On tariffs, Trump’s reckless ignorance can no longer go unchallenged

(This is the second essay in a series challenging Trump’s tariffs)

Presidents make decisions of global importance that affect millions of lives. As a result, they are expected to know something of the substance of their preferred policies, or at least be reasonably well-informed by their advisors. On trade issues, Trump is the opposite of this. He is misinformed on a level unprecedented for a President on any topic, let alone one that affects over 20% of the US economy and about which he is enormously far from the expert consensus. Imagine if President Obama, when negotiating the Iran deal in 2015, continually referred to Iran as Iraq or argued that the deal was necessary to prevent Iranian conventional weapon build-up even though the treaty dealt with nuclear proliferation. This is the level of ignorance that Trump displays, in tweets and speeches, on an almost daily basis on trade issues.

First, Trump continually argues that revenue from the tariffs he has imposed will play an important role in paying down the national debt. On Sunday, he tweeted, “Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated.”  This is a truly astounding claim. Trump has so far imposed tariffs on $85 billion of foreign imports at an average rate of 25%, meaning that the tariffs will provide $21 billion in additional revenue, or 0.1% of the country’s $15.7 trillion publically-held debt. When you subtract the $12 billion in aid to tariff-hit farmers, Trump’s tariffs this year will be able to pay off only 0.06% of the national debt. For context, this revenue is equivalent to 1/200th of the revenue lost as a result of his tax cut bill.

Second, Trump constantly argues that other countries are taking advantage of the US and our “uniquely” open trade laws, implying that other countries provide much more unfair protection to their economies than the US does. Another brazen mistruth. According to the World Bank, the European Union imposes an average tariff of 1.96% compared to one of 1.69% in the US, hardly a significant difference. Further, both Canada and Australia, countries targeted by Trump’s steel and aluminum tariffs, impose average tariffs lower than the US average. But even this doesn’t do Trump’s lie justice. Tariffs play only a small part in trade disputes among advanced economies today, with non-tariff barriers such as subsidies and buy-local provisions also serving to protect domestic economies. According to the Heritage Foundation, hardly an anti-Trump group, the EU and Canada both have higher (less protectionist) “trade freedom” scores than the US, when taking both tariffs and non-tariff barriers into account.

Third, Trump likes to argue that the US trade deficit means that the country is “losing” money to other countries, tweeting last month that “we are the “piggy bank” that’s being robbed” and “lost $817 billion on trade last year”. This is perhaps the most basic of trade economics mistakes and one that is taught to every Econ 101 college class. The trade deficit has little to do with competitiveness or tariff levels, but instead reflects the level of saving and investment in a country. Investment levels in the US are higher than national savings, forcing us to borrow investment funding from abroad which, in turn, is financed through foreign imports. In effect, we are running a trade deficit in return for higher levels of domestic investment. As a result, while our multilateral trade deficit is almost 2.9% of GDP, our capital account surplus (the level of investment coming into the US minus the level going out) is definitionally also 2.9% of GDP, with no “loss” of wealth by either the US or other countries.

It is clear that Trump has no clue what he is talking about when he loudly proclaims that his trade wars will pay off the national debt or that the US is losing a lump sum of wealth each year through trade deficits. But this ignorance is more sinister and worrying than commonly understood. Trump’s trade wars are not only hurting American workers and consumers, but also are corroding the American-led international order. America’s democratic allies, especially in Europe, are finding it politically destructive to support the President on anything given his abysmal standing amongst their home voters. As a result, Trump has no political capital to accomplish any of America’s foreign policy goals, from a new Iran deal to negotiating revised trade agreements. History shows us that long sustained fights over tariffs can lead to a collapse in international diplomacy and greater conflict between nations (take the Smoot-Hawley tariffs in 1930 for instance), and Trump will continue to push the US down this road as long as he chooses to live in a make-believe world on trade.

The first essay in this series argued that Congress must take action to rescind Trump’s tariffs because they are illegal. Even further, Congress must step in because Trump has shown himself to fundamentally misunderstand the issues at stake. This is not an honest error, that can be fixed by surrounding the President with better people. Trump has many advisors who care deeply about free trade, such as former National Economic Council Director Gary Cohn (who likely lost his job due to trade disagreements with the President) and current NEC Chairman Larry Kudlow. They have explained the nuances of trade deals to Trump many times and shown him that his tweet tirades about tariffs are patently untrue. And yet Trump doesn’t care. He would rather live in his own make-believe world, and create real policy from these fake beliefs, than actually care about the many genuine economic issues facing Americans. A President that cannot be bothered to learn any semblance of the truth cannot be trusted to act in the best interests of Americans, on trade and much else. When they re-enter session this fall, Congress has an obligation to put pressure on the President to rescind these tariffs that are both illegal and wreaking havoc on the world America created.