It mystifies me why Donald Trump, a self-claimed successful business man, is so wrong on one of the biggest economic, political and investment issues of our days: International Trade.
International trade is an enormous positive factor for the U.S. economy. The U.S. is the world’s largest economy. 95% of current and potential customers are outside of US borders. Total trade with foreign countries reached a record $5.6 trillion last year. The US is world’s second-largest exporter after China. Why would international trade kill the US? It makes no sense.
More than 12 million people in the U.S. work in export-related industries. This sector creates significant amounts of employment. These are also higher-paying jobs. According to the White House Council of Economic Advisers, employees earn $1,300 more a year than workers in non-export-related industries.
Trump and many protectionists insist that foreign companies are somehow taking advantage of the US. How? By offering things people want to buy Americans like their imports. They drive Japanese and European cars, wear Swiss watches, like Italian shoes and low-cost designer clothes made in Bangladesh and Vietnam. The coffee comes from Colombia or Brazil, flat-panel TVs and smartphones are assembled in South Korea or China and products in the grocery store comes from all over the world.
Trump blames international trade for the loss of millions of manufacturing jobs. But the real reason is not low-cost foreign workers. It’s automation. According to a recent Stanford University study, manufacturing robots cost the equivalent of $4 an hour and are getting steadily better and cheaper.
Trump is demanding tariffs on imports. Since when is a good thing to pay more for German cars, Japanese electronic products or Irish whiskey?
This protectionist economic theory called mercantilism was refuted by Adam Smith way back in 1776. Politicians tried it in the 1930s and it rapidly worsened a global depression. It’s not hard to see why. They placed tariffs on American imports. Foreign governments quickly retaliated with tariffs on our exports, same what happens in the current trade war. The end result was a world economy that contracted 25%. This is the economic version of mutual assured destruction.
Donald Trump fuels scepticism among US citizens about foreign trade. He is quick to mention the fact when a manufacturing plant closes and moves to Mexico but he does not talk about the increased staff of companies to support their export-oriented businesses. You have to remember: International trade has given Americans improved quality, lower prices and an enormous increase in choices.
But there’s a perceptual problem: The benefits are dispersed among hundreds of millions who take this for granted, while the negatives are concentrated in the much smaller fraction who suffer economically. It’s time to appreciated the value of international commerce.
Instead of slamming and hiking tariffs on foreign products, history shows that trade made easy, affordable and fast always creates more trade.
Unfortunately, Mr. Trump is not talking about the good news for most rich, poor and working class Americans.
Sven Franssen