Political Hay

Trump the Protectionist

The real problem with a Donald Trump candidacy.

By 4.14.11

Donald Trump’s media frenzy-causing questions about Barack Obama’s birth certificate are distracting us from important policy positions of the potential candidate.

Trump made news Monday when he was said in an interview that he would "probably" run as an independent candidate if he does not get the Republican nomination. It may be a gambit to try to increase voters' likelihood of supporting him in a GOP primary, or he may really mean it. With Trump, one never knows. (I continue to believe he will not run at all.)

While some are tactically pleased with Trump's actions bringing up the birth certificate question -- again, more because it shows Obama's evasiveness than because of any certainty about where Obama was born -- Trump should not be the Republican nominee. More importantly, he must be dissuaded from running as an independent, an act which could decimate the chance of beating Barack Obama.

Trump realizes that an independent run would split the conservative vote and says it concerns him. He says that someone could win as an independent these days, which I think is unlikely unless the Republicans nominate a dead person. (For a pretty good parallel situation, look at the results in Colorado's recent gubernatorial election where a popular independent lost to the Democrat with an all-but-dead Republican still getting 11% of the vote.) Trump also says he won't run unless he thinks he can win. It is incumbent upon conservatives and libertarians to make sure he knows he can't.

Anyone responding to a poll -- or at least anyone who does not want a second Obama term -- must respond that he or she would not support Trump as an independent candidate in any circumstance. And any Republican considering supporting him should withhold such support, whether financial or otherwise, until Trump renounces the path of an independent candidacy.

The reasons for this are not just about party and vote-splitting. It's about Trump and his beliefs. His positions, few of which are actually known, are great pandering sound bites to the economic illiterates who represent the majority of the nation (and essentially the entire Democratic Party). But particularly when it comes to foreign trade Trump is not just wrong but dangerously wrong.

Regarding China, Trump says he'd aim to slap a 25% import tariff on their products if China doesn't "shape up." I had to laugh when he said "I'm for free trade" right afterwards, repeating "I'm all for free trade, but it has to be fair trade." The term "fair trade" is code for unfree trade, period.

Trump argues that a trade deficit with a country means that American trade with that country is bad for America, that the amount of a trade deficit represents the amount of damage to America. He says that America has "lost" the amount of the trade deficit.

This characterization is wrong and, to put it plainly, idiotic.

I have a trade deficit with Walmart, Target, Safeway, and Toys 'R' Us. Does that mean I should not be permitted to trade with them? And, just as with money going to a foreign country, dollars I spend in those stores must, either now or later, come back into to the U.S. economy in the form of physical or financial investment.

When a Wall Street Journal interviewer suggested (at about 12:20 into the interview) that Trump's view is "protectionism," he said that if the other country has a trade surplus with the U.S. then "I want to be protected." Think about what that means: It means that if China has a $275 billion trade surplus with the U.S., Trump would try to tax our imports from China by enough to recover that money, raising the prices of everything we buy that is made in China. If tariffs are placed on Chinese goods (or any other goods), all or nearly all of that tax will simply go to raise the price on the tag in the store. The idea that the Chinese will pay the tax is ridiculous; they're already operating on small margins in low-value-added manufactured goods with prices squeezed to rock bottom by Walmart and others. No, it just means all our prices will go up.

Therefore, either we will buy the same quantity of stuff and spend more money, leaving less money for education, health care, home improvement, travel, or whatever, or we'll spend the same quantity of money and have fewer of the things we want (or some combination of both).

By the way, based on 2010 data, in order to recover the complete value of the trade "deficit" with China, and assuming that massive price increases would not cause people to buy less, the tariff required to eliminated the trade deficit would be 75%, not 25%. In reality, there is no tariff level that would eliminate our trade deficit with China: as the tariff goes up, the price tags go up, so people will stop buying and the tax collected will drop precipitously. Furthermore, if we imposed any substantial tariff, the Chinese would respond by blocking American imports, thus eliminating much, most, or all of the "gain" from the tariffs.

I can't stress this enough: The trade "deficit" with a foreign country is not an analogue to our budget deficit, which is a net loss to Americans because it represents money that must be extracted from taxpayers either now or later. I understand the confusion among