Understanding Trump’s Tariffs
I’ve been trying to figure out why Trump is starting trade wars left right and center, and what I’m starting to understand from hearing Trump talk is he just has a very simplistic and inaccurate understanding of economics.
Trump thinks the problem with the US’s economy is that the US has a negative trade balance with the world, and if the US has a trade deficit with a particular country, that country is ripping the US off.
Trump thinks the US has to “win” trade by having a trade surplus with every country it trades with. It’s no coincidence that the first round of tariffs are against Canada, Mexico and China, the US’s 3 largest trading partners, and it has a trade deficit with all of them. And now he is talking about tariffs on the EU, the US’s fourth largest trading partner, that the US also has a trade deficit with.
Unless the domestic pushback gets too overwhelming and he has to stop, Trump is going to go down the list of countries the US trades with, and any country the US has a significant trade deficit with will get tariffed.
Of course, Trump’s understanding of trade deficits is very simplistic and not accurate, it might have been a more or less mainstream view in the 18th century that having a positive trade surplus is essential for a strong economy, but most modern economists don’t believe the world works that way. Unfortunately Trump seems to be a true believer, so I’m worried the world is in this for the long haul.
Thoughts? Am I missing something here?