Trade Policy: No Bulls in the China Shop

Among Donald Trump’s few specific campaign promises is that he will restore balance to our trade with China and Mexico. This promise resonates with millions of Americans who are worried about the trend of jobs going overseas and the continued overall decline of American economic dominance in the world. These same people know practically nothing about international economic policy, but there’s no time to educate people about how trade policy actually works, so we have to directly deconstruct Trump’s policies to illustrate just how bad they are.

Before we even get started, the knee jerk reaction from many of Trump’s supporters is “but he’s a successful businessman, so we have to listen to him!” Let’s get one thing absolutely clear right now: Trump is many things, but one thing that he clearly is not is infallible, particularly when it comes to business. His organization’s core competency is limited to real estate development, and the groundwork for his organization wasn’t even built by Donald Trump. It was built by the skill and hard work of his grandmother, Elizabeth Trump, and Donald’s father, Fred Trump.

Billions of dollars of Donald’s own real estate development deals have gone sour, and Trump has been forced to sell controlling interest of many of the organizations that bear his name, such as Trump Hotels and Casino Resorts (he owns only 25% of the company) and Trump Entertainment Resorts (he owns only 10% of the company), so even the thing he’s supposedly good at, he’s failed epically. His numerous attempts to break into other industries, including the electronics industry, the luxury goods industry, the family entertainment industry, the travel industry, the airline industry, the alcoholic beverage industry, the luxury food industry, and even education industry have ended in spectacular failure and legal trouble. Just to drive home how bad at business Trump is, he tried to distribute his Trump Steaks through Sharper Image stores, where people buy consumer electronics, instead of in grocery stores, you know, where people buy food.

As far as Donald’s legacy, Trump understates how deeply in debt his organization is while overstating the value of its holdings. Trump himself claims that all of his holdings are worth between $9 and $10 billion. Forbes has estimated that the Trump Organization is worth only about $4.1 to 4.5 billion, and Bloomberg News priced the company as worth even less, at $3 billion, not even a third of what Trump claims. Other estimates put the Trump Organization net worth at only several hundred million, a claim that Trump filed a defamation lawsuit to refute and lost in court. Twice.

Unarguably, Donald Trump is wealthy, but to say that he, himself, has been a successful businessman? No, it’s clear that Trump has had more failure than success, and much of his success was from the organization that his father built that Donald had handed to him, so let’s get back to Trump’s campaign promises to make America as “yugely” successful as his Vodka line was (just kidding, that also failed).

“To win one hundred victories in one hundred battles is not the epitome of skill.
To subdue the enemy without fighting is the epitome of skill.”
-Sun Tzu, Art of War-

Candidate Trump believes that he can “force China to stop … unfair practices” with hardball business negotiation tactics that he knows and loves. The very first thing that Trump clearly doesn’t understand is that he isn’t negotiating against an elderly grandmother in her 70’s (to whom, by the way, he lost, too). He is up against the government of a nation that is five thousand years old and sees itself as the cultural equivalent of the Roman Empire of the East. If Trump honestly believes he can bully the Chinese government, he has already lost.

Because most Americans have no understanding of the Chinese cultural mindset, let’s take a moment to illustrate the Chinese value system by talking briefly about the Great Wall of China. Considered one of the seven Wonders of the Ancient World, the wall segments all together span over three thousand miles, from North Korea to western Mongolia, with one section even as far north as Russia. Millions of Chinese soldiers and peasants were pressed into the dangerous work of building the wall, and untold thousands died during its construction. Many were crushed by stones, killed by falling bricks, died from exposure, or simply fell to their deaths. Many of those who died during the construction weren’t buried. Instead their bodies were simply pitched into the wall and forgotten, becoming just more building material.

The take away from all of this is that human life has absolutely no intrinsic value to the Chinese government, not under the first Emperor Qin Shi Xuang, not two thousand years later under Mao Zedong, and certainly not now. Death is just accepted as a political norm. As far as the Chinese government is concerned, the Chinese people are an expendable commodity, nothing more. So how does this enter into the calculus of Trump’s proposed trade policy with China?

“The truth is not always beautiful,
nor beautiful words the truth.”

