Trump challenging economic orthodoxy

US Republican presidential candidate Donald Trump speaking at a campaign rally in Fayetteville, North Carolina, on March 9, 2016.
US Republican presidential candidate Donald Trump speaking at a campaign rally in Fayetteville, North Carolina, on March 9, 2016. PHOTO: REUTERS

WASHINGTON • Mr Donald Trump's blistering critique of United States trade policy boils down to a simple equation: Foreigners are "killing us on trade" because Americans spend much more on imports than the rest of the world spends on US exports.
 

China's unbalanced trade with the US, he said on Tuesday night, is "the greatest theft in the history of the world". Add a few "whereins" and "whences" and that sentiment would conform nicely to the worldview of the first Queen Elizabeth of 16th century England, to the 17th century court of Louis XIV, or to Prussia's Iron Chancellor, Otto von Bismarck, in the 19th century.

The great powers of bygone centuries subscribed to the economic theory of mercantilism, "wherein we must ever observe this rule: to sell more to strangers yearly than we consume of theirs in value", as its apostle, the East India Company director Thomas Mun, wrote in the 1600s.

Now Mr Trump is bringing mercantilism back. The New York billionaire is challenging the last 200 years of economic orthodoxy that trade among nations is good, and that more is better.

He is well on his way to becoming the first Republican nominee in nearly a century who has called for higher tariffs, or import taxes, as a broad defence against low-cost imports.

ON THE TRADE DEFICIT WITH CHINA

Our trade deficit with China is like having a business that continues to lose money every single year. Who would do business like that?

'' MR TRUMP

ON FACTORIES MOVING OVERSEAS

I will call the head of Carrier and I will say, 'I hope you enjoy your new building. I hope you enjoy Mexico. Here's the story, folks: Every single air-conditioning unit that you build and send across our border - you're going to pay a 35 per cent tax on that unit.'

MR TRUMP

And there is a good chance he would face a Democratic opponent, Mrs Hillary Clinton, who has expressed fewer reservations about trade, inverting a longstanding political dynamic.

Among Republican standard- bearers, "there's nobody since (Herbert) Hoover who talked this way about trade", said Dr I. M. Destler, a public policy professor at the University of Maryland and the author of American Trade Politics.

For most of the last century, Dr Destler said, such scepticism about trade had been relegated to the fringes of the Republican Party.

Mr Trump's mercantilism is among his oldest and steadiest public positions.

Since at least the 1980s, he has described trade as a zero-sum game in which countries lose by paying for imports. The trade deficit with China, which reached US$366 billion (S$503 billion) last year, makes America the biggest loser.

"Our trade deficit with China is like having a business that continues to lose money every single year," Mr Trump told the Daily News of New York last August. "Who would do business like that?"

During the current campaign, he has regularly advocated tariffs as the best solution.

He has promised to penalise US companies that build foreign factories. Recently he has called out Carrier, which is shifting air-conditioner production from Indiana to Mexico. "I will call the head of Carrier and I will say, 'I hope you enjoy your new building,'" Mr Trump said last month. "'I hope you enjoy Mexico. Here's the story, folks: Every single air-conditioning unit that you build and send across our border - you're going to pay a 35 per cent tax on that unit.'"

In January, Mr Trump proposed a 45 per cent tariff on Chinese imports during a meeting with The New York Times editorial board.

Economists have long struggled against the popular view that exports are a measure of economic vitality, while imports are evidence of regrettable dependence.

They argue that the opposite is true. "The gain from foreign trade is what we import. What we export is the cost of getting those imports. And the proper objective for a nation, as Adam Smith put it, is to arrange things so we get as large a volume of imports as possible for as small a volume of exports as possible," economist Milton Friedman said in a 1978 speech.

But critiques like Mr Trump's resonate in part because economists have oversold their case.

Everyone can buy a cheaper air-conditioner when Carrier leaves for a lower-cost country, but a few hundred people will lose their livelihoods.

NEW YORK TIMES

A version of this article appeared in the print edition of The Straits Times on March 12, 2016, with the headline 'Trump challenging economic orthodoxy'. Print Edition | Subscribe