David R. Henderson  

Trump's Trade Fallacies

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At times, one senses that Trump just dislikes trade, period, whether "fair" or not. In that same July 2015 Las Vegas speech, Trump said: "I just left Los Angeles, thousands of cars, millions of cars coming in [from Japan]. We get nothing. We get cars. They get . . . We want to send rice, we want to send corn. . . . The imbalance of these things. They send a car. We send corn."

So which is it? Do we send corn or don't we send corn? And are cars "nothing"? And, if we do send corn, what's wrong with that? Objecting to producing corn in the United States, where it's cheaper to produce than in Japan, in return for cars that are cheaper to produce there than here--if they weren't cheaper, we wouldn't buy them--is to object to trade per se.

A major part of the problem Trump has with trade, I believe, is that he sees it as a zero-sum game, as in sports. He often talks about how we're not "winning" in trade. And if we win more, in his view, China will win less. In a speech in the early 1990s in which he criticized the North American Free Trade Agreement (NAFTA), Trump said that Mexican businesses favored NAFTA, and that must mean that U.S. businesses would lose. What he fails to understand--and, again, he is not alone--is that in any trade, both sides win, or else they wouldn't trade.


This is from David R. Henderson, "Trump's Trade Fallacies," Defining Ideas, June 7, 2016.

Read the whole thing.


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CATEGORIES: International Trade




COMMENTS (20 to date)
bill writes:

One funny thing about this sort of anti-trade rhetoric is you can hear it in reverse too. Imagine a Japanese Trump saying "We send these cars. Fantastic feats of engineering. And all we get back is corn!"

John Strong writes:

^^ What Bill said.

jon writes:
The imbalance of these things. They send a car. We send corn.

His point here seems pretty obvious. So much so that your misinterpretation of that point seems willful.

Japan and the US are economic powerhouses. When these two advanced nations engage in the "battle" of international trade, one produces cars -- a product that requires a certain level of technology, and that has the potential to produce a lot of good paying jobs -- and the other produces corn -- a product that just about any country could produce, and that produces a bunch of minimum wage (or lower) jobs that are going to be mostly filled by temporary migrant workers and illegals.

Khodge writes:

This speaks exactly to Don Boudreaux's frequently told story of the Midwest sending its grains to a factory in California which turns the grains into cars. It was a wonderful thing until someone figures out that the factory actually sends the grain to a foreign country which, in turn, sends cars to the factory.

I do not believe that Trump is truly protectionist. He chose possibly the weakest segment of the GOP and parlayed the party's strength - 10+ strong candidates - into it's ultimate downfall by winning pluralities. It is this opportunistic approach that makes him so dangerously unpredictable.

Fit Saver writes:

Jon,

Your sense of farming is romantic but not accurate. My grandfather was farmer and his land is now farmed by a major co-op. The amount of science, engineering, and capital that goes into everything from the seeds to the harvesting is staggering. Good luck just hiring some illegals and getting your corn farm up and running, you'll never be able to get that car.

There aren't too many people out in the fields anymore which is a larger part of the economic decline of the mid-west.

Hazel Meade writes:

What Bill said. Corn for cars seems like a pretty good trade to me.

@jon,
What is this about "producing" jobs?
The goal of trade is not to produce work for people. It is to make LESS work. It is to improve your standard of living WITHOUT having to work harder for it.

And international trade is not a "battle" - it is a cooperative effort. The Japanese are really good at making cars. The US has a lot of land perfectly suited to growing corn, which Japan doesn't. Ergo, we both benefit from the trade.

Hazel Meade writes:

Khodge,
Trump was saying the same things about Japanese cars in 1988, the first time he floated a run for the presidency. His views have not changed.

I know it's hard to believe that someone this dumb could have won the Republican nomination, and that makes one want to think that Trump is super brilliant at campaigning or opportunistic or something, but really, maybe this is just because we've been vastly overestimating the Republican base. Update your priors.


LD Bottorff writes:

For years, a substantial portion of the Democratic Party was saying things very similar to Trump with regard to trade. It was silly when they said it. It's silly when he says it.
Professor Henderson, your article is succinct and on point. Thanks.

Khodge writes:

@Hazel
Point taken. Unfortunately, many things fell into place, such as a showman's ability to bring non-party members into the party primary or the ability to twist his advantages against his opponents, such as convincing the press that the rules that made his victory possible were stacking the deck in favor of "the establishment."

jon writes:
There aren't too many people out in the fields anymore

If that's the case, why do I keep hearing about all those crops rotting in the fields every time someone talks about enforcing our immigration laws?

jon writes:
The goal of trade is not to produce work for people. It is to make LESS work. It is to improve your standard of living WITHOUT having to work harder for it.

How does getting rid of jobs improve the standard of living of Americans, in the aggregate?

Mark Bahner writes:
What Bill said. Corn for cars seems like a pretty good trade to me.

Circa 1980, I listened to either Gordon Tullock or James Buchanan speak at Va Tech. This was of course when Japan was going to conquer the world with their manufacturing prowess. One thing the speaker commented on was the idea that it was bad that the Japanese were (allegedly) supporting their automotive industry so they could sell us inexpensive (and well-built! :-)) cars. He said words to the effect of:

They send us automobiles and we send them scraps of printed paper. It's great!
Mark Bahner writes:

Fit Saver writes:

There aren't too many people out in the fields anymore

Jon responds:

If that's the case, why do I keep hearing about all those crops rotting in the fields every time someone talks about enforcing our immigration laws?

From Pew Research:

Only 0.5 percent of U.S-born workers are employed in farming, fishing or forestry, while 4 percent of unauthorized aliens work in those fields.
The work performed by illegal immigrants varies among states, the report found. In 39 states and the District, the largest number work in service jobs, but in 34 states, they hold the largest share of all farming, fishing and forestry jobs.

