China, which previously threatened tariffs on pork, fruit, and other commodities, today expanded the list to include soybeans, cars, and airplanes. The Bezos #FAKENEWS!!1! Washington Post reports:
President Trump showed no sign Wednesday of backing down from an escalating trade confrontation with China, even as financial markets wobbled and American farmers and manufacturers warned that he was inviting a damaging commercial clash.
Hours after the Chinese government announced plans to match the president’s tariffs on $50 billion in imported Chinese goods with import levies on American soybeans, cars and airplanes, Trump fired off a pair of bellicose tweets.
“When you’re already $500 Billion DOWN, you can’t lose!” the president wrote in a possible reference to last year’s $566 billion U.S. deficit in goods and services trade.
Wall Street was less sanguine. The Dow Jones industrial average fell more than 500 points in early trading before rebounding by midday. Soybean prices also plunged more than 5 percent as traders grappled with the possible closure of a market that bought roughly half of U.S. exports of the commodity last year.
As alluded to in the Post article, the Dunce in Chief responded to the news in his trademark embarrassingly ignorant style:
We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!
— Donald J. Trump (@realDonaldTrump) April 4, 2018
When you’re already $500 Billion DOWN, you can’t lose!
— Donald J. Trump (@realDonaldTrump) April 4, 2018
Those who are economically literate understand that a “trade deficit” is a good thing. I have explained this at length before:
Even the much-maligned “trade deficit” is actually a good thing, not a bad thing. If you’re ignorant (like Trump), you hear the word “deficit” and assume that it must be somehow bad. The matter should have been put to rest with Adam Smith’s book “The Wealth of Nations.” Smith proclaimed: “Nothing can be more absurd than this whole doctrine of the balance of trade.” As financial writer Simon Constable said, “a big trade deficit shows that you got more for your exports than did the other country.”
Those trying to explain economics must often feel like Ben Stein as he tries to explain the dangers of tariffs to a roomful of
Trumpist protectionists vacant high-school students:
Those who say that China declared a trade war on us, and we are just responding, point to studies that show, for example, that Chinese currency manipulations “raise the cost of all American goods and services in China by somewhere between 25-40%.” Who does that sound like it hurts? Anyone? Anyone? The Chinese. And if the cost of Chinese goods goes up here, who does that hurt? Anyone? Anyone? Americans.
Some argue that some American businesses can’t compete with cheaper Chinese goods. That may be. So, your “conservative” solution is to enlist a central government to take away Americans’ freedom to buy less expensive goods? We are to hurt everyone, to protect a handful of businesses that can’t compete — and this is the “American way”?
Like free trade, innovation also drives certain companies out of business as it lowers prices and increases the standard of living generally. Should we therefore get the government to outlaw or slow the growth of innovation, to protect the companies whose obsolete products are hurt by innovation?
Think about it. The invention of the gas-powered motor vehicle fueled economic growth and brought about an increase in the standard of living. But it didn’t help everyone! In particular, that invention really hurt the folks who invested in horse and buggy businesses. People were driven out of work! Investors lost their shirts! Businesses went under! Using protectionist logic, we should have prevented the invention of motor vehicles, obviously. What’s the difference? It’s the very same logic that says we should restrict consumer freedom and impose higher costs on American consumers in the name of protecting a handful of companies.
And make no mistake: while our tariffs “protect” some American companies, they harm far more American companies, as I have also explained before:
[T]wo-thirds of the materials that we import are not consumer goods, but rather inputs into American production. To the extent that we restrict and tax those inputs, we raise the cost of American production — which makes us less productive, not more productive.
The irony here is that the tariffs China announced today hurt China more than they hurt us. But if you believe otherwise, and subscribe to the Trumpist notion that Country A’s tariffs on good from Country B hurt Country B, then China really hit us hard today. Yet the very same people who don’t understand economics and have never read Adam Smith will cheer this — because it has nothing to do with policy, but rather with the appearance of “fighting back.” Even if all the blows land on us, who cares? He fights!
UPDATE: Changed “imposes” to “to impose” in the headline, since they have not yet been imposed.