We now have even more firm evidence that President Trump does not appear to fully understand the importance of trade policy in sustaining economic growth, building alliances, and supporting American security. Nor does he seem to grasp the basic economics of trade, i. e., that a trade deficit is the converse, or mirror image, of a net surplus of investment capital, which provides the foreign direct investment that our trade partners use to invest in the U. S. to create growth in jobs and domestic product. It is not like a budget deficit; it does not have to be repaid.
His announcement this week that he will significantly increase tariffs on aluminum and steel imports is the one glaring element of the populism that has been so much a part of his electoral success that could also be the element that pulls down the most positive aspects of his economic policy, namely the new tax bill and aggressive deregulation that have sent the U. S. economy toward performance levels it hasn’t recently seen.
It is astounding to me that he seems to have no one around him to remind him of the mistake that George W. Bush made in 2002 with his disastrous steel tariff increases that crippled the middle market companies that are the leading source of job growth, not to mention representing nothing less than the equivalent of a significant tax increase on consumers. He doesn’t seem to get it that these steel users dwarf the employment base of steel makers in the U. S. by about 45 to one!
Unfortunately President Trump has used his misunderstanding and his base supporters’ ignorance on the economic basics to unfairly demagogue trade issues as if we can return to the pre-globalization days of American manufacturing dominance and the nostalgia for the U. S. Steel of the 1950s. And to compound the problem this comes shortly after messages from Treasury Secretary Mnuchin in Davos that “a weaker dollar is good for trade” sent the dollar to a three-year low against a basket of world currencies. What a plan–protectionism and dollar devaluation, a recipe for a trade war just as business and consumer confidence is booming and the economy is growing faster than it has for over a decade.