Nationwide, unauthorized immigrants are clustered in a few occupations, notably farming, fishing and forestry (26 percent of the workforce), building and grounds (17 percent), and construction and mining (14 percent). They comprise 24 percent of all groundskeepers, 23 percent of domestic workers and 20 percent of those in clothing manufacture.

In addition, they have carved out niches in certain relatively well-paid construction trades. They hold 34 percent of all jobs in drywall installation, 27 percent in roofing and 24 percent in painting.

So there are very few natural-born U.S. citizens in farming, and unauthorized immigrants are significantly over-represented in farming (relative to their percentage in the overall population).

Hazel Meade writes:

How does getting rid of jobs improve the standard of living of Americans, in the aggregate?

It leave them free to either work on other things, so they can ultimately end up owning more than JUST the car, or enjoy more leisure time. Both are net improvements. Would you rather work either hours a day and get a car, or work six hours a day, and get a car?

James Hanley writes:

Trump treats business as a zero-sum game. It's not actually all about the money with him, it's about the winning, coming out ahead of someone else. That's the message of his Art of the Deal.
So it's not surprising that he sees trade the same way.

Addie writes:

Hazel Meade writes:

The goal of trade is not to produce work for people. It is to make LESS work. It is to improve your standard of living WITHOUT having to work harder for it.

Jon responds:

How does getting rid of jobs improve the standard of living of Americans, in the aggregate?

Because labor gets allocated to its most productive uses.

In the beginning of the industrial revolution, technology and productivity gains got America to the point where very few people were needed to produce massive amounts of food. So it no longer made sense for millions of Americans to work as farmers. In the long run, this was great news. Farm work (in the 1700s) was back-breaking labor, and the rising wealth and productivity of Americans moved many of us to factories where America lead the world in manufacturing.

At the tail end of the industrial revolution, we STILL lead the world in manufacturing, but our output was so efficient, that we no longer needed millions of Americans to work on assembly lines to build the amount of materials and widgets that are demanded by business and consumers.

This increase in productivity is great news for Americans. We have more leisure today and we are more educated than we ever were in the past. Assembly line work, while not as back-breaking as farm work was tedious and, at times, hazardous. So because of the advances in American productivity we are able to invest more in education and create the types of jobs that were unheard of 200, 100, and even 50 years ago.

And, we hope, that this cycle continues. With jobs lost in unproductive sectors, jobs emerge in productive sectors. I used technological progress/labor efficiency as an example because the effect of trade is the same. We specialize at producing the goods and services that we can produce most efficiently and then trade for the remainder.

The fact that unemployment isn't through the roof today after the industrial revolution "got rid of" all of the farm jobs and if the tech revolution "got rid of" all the industry jobs should quell fears that in the aggregate our standard of living has improved enormously because of trade and labor efficiency.

James Hanley writes:

Regarding migrant labor and farming, not all crops are the same. Truck farming, vegetables, has long made use of temporary labor at harvest, as have some fruit crops. But not generally so with grains. The only manual labor for corn is in "topping" (detasseling) to control pollination when a field has multiple varieties. But today this is done by machine, and minimal labor is needed just for getting what the machine misses. This at least used to be a job for rural teenagers.

But grain agriculture creates jobs not only in biotech but in engineering and manufacturing of equipment. A combine is a mighty sophisticated piece of equipment these days. They even have GPS, which allows them to map out the soil types in their field and adjust their planting in each small plot for maximized yield.

So instead of saying "we only give them corn," we could say, "we give them the output of world leading science and emgineering."

Hazel Meade writes:

Trump treats business as a zero-sum game. It's not actually all about the money with him, it's about the winning, coming out ahead of someone else. That's the message of his Art of the Deal.
So it's not surprising that he sees trade the same way.

A very insightful point.
Trump is the sort of man who cares about relative status, not absolute standards of living.

Mr. Econotarian writes:
Japan was the United States' 4th largest goods export market in 2013.

U.S. goods exports to Japan in 2013 were $65.1 billion. U.S. exports to Japan accounted for 4.1% of overall U.S. exports in 2013.

The top export categories (2-digit HS) in 2013 were: Optic and Medical Instruments ($8.0 billion), Aircraft ($7.1 billion), Machinery ($5.8 billion), Electrical Machinery ($4.9 billion), and Meat (pork and beef) ($3.3 billion).

U.S. exports of agricultural products to Japan totaled $12.1 billion in 2013, our 4th largest export market. Leading categories include: pork and pork products ($1.9 billion), corn ($1.8 billion), beef and beef products ($1.4 billion), and wheat ($1.0 billion).

U.S. exports of private commercial services* (i.e., excluding military and government) to Japan were an estimated $46.5 billion in 2012 (latest data available), 4.8% ($2.1 billion) more than 2011 and 55% greater than 2002 levels. Other private services (business, professional, and technical services - management consulting and public relations services, legal services, and computer and information services), travel, and the royalties and license fees categories accounted for most of U.S. services exports to Japan.

jon writes:

Hazel Meade writes:

Would you rather work either [eight] hours a day and get a car, or work six hours a day, and get a car?

Is this what's happening? Are Americans working fewer hours for the same or better wages? Or are there a lot of un- or under-employed Americans and have wages stagnated or fallen?

Addie writes:

With jobs lost in unproductive sectors, jobs emerge in productive sectors... We specialize at producing the goods and services that we can produce most efficiently and then trade for the remainder.

Unfortunately, the "productive sector" of the US economy seems to be low paying service sector jobs. You can maybe see why the guys who used to "inefficiently" produce cars at a good wage are not very enthusiastic about the chance to "efficiently" produce cheeseburgers at a horrible wage.

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