything. One thing that he is not only not an expert on, but is an absolute idiot on, is economics. One example among many is what he thinks the trade deficit is. What it is, is the difference between the total amount of goods and services we buy from other countries and what they buy from us. If more money is going out than coming in for goods and services, we are running a trade deficit, if we are selling more than we are buying, it's a trade surplus. Trump sees a trade deficit as representing money that we are losing, even money that is being stolen from us. Surely someone at some time explained what a trade deficit actually was, but he chose to ignore that instruction. It's obvious by now that Trump doesn't like to be corrected and will stick with his own ignorance rather than admit that he doesn't know something.
One of the complexities is that it's not just the United States engaging in trade with, say, China. It's thousands of U.S. businesses buying and selling to and from thousands of Chinese businesses. They all set their own prices, have their own profit margins that they need to maintain to stay in businesses and are in constant competition with other companies foreign and domestic. Each one of those companies is going to try to find the best value (price + quality) for their products, supplies or parts so that they can provide the best value for their own customers and stay ahead of the competition. There are a lot of factors that go into a company's decision to buy from an overseas supplier. Usually the main factor is price. Labor costs in the United States are, on average, among the highest in the world. Even U.S. minimum wage is many times higher than the average wage in many other countries.
Labor cost introduces an interesting Catch-22. American workers and American consumers are the same people. As workers we want to be paid as much as possible, while as consumers we want things to be as inexpensive as possible. If the average wage goes up, then the average cost of goods and services will rise as well. Something has to give, and that something usually ends up being labor costs by way of shifting manufacturing overseas where labor is cheaper. Companies don't move their operations outside the U.S. because they're unpatriotic, but because they are trying to stay in businesses. Walmart provides a representative example. When Walmart wants to come into a city there are protests. people complain that Walmart will depress wages and drive local "mom & pops" out of business. But what happens when the Walmart is finally built? People shop there. Sometimes the same people who protested against it. Why? Because the prices are lower. In general, as long as the quality is comparable, and often even when it's not, people will go for the lower-priced option, even if the product isn't American made. Sometimes government will get involved by imposing a tariff on imported goods and services. The goal is to make the imported product more expensive in order that consumers will purchase more of the domestic product. That's the theory anyway. In some cases the domestic product was already priced low in order to compete. The tariff on the import allowed the domestic to increase in price as well, costing consumers more money no matter who they bought from. Sometimes the import is of higher quality. In all cases the tariffs fall on the consumer, not the supplier (although the supplier may suffer a reduction in demand).
Sometimes raw material availability determines where manufacturing takes place. Certain minerals that are essential components for computers can be found only in a few places. Specialization also comes into play. To understand specialization, picture a pre-industrial society. Or even a frontier society. Every family takes care of their own needs. They hunt or fish for their food, perhaps farm a small plot of land for vegetables. They built their own houses, made their own clothes, their own weapons and farming implements. They were, each family, self-contained. But as a society begins to scale up, a family can no longer produce everything themselves. Visualize the old Little House on the Prairie; yes, the Ingells family were pretty independent. They hunted, farmed, sewed, built their home. But they still went to Olsen's store for some of their needs. They certainly didn't make Pa's rifle, or smelt the iron for their knives, or weave and dye the cloth for the clothes that they wore. Scale up even more and more specialization occurs. An economy functions more efficiently when individuals and industries focus on what they do best and don't try to "do it all". Scale up even farther and countries and regions focus on what they do best and strive to be efficient, rather than self-contained.
While "America First" might sound patriotic, it ignores the reality of the situation. Withdrawing into our borders and putting up barriers to the global marketplace may make us feel good, but will it be beneficial? Unless American companies, of their own volition find a way to manufacture and sell goods and services that are of high quality, low price and at the same time pay their employees high wages, there will be a need for international trade. But as I pointed out a few paragraphs back, high wages breed higher prices, which cause consumers to look elsewhere.
Of course, the government can step in and regulate prices and prohibit American companies from "off-shoring", it can tariff foreign competition out of existence, it can mandate buying American. You know, a good old fashioned command economy.
You know what we call that?
No comments:
Post a Comment