Trump Warned by Economists: He Won’t Listen
Over 1,100 economists of all stripes warned Trump that he’s risking a major economic collapse if he continues his short-sighted, ignorant war on trade. I don’t expect Trump to listen. He’s too narcissistic to pay attention to people who know better—after all he seriously told The Economist he invented the term “priming the pump” in relation to economics. The world laughed at that absurdity but Trump seems to believe it.
So what if Trump succeeds in his war on trade? Why won’t it do what he promises it will?
Let’s say you could buy an imported widget for $7 or a domestic one for $10. Trump makes the $7 widget sell for $12 by adding tariffs — a fancy word for taxes — to the price. So you buy the $10 one instead, maybe. Of course you may not be able to afford the $10 one or find it worth it so you go without your beloved widget.
But, let’s say you need one so badly you pay the higher $10 price for the domestic widget. Trump sees that as a victory for “American jobs.” But, what happens to the $3 extra you are spending? The tariff costs comes out of your budget. You might have planed to buy a Whatsitcalled for $3. Now you don’t. Demand for the local widgets is slightly up, but demand for Whatsitcalleds is down.
Before Trump started acting like a Soviet Central Planner you were going to buy one widget for $7 and one Whatsitcalled for $3. Now, you spend $10 and only get the widget. You are worse off by the sum of one Whatsitcalled. And, the domestic labor that is now needed to produce the one widget is not a net gain since you are no longer demanding the labor to produce the Whatsitcalled.
But, that isn’t the end of it. Those foreign widgets were produced in Widgetmania, a small country admittedly. They sold widgets to America and got paid in dollars, but Widgetmania doesn’t use dollars. They have their own currency. So, they have to exchange those dollars for currency that they can use.
But, who wants dollars? The dollars are redeemable in the United States so they eventually find their way to someone who wants to spend money in America. The $7 you paid for your widget didn’t get hidden under a mattress. It was either invested in the U.S., increasing the amount of capital here and lowering interest rates, or it was used to buy something — maybe Georgia peaches. So, $7 worth of Georgia peaches were exported and paid for with the $7 you spent to buy the damn widget.
Of course, Trump put an end to that. Now the $7 never leaves the U.S. and consequently isn’t used to buy American exports. So demand for peaches drops. Fewer trees are planted, the crop harvest is reduced, and along the way jobs disappear. Those losses are blamed on the “free market” by Trump and his fellow crony capitalists, not on the tariffs.
Maybe the seven US dollars are given to a tourist from Widgetmania who is coming to Disneyland. Of course, he buys a lot more than just seven of them. He buys a few thousand. He comes over and he pays for rental cars, hotel rooms, meals in the restaurants and buys lots of Mickey Mouse ears for his nephews and nieces. He is creating jobs at Disneyland, in the hotels, at those restaurants, etc. In fact, the more dollars that go overseas the cheaper they become and the easier it becomes for him, and others like him, to spend those dollars in the United States.
The cost of imports is our exports; dollars are just the means of making the exchange easier. The widget manufacturer doesn’t have to figure out how many employees want to go to Disneyland or buy an American film on line. They just need to get the dollars and deposit them in a bank, which then resells them to someone who actually needs them. When we cut down what we import we reduce the number of dollars available for foreign exchange. A reduced supply of exchange means a higher value on each dollar that makes all American goods more expensive for the purchaser. When prices go up demand goes down.
But, when tariffs drive down the demand for exports they reduce the number of jobs in exports. So, the jobs “created” in the manufacture of widgets came at the expensive of American jobs destroyed in the field of exports.
In the end all Trump manages to do is “create” the appearance of new jobs in one area of the American economy by destroying them in other areas. He makes the cost of goods more expensive. So, there are fewer jobs, not more and people get less for their money. What kind of idiot thinks that this is something to brag about? No, never mind, don’t answer that last question, we already know!
This article was originally posted in The Radical Center.