I am now half-way through Bob Woodward’s Fear and believe it is the most over-hyped book since Paul Ryan began promoting Atlas Shrugged as the inspirational equivalent of the Bible. Nothing in this latest bestseller makes Donald Trump scarier than I already imagined. What actually terrifies me is the possibility South Carolina Senator Lindsay Graham, someone with less self-control when it comes to the use of military power than Kim Jung Un, has become Trump’s newest BFF and could be our next Attorney General.
But that’s not what I came here to talk about. Chapter 19 covers Trump’s decision to withdraw from NAFTA based on his belief every trade agreement ever negotiated by one of his predecessors put the United States at an inherent disadvantage. Despite objections by every senior domestic and foreign policy advisor except Peter “there is a special place in Hell for Justin Trudeau” Navarro, the Oval Office became the setting for the revival of the 1950s sitcom Trump Knows Best. Consider the following exchange between Trump and Agriculture Secretary Sonny Perdue from Fear.
“NAFTA has been a huge boon for American ag interests,” Perdue told Trump. “We export $39 billion a year to Mexico and Canada. We wouldn’t have markets for these products otherwise. The people who stand to lose if we withdraw from NAFTA are your base, the Trump supporters.”
Perdue showed Trump a map of the United States that indicated the states and counties where agriculture and manufacturing losses would be hit hardest. Many were places that had voted for Trump.
“It’s not just your base,” Perdue said. “It’s your base in states that are important presidential swing states. So you just can’t do this.”
“Yeah,” Trump said, “but they’re screwing us, and we’ve got to do something.”
Based on his subsequent actions, it’s hard to tell exactly who Trump thought was doing the screwing. Our trading partners, his base or the American people in general? Since this April 25, 2017 conversation, Trump has nullified several trade agreements, subjected farmers to retaliation shutting them out of multiple international markets and dedicated $14 billion of your and my tax dollars to compensate these same farmers for a problem for which he alone is responsible.
Now I will be the first to admit no president should ever take full credit or full blame for fluctuations in the U.S. economy. An economist once observed, “The president has a better chance of controlling the tides.” However, policy decisions can accelerate or temper changes in economic growth. And the timing of such decisions may be more important than the policy details. In a May 2016 post titled “Oh, The Hypocrisy!”, I pointed out the stupidity of blocking an infrastructure program when the cost of borrowing money was near zero percent. Now, in terms of global trade policy, it again seems as though Trump and his GOP enablers slept through Economics 101 during the discussion of supply and demand. Let me explain.
The theory of supply and demand can also apply to money and income. In other words, when people have money in their pockets (supply) they can buy goods and services (demand). Which explains why Trump is somewhat correct when he says the balance of trade has been unacceptably out of kilter the last decade. But there is a very logical reason for that. The financial meltdown in the fall of 2008 was a global event. According to the World Bank, the global GDP growth rate fell from 3.83 percent in 2007 to -1.73 percent in 2010. And for several subsequent years, the global rate lagged significantly behind the U.S. recovery.
OK, Donald. I will say this slow enough for even you to understand. As the U.S. economy improved, Americans had more money and there was a pent up demand for goods and services. This demand was fulfilled by both U.S. and global suppliers. Residents of our trading partners did NOT have cash and were not buying products from ANYBODY domestically or internationally. Thus, an increase in the trade deficit.
But things have changed. The World Bank now predicts global GDP will increase by 4.5 percent in 2018. So, at the very moment the rest of the world will have the financial wherewithal to buy more U.S. goods, Trump and Navarro have abandoned free trade agreements in favor of tariffs which will redirect those dollars to non-U.S. suppliers.
Blaming the fallout from this one on Barack Obama may be the biggest challenge to date for the White House spin machine and Fox News. And that is saying something. But I have no doubt they will try.
For what it’s worth.