The Importance of a Global Economy and the Consequences of President Trump's reliance on trade deficits
By Shivani SanghaniPublished April 2, 2017by Shivani
President Trump recently signed two new executive orders on trade — the first, calling for a report on the trade deficit and the second, addressing minor issues with tariff collection.
American Economist and Nobel laureate Paul Krugman calls these orders "nothingburgers" — "wait, they're just starting to study the issue?" Krugman asks — since the latter replicated an act President Obama signed last year.
Mr. Trump's growing focus on hindering trade resonates insidiously if strictly pursued, driving policy changes that could disrupt industrial real estate markets throughout the US, Cushman & Wakefield reported in a logistics and industrial research briefing on April 19. Although unlikely, a trade war with China or withdrawal from the North American Free Trade Agreement remain possibilities.
According to economics journalist Peter S. Goodman, Trumps views "international trade" as a "zero-sum affair," when in reality "expanded trade has historically tended to support economic growth, which generates more spoils to be divvied up for all."
Relying on the global supply chain, US companies have increased production — for example, an Illinois-based firm might purchase ball bearings from China, glass displays from South Korea, computer chips from Malaysia and other parts from Mexico, coupled with American-made steel, writes Goodman in his article for the New York Times, "Behind Trump's Trade Deficit Obsession: Deficient Analysis."
Economists have criticized Mr. Trump for relying heavily trade deficits to explain insufficient paychecks. Economists can agree — with certainty — that "the deficit reflects how Americans have consumed more than they have been willing to save, purchasing from foreigners who have in turn invested in the United States," according to Goodman.
Hindering trade would merely add to the domino effect.
Paul Krugman refers to the example of automobiles: Speaking about separate auto industries among the U.S., Canada and Mexico no longer applies — "what we have instead is a tightly integrated North American industry" with cars containing parts from all three countries, writes Krugman.
Attempting to separate these industries would trigger a "chaotic" and "painful" transition, according to Mr. Krugman.
While China's rapid growth has certainly disrupted jobs and communities globally, "reversing globalization now would produce an equally painful "Trump shock," disturbing jobs and communities "all over again," Krugman argues.
"Trump hugely mis-frames it," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, who has heavily criticized trade deals in the past. "We have U.S. companies that are hugely profiting by having access to low-cost labor in China. Portraying that China won and we lost is 180 degrees wrong. Factory laborers are the losers."