The Corner

Economy & Business

A Trump Trade and Economic Doctrine

President Trump speaks at a rally in Moon Township, Pa., March 10, 2018. (Joshua Roberts/Reuters)

If the Treasury Department’s recent semiannual report is any guide, the Trump administration still doesn’t quite get it when it comes to trade imbalances. “The US government has all the tools it needs to achieve balanced trade without risking a trade war,” writes Joseph Gagnon for the Peterson Institute for International Economics. But it is using one of the main tools — fiscal policy — the wrong way.

Part of the problem, according to Gagnon, is that the administration and the recent Treasury report both blame the deficit on other countries. For one, Trump likes to point to foreign trade barriers to U.S. exports, which definitely do exist but “have essentially no impact on the overall US balance of trade,” argues Gagnon.

In addition, Trump has also made an (at least rhetorical) enemy of currency manipulators, even though the Treasury report declined to classify any country as such and despite the fact that, although currency manipulation is a problem, it likely accounts for only one-fifth of the trade deficit, according to research by Gagnon and Tessa Morrison, also from the Peterson Institute for International Economics.

Finally, the Treasury report singles out China and Germany in particular for low spending at home, which suppresses their consumption of exports. That dynamic undoubtedly plays a role in the trade imbalance, but focusing on it leaves out the United States’ own poorly calibrated fiscal decision-making.

“It is long past time to replace the strong dollar policy with a balanced dollar policy aimed at minimizing global imbalances,” concludes Gagnon. “Such a policy would include stabilizing foreign exchange intervention and possibly taxing foreign capital inflows to minimize swings in the dollar’s exchange value that give rise to unsustainable trade imbalances.” Unfortunately, the Trump administration’s preferred path appears to be overheating the U.S. economy through fiscal expansion and tax cuts, which will lead a flush United States to buy even more exports and dig its trade hole even deeper.

Greg Ip of the Wall Street Journal has more on the relationship between budget deficits and trade deficits. Rather discouragingly, Larry Kudlow, the president’s chief economic adviser and a friend of National Review, has argued that there’s not much of a relationship between the two. But as Ip makes clear in his column, the evidence suggests otherwise. He cites a recent Goldman Sachs report, which, drawing on past experience, “found that all else equal, every $100 boost to the budget deficit because of policy decisions (as opposed to economic developments such as a recession) raises the trade deficit by $35.”

If Gagnon and Ip are right, as I suspect they are, trade hawks really ought to be fiscal hawks. I’m torn, as I believe there is a case for “running the economy extra-hot,” for all the reasons Karl Smith of the Niskanen Center has outlined in Bloomberg View: Essentially, the post-crisis years have done a great deal of damage to the productive potential of the U.S. economy, and reversing its effects will require, for some time to come, more in the way of stimulus. One could argue that we will just have to grin and bear higher trade deficits.

Or perhaps we should do more to encourage the world’s surplus countries to do their part to boost global growth. Gagnon rightly observes that “improved social safety nets in China and Korea and infrastructure spending in Germany would meet internal needs and rebalance global trade at the same time.” Granted, there is not that much we can do to compel these countries to change course. But we can make calling on them to do right by their own citizens part of our ideological toolkit. Ronald Reagan succeeded in making life difficult for Soviet bloc leaders by demanding that they do right by their citizens. Perhaps Donald Trump can do the same by calling on Beijing and Berlin to adopt more worker-friendly policies — call it the Trump Doctrine.

For U.S. workers to flourish, we need our trading partners to allow their own workers to share in the fruits of rising prosperity. Admittedly, this would be playing against type: So far, the president hasn’t evinced much concern over whether Chinese or German workers are being given a fair shake. Nevertheless, the fact remains that for an America First agenda to succeed, it really is essential that the surplus countries boost their consumption. And this Trump Doctrine would greatly strengthen the president’s populist bona fides, which could use a boost in light of declining support for the recent GOP tax cut.

Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

Most Popular

U.S.

Men Literally Died for That Flag, You Idiots

The American flag’s place in our culture is beginning to look less unassailable. The symbol itself is under attack, as we’ve seen with Nike dumping a shoe design featuring an early American flag, Megan Rapinoe defending her national-anthem protests (she says she will never sing the song again), and ... Read More
Politics & Policy

He Just Can’t Help Himself

By Saturday, the long-simmering fight between Nancy Pelosi and her allies on one side and the “squad” associated with Alexandria Ocasio-Cortez on the other had risen to an angrier and more destructive level at the Netroots Nation conference. Representative Ayanna Pressley, an African-American Massachusetts ... Read More
Books

The Plot against Kavanaugh

Justice on Trial, by Mollie Hemingway and Carrie Severino (Regnery,  256 pp., $28.99) The nomination and confirmation of Brett Kavanaugh to the Supreme Court was the political event of 2018, though not for the reasons anyone expected. All High Court confirmations these days are fraught with emotion and tumult ... Read More
Politics & Policy

Ilhan Omar Is Completely Assimilated

Beto O’Rourke, the losing Texas Senate candidate who bootstrapped his way into becoming a losing presidential candidate, had a message for refugees who had come to America: Your new country is a hellhole. The former congressman told a roundtable of refugees and immigrants in Nashville, Tenn., last week: ... Read More
White House

On Gratitude and Immigration

Like both Rich and David, I consider it flatly inappropriate for the president of the United States to be telling Americans -- rhetorically or otherwise -- to “go back where you came from.” In consequence, you will find no defense of the president from me, either. What Trump tweeted over the weekend was ... Read More
Sports

We All Wanted to Love the Women’s Soccer Team

For the first time in my life, I did not root for an American team. Whatever the sport, I have always rooted American. And if those who called in to my radio show were representative of my audience, many millions of Americans made the same sad choice. It takes a lot for people like me not to root for an ... Read More
U.S.

The ‘Squad’ Gives a Gift to Donald Trump

On Sunday, Donald Trump gave the Democrats a gift -- comments that indicate he thinks native-born congresswomen he detests should “go back” to the countries of their ancestors. On Monday, the four congresswomen handed Trump a gift in return, managing to respond to the president’s insults in some of the most ... Read More