-Lao Tzu, Tao Te Ching-

Trump’s stated position of “declaring [China] a currency manipulator” is simply inviting an international game of chicken with a country that simply does not care about the well being of their people and will plow tens of millions of their own citizens right into the ground without even flinching. The Chinese government has already told us what they would do if the United States initiated any kind of trade war: stop buying US bonds. This would send US bond prices to zero overnight, with the value of the dollar and the economy crashing down along with it. The Chinese know that this means their second largest export partner (their top export partner is the EU) will collapse, destroying their own economy as well, but they also know that they can weather the deaths of 50 million of their own citizens better than the United States.

Calling the Chinese out for manipulating their currency has absolutely no upside. The Chinese have been manipulating their currency since the 1960’s. No one has done anything about it, because it would mean a no win situation trade war. The immediate impact on the American economy could honestly be called catastrophic. Trump apparently didn’t get the memo.

Trump also plans on “forcing China to uphold intellectual property laws” and “putting an end to China’s illegal export subsidies and lax labor and environmental standards“. Both of these are nonstarters for exactly the same reasons. Not only will these policies provoke the Chinese to retaliate immediately, causing the collapse of the US economy, they are plainly ludicrous to begin with. The United States has no standing to interfere with the domestic economic policy of another foreign power, no matter how egregious those policies may be.

Even if Trump appealed to the World Trade Organization, and the WTO actually attempted to sanction China, the chances of the Chinese government changing their policy is zero, and the cost to the US economy simply can’t be justified by the nonexistent gains. So Trump’s stated positions on China are proof of his immense and willful ignorance of what is at stake. This alone demonstrates that he is almost uniquely unqualified to be president of the United States.

“Finally, from so little sleeping and so much reading,
his brain dried up and he went completely out of his mind.”
-Miguel de Cervantes Saavedra, Don Quixote-

Now, let’s take a look at his equally ridiculous position on Mexico. No need for a history lesson here. This is simple mathematics.

In 2013, the GDP of Mexico was $1.259 trillion. Of this, $269 billion was from exports to the United States, including cars and manufactured goods. $23.17 billion comes into Mexico in the form of remittances from immigrant (legal and illegal) workers in the United States, sending money to their families in Mexico. $44 billion comes into Mexico from illegal drug trade. Altogether, that is $336.17 billion coming into Mexico annually across the US border. Directly, that accounts for 26% of Mexico’s GDP. Accounting for another 10% of secondary and tertiary economic effects from this trade, and a full 33% of Mexico’s annual GDP is directly tied to the United States border.

In addition to promising to strong arm US companies into bringing their manufacturing jobs back from Mexico, Trump claims that he will pass the cost of building the wall on to Mexico, to which former President Vicente Fox replied, “I’m not going to pay for that ******* wall. He should pay for it. He’s got the money.” What Trump is asking Mexico to do is write a $20 billion check for the privilege of helping Trump gut the Mexican economy by about $400 billion. There is literally no upside for Mexico, so the chances of the Mexican government actually paying a penny toward the construction of a border wall and the destruction of their economy is zero.

Trump’s foreign policy with Mexico would likely lead to increased political influence by anyone with money and guns, meaning the ruthless drug cartels and any foreign power with economic and political interest in being a stone’s throw from US civilians. While the trade problems with Mexico do need to be resolved in the near term, expecting the Mexican government to impoverish its country and invite the civil unrest sure to follow shows Trump is too ignorant to manage even friendly trade relationships with our neighbors, let alone hostile relationships with countries like China.

In every way, Trump’s foreign trade policy positions with both China and Mexico demonstrate his troubling lack of understanding of international trade. His attempt to frame these complex trade partnerships in black and white terms conceals immediate and dangerous consequences for America that he is clearly unable to see. He’s promising easy and painless solutions that aren’t in the realm of possibility, basically lying to the American voters. There are no easy solutions to these problems, but America must start by restoring financial discipline and Constitutional principles in our government.

America needs a president who will address these serious issues with solutions based in reality, not rhetoric. Trump is not and will never be that candidate.


Liberty is For The Win!


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