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Trade has boosted living standards worldwide, buoying both nations with trade deficits, like the United States, as well as those with surpluses, like China. Countries create jobs when they can boost exports, and their companies and consumers benefit when they import goods at lower cost than can be obtained domestically. So why does President Trump insist that US trade partners are “robbing” the US like a “piggy bank”? Economists say it stems from an inaccurate zero-sum view of trade, in which exports mean winning and imports mean losing. But the angst runs deeper for the president. While trade may boost an economy overall, it has hurt US workers who haven’t been able to compete with lower-cost labor. Their losses have been compounded by nations that, despite the trade rules, have managed to undercut US goods using export subsidies and import barriers. A parallel worry for Mr. Trump is that other nations are not paying their fair share for military security. But if there are legitimate concerns for Trump to raise, economist Michael Klein says, the larger reality is that “international trade is positive.”
Amid a flurry of stern and sometimes vitriolic rhetoric after a weekend summit of large democracies, one comment by President Trump stood out as a pointed rebuke of America’s longtime trading partners.
“We're like the piggy bank that everybody is robbing,” Mr. Trump said. “And that ends.”
His words only seemed to stiffen the determination of longtime allies to resist his call for dramatic concessions.
Big European economies, plus Canada and Japan, all were rolling out retaliatory responses to Trump’s imposition of steep tariffs on steel and aluminum, amid allegations that they’re helping to fuel a global metals glut. And the use of a national-security rationale for those tariffs was deemed “kind of insulting” by Canadian Prime Minister Justin Trudeau.
So what does Trump’s piggy bank assertion mean? He didn’t spell out the details, and his phrasing left plenty of economists scratching their heads. For one thing, they say the United States has largely benefited alongside other nations from growing global trade. For another, they note that America’s trade deficit means that it’s a net borrower, not a lender or “banker,” to the rest of the world.
Behind the comment, though, is Trump’s long-espoused worry about that trade deficit, his view that America is being systematically disadvantaged in its trade dealings with other nations. Trade experts agree that there are pockets of unfairness to be addressed, but many add that this outlook is inherently flawed to the extent that it views trade as a “zero-sum game” where there’s a loser for every winner.
“This all goes back to Trump's view … that trade is a game of winners and losers, and the winners are people that export and the losers are people that import, which is very different from the economists’ view of trade,” says Ed Dolan, an economist and senior fellow at the Niskanen Center, a free-market oriented think tank based in Washington.
That may somewhat oversimplify Trump’s views, but the president has repeatedly talked up the goal of reducing the US trade deficit, and of potentially slapping tariffs on trading partners toward that end.
Reality vs. rhetoric
The reality, economists say, is that growing trade has boosted living standards worldwide, buoying nations with both trade deficits (imports outweighing exports) and surpluses. Exports can be a source of good jobs, as nations specialize in sectors where they can cultivate an advantage. But imports are at least as important – cutting consumer prices, expanding consumer choices, and supplying manufacturers with materials and components.
“International trade is positive sum,” says Michael Klein, an economist at the Fletcher School at Tufts University and founder of EconoFact, a website that aims to provide reliable background on issues including trade. “This is going back to David Ricardo and Adam Smith – that voluntary exchange is a good thing.”
The big caveat – the gaping hole that Trump essentially drove a truck through with his election win – is that the rules of the game aren’t always applied fairly, and even at best there are losers as well as winners. When US communities lose big factories to global competition, the fact that goods have gotten a little cheaper doesn’t offset the blow to employment.
Trump is far from alone in thinking that, often, US workers have faced adverse effects as other nations have sought their own advantage through subsidies for exports or barriers to imports. In Trump’s view, the problem also includes US leaders who have done a poor job negotiating of trade deals, often with corporate lobbyists as leading influencers.
“The United States leaders of the past didn’t do a good job on trade,” he said just before his “piggy bank” line during a press conference in Charlevoix, Quebec, Saturday. “I'm not blaming countries; I'm blaming our people that represented our past.”
The piggy bank metaphor is rooted in the notion that unfair export-promotion practices by G7 trading partners are a kind of tax on the US economy, but it also may relate to another criticism Trump and others have levied: that there’s also a pattern of uneven burden-sharing for military security.
“Those [trade] deficits along with our allies’ reluctance to spend and in some cases to take risks on behalf of their own security places an enormous tax on the American people-in lost growth and jobs, what the United States must spend on defense and the casualties American soldiers must bear,” University of Maryland economist Peter Morici wrote in an email commentary Tuesday.
The meeting was widely portrayed in the news media as a breakdown of relations among nations that, led by the US, had long served as the leading global champions of free trade.
Trump is clearly hoping that get-tough brinkmanship will ultimately yield agreements by trade partners to reduce their barriers and import more from the US.
“[And] there is a personal element to the trade discussions,” in which it’s possible that if Trump feels he’s won a victory with his North Korea summit this week, he’ll be more willing to seek a peaceful endgame to his trade discussions with G7 allies, says Gregory Daco, chief US economist at Oxford Economics.
Perils of go-it-alone
But a risk is the US becomes marginalized as other nations resist his tactics and forge ahead with trade deals that leave the US out. By alienating longtime allies, Trump may be empowering China in its bid to rival the US in technological leadership and global influence.
On Sunday, Chinese President Xi Jinping told a gathering of the Shanghai Cooperation Organization, a regional security bloc, that his nation stood for more open trade and against “selfish, shortsighted” policies.
Trump’s gambit could pay off if trading partners like China and Europe ultimately reduce barriers. But a cycle of retaliation and countermoves could do the opposite, slowing global growth.
“You [could] end up with a global recession,” if tariffs become widespread, says Mr. Daco in New York. He estimates an exit from NAFTA, coupled with a US-China trade war with roughly 25 percent tariffs added to goods flowing both ways, could slow US growth severely – by about 0.7 percentage points.
Atop the steel tariffs and possible tariffs on Chinese goods more widely, Trump is threatening to cite a national security rationale to impose new tariffs protecting carmakers in the US. Were such tariffs imposed, “I think everyone would be quick to realize that the negative effect on the economy is quite significant and rapid,” Daco says.
In fact, while the “piggy bank” quote emphasizes Trump’s urge to seek redress for alleged unfairness, many economists say Trump’s approach risks doing more harm than good.
Mr. Klein at Tufts notes that the math of trade deficits can be deceptive. An iPhone arriving in the US may look like a $225 export from China, but most of that value was actually created first in other nations including the US, he says.
And helping US workers will ultimately hinge on many factors that go well beyond the rules of trade, experts say, from education and infrastructure to keeping the nation’s debt under control. These issues actually do loop back to the trade deficit, they add. That’s because if the US saved more and ran smaller government deficits, the trade deficit would fall, as a matter of economic accounting.
But another driver of trade deficits, the dollar’s strength as a sought-after “reserve currency,” may be hard to change. “Countries with strong currencies,” Mr. Dolan says, simply “tend to have trade deficits.”
What that means for the US, he adds, is that other nations are helping to finance America’s public debt while, thanks to lower-cost imports, Americans’ “standard of living is better.”