Donald J. Trump is indeed a phenomenon. Early in his campaign his blusteryness inspired my oldest son to declare that he hopes he lasts a while because he’s so dang entertaining! Well, last he has, and, yes, my son is growing concerned—as are our trading partners. Here’s CNBC quoting a Japanese university professor on how the opinion of Mr. Trump has evolved among Japan’s top policymakers:
“To start with they just thought ‘he’s funny’,” said Masatoshi Honda, a professor of politics at Kinjo University. “But recently they’re starting to worry — what happens if Trump wins?”
Politics often comes up these days as we review client portfolios and discuss the prospects for 2016. And while a few are bold enough to declare their support for Trump, there are those who profess to be uncommitted, yet laud the phenom’s willingness to speak his mind and the potential for him to shake up the establishment—in a good, or perhaps refreshing, way. “He’s not a politician” and “he’s not politically correct” are common laudations. Hmm…
Here’s my view (on his trade rhetoric):
Mr. Trump the businessman enjoys the freedom to import materials and labor from wherever in the world offers him the best terms. He strikes deals, makes trades. He doesn’t “beat” anyone. He says he “beats China and Japan all the time.” Nope, can’t be! There’s no “beating” in trade. Each party delivers to the other what it deems to be of lesser value (to itself) than what it garners from the other. Different people have different wants at different times, and different geographies house different resources and folks with different talents. Each party to a transaction generates a product or a service more efficiently than its partner, hence one party trades the stuff it produces more efficiently for the stuff the other party produces more efficiently.
Ah, but what about trade deficits? Truly, there are no such things, they’re myths! How so? Well, think about it: Mr. Trump says we have a $50 billion annual trade deficit with Mexico. Really? Would he truly have us believe that Mexico presents us with $50 billion more in stuff than we give it in return? My, if it were only so! The fact is, along with various goods and services, we hand over fifty-billion U.S. dollars—a “product” that Mexico would only accept if it had its eyes on $50 billion worth of stuff the U.S. had to offer (or knew that it could trade those dollars to other parties in the world who had their eyes on stuff the U.S. had to offer). And, oh my goodness, do we ever have stuff to offer! In addition to the $180 billion or so a month in goods and services the U.S. sells to other countries’ buyers, it possesses the most fertile ground for financial products on the planet. We indeed have the deepest markets! The world comes to the U.S. for corporate stocks and bonds, derivative investments, bank deposits, treasury securities and, not to mention, real estate and private businesses. That’s how the $50 billion comes home!
Come to think of it, if a so-called trade deficit, as Mr. Trump presents it, were a bad thing—if it indeed measures to what extent one (or an entity) has been beaten—then, clearly, Mr. Trump gets forever killed by the likes of China! Think about it; his companies buy materials, components, source their labor (his clothing line ain’t made in the U.S.) from other nations—he mentioned in an interview that he recently bought thousands of windows from China and complained that nobody makes them here. And what is China buying from Mr. Trump? I don’t know; a stay at a hotel? A round of golf? A few shirts and ties? I strongly suspect that Mr. Trump’s companies buy far more stuff from China than they sell to China. Again—by his own definition—he’s getting completely destroyed by China!
Of course he’s not losing to China any more than China is losing to him. Mr. Trump wants to build towers and golf courses, make clothing, etc., in the most profitable manner possible; China wants U.S. dollars because U.S. dollars buy stuff the world over.
So, in a nutshell, Trump the entrepreneur expands his fortune (profits from the advantage his trading partners enjoy in the production of certain goods and inexpensive labor) by offering his international trading partners the currency they need to expand their fortunes.
As for Trump the politician, well, he profits from the fears, misconceptions and prejudices of an apparently large number of U.S. voters by proposing policies that, if implemented, would limit other American entrepreneurs’ ability to take full advantage of what the outside world has to offer. Other than the bluster, there’s nothing unique, or refreshing, about Trump the politician on trade.