Saturday , April 21 2018
Home / Miles Kimball / Paul Krugman on Why Donald Trump’s Trade Threats are Incoherent

Paul Krugman on Why Donald Trump’s Trade Threats are Incoherent

Summary:
Beyond this conceptual confusion, there’s a raw fact few people — and, as far as I can tell, nobody in the Trump administration — seem to appreciate: China no longer runs big trade surpluses.This wasn’t always true. A decade ago, China’s current account surplus — a broad measure that includes trade in services and income from investments abroad — was more than 9 percent of G.D.P., a very big number. In 2017, however, its surplus was only 1.4 percent of G.D.P., which isn’t much. Meanwhile, the U.S. ran a current account deficit of 2.4 percent of G.D.P., a bit bigger, but also much smaller than the imbalances of the mid-2000s.But in that case, why is “bilateral” trade between the U.S. and China so unbalanced? The answer is that it’s largely a kind of statistical illusion. China is the Great

Topics:
Miles Kimball considers the following as important:

This could be interesting, too:

Timothy Taylor writes The Clean Cooking Problem: 2.3 Million Deaths Annually

FT Alphaville writes Further Reading

Tyler Cowen writes Subliminal education?

Miles Kimball writes Christie Aschwanden on Buying Doubt

Beyond this conceptual confusion, there’s a raw fact few people — and, as far as I can tell, nobody in the Trump administration — seem to appreciate: China no longer runs big trade surpluses.

This wasn’t always true. A decade ago, China’s current account surplus — a broad measure that includes trade in services and income from investments abroad — was more than 9 percent of G.D.P., a very big number. In 2017, however, its surplus was only 1.4 percent of G.D.P., which isn’t much. Meanwhile, the U.S. ran a current account deficit of 2.4 percent of G.D.P., a bit bigger, but also much smaller than the imbalances of the mid-2000s.

But in that case, why is “bilateral” trade between the U.S. and China so unbalanced? The answer is that it’s largely a kind of statistical illusion. China is the Great Assembler: it’s where components from other countries, like Japan and South Korea, are put together into consumer products for the U.S. market. So a lot of what we import from China is really produced elsewhere.

It’s not clear why we should demand that China stop playing that role. Indeed, it’s not clear that China could even do much to reduce its bilateral surplus with the U.S.: To do so, it would basically have to have a completely different economy. And this just isn’t going to happen unless we have a full-blown trade war that shuts down much of the global economy as we know it.

Now, Trump himself might be O.K. with large-scale deglobalization. But as we’ve seen, his beloved stock market hates the idea, and with good reason: Businesses have invested heavily on the assumption that a closely integrated global economy is here to stay, and a trade war would leave many of those investments stranded.

Oh, and a trade war would also devastate much of pro-Trump rural America, since a large share of our agricultural production — including almost two-thirds of food grains — is exported.

And that’s why things seem so incoherent. One day Trump talks tough on trade; then stocks fall, and his advisers scramble to say that the trade war won’t really happen; then he worries that he’s looking weak, and tweets out more threats; and so on. Call it the art of the flail.

Miles Kimball
Miles Kimball is Professor of Economics and Survey Research at the University of Michigan. Politically, Miles is an independent who grew up in an apolitical family. He holds many strong opinions—open to revision in response to cogent arguments—that do not line up neatly with either the Republican or Democratic Party.

Leave a Reply

Your email address will not be published. Required fields are marked *