Monday, March 05, 2018


If I was an American citizen, I think I would be deeply embarrassed at my country’s president’s ignorance of the most basic principles of economics.  Here are just a few of the simple facts the so-called president doesn’t appear to comprehend:

Ÿ   Import tariffs impose costs – while American steel makers may welcome curbs on their overseas competitors, steel users such as Boeing – one of America’s biggest exporters – and General Motors will face higher costs for their raw materials, which will make them less competitive (and leave Boeing’s main rival Airbus laughing all the way to the bank).  This will reduce exports, cost jobs, raise prices for American consumers – hurting retailers as well – and even make Trump’s promised infrastructure upgrade more costly – bridges, tunnels and railways (not to mention ridiculous border walls) consume enormous volumes of steel.
Ÿ   Import tariffs invite retaliation – countries which see their exports to the US restricted are very likely to impose barriers to US exports in a tit-for-tat move.  Back to square one!
Ÿ   Trade wars have no winners – ultimately everyone ends up paying more (see above).
Ÿ   Trade deficits are normal – it is pointless to worry too much about the US trade deficit with a single country, because it is part of a much larger pattern of deficits and surpluses.  Every trading country will have a surplus with some countries and a deficit with others, depending on what it imports and exports.  America may have a huge deficit with China, for example, but it has a massive surplus with Australia.
Ÿ   You need to look at the whole value chain – much of America’s trade deficit with China is accounted for by American companies outsourcing their manufacturing to China (as well as other markets where labour costs are lower).  True, this may take jobs from American workers, but it brings back profits to the USA and makes goods cheaper for American consumers – if every T-shirt in Walmart was US-made, it would probably cost several times as much.  And manufacturing is only one stage in the entire value chain (does Trump even understand that concept?) – value is also added by raw material production, design, packaging, shipping, distribution and retailing, etc. – much of which remains in American hands.
Ÿ   Giving the rich more money doesn’t benefit the economy – while tax breaks for the super-wealthy – with a handful of token concessions to the middle class – has been the policy of every Republican administration since Reagan’s, the money has never been shown to boost the economy significantly.  The reason for this is simple – rich people already have all they need, so if they receive more money they tend to save it.  By contrast, if the poor get more money they will usually spend it quickly, stimulating demand for goods and services and thereby creating more jobs.  The one thing the rich do consistently spend money on is supporting politicians who will continue to enrich them by pursuing the failed “trickle-down” policy at the expense of everyone else.

The global economy – which every country is part of – is a highly complex and heavily inter-related monster.  Every action in one part of it has consequences far beyond the immediate local result.  Donald Trump’s butterfly mind tends to alight on one contentious issue and rush to take some superficially attractive action in response without analyzing the whole chain of consequences which will follow.  Effective economic leadership requires joined-up thinking – something for which Trump shows no aptitude wha

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