Watching Monday night's presidential debate whilst studying for the first International Economics exam of the semester, meant that Donald Trump's brash claims about the economy and particularly the need to address the trade imbalance which he calls "the greatest theft in the history of the world" seemed even more absurd than usual. Trump has talked throughout the campaign about the fact that "Foreigners are killing us on trade" because the rest of the world spends far less on American exports than the American public spends on foreign imports. In short, he believes that economic success and gains from trade are made when a nation sells more to it's competitors than it consumers of theirs. Mercantilism as trade policy has been outdated since Adam Smith's Wealth of Nations and goes against the last 200 years of western economic orthodoxy. In fact, Trump is the first Republican nominee in a century to call for higher tariffs as a defence against low-cost imports.
According to I.M Destler of the University of Maryland, the last time a Republican rose to prominence on such a trade policy was Herbert Hoover. Everything that we have learned so far in this class supports the idea that such policy was rightfully left behind. Mercantilists fail to understand the concept of comparative advantage and the Ricardian model. Despite the fact that such a trade policy has been debunked by Adam Smith, David Hume, John Locke, David Ricardo and countless other economic thinkers over the past two centuries seems to be lost on Trump and those who support him. If Trump wins the election in November and succeeds in implementing the trade policy he has proposed, it could definitely be a step backwards for the US economy.
Good post! You would think that a person as successful as Donald Trump would understand international trade a little bit better than what he is telling the American public. As a successful businessman it makes me question if he is saying what he truly feels or if he is bringing up the counter argument to Clinton's claims. Trump even goes as far as to have his shirts made overseas that he sells for a pretty penny here in the states. I don't think he is truly this naive, but he's coming off as a potential president who would be uneducated in the matter of trade.
ReplyDeleteI also enjoyed you post James! As a Donald Trump fan myself and have been since about August this is once issues in which I do find difficult in Trump’s ideas. Through our many economics courses we have with certainty been taught and shown how free trade benefits both countries. However, as Donald Trump pointed out in the first debate in example with Mexico stating “When we sell into Mexico, there’s a tax. When they sell in – automatic, 16 percent, approximately. When they sell into us, there’s no tax.” And Trump continues to say “It’s a defective agreement” and has been defective for a long time and politicians have yet to do anything about it. We have learned in class that countries who place an import tariff on goods and services tend to benefit their workers because less good will be able to compete and lower prices. Since the United States does not have an import tariff Mexico has a trade advantage because they are able to grow their net exports and utilize their labor, while the United States is not as able. The full transcript of the debate can be found on the New York Times Website.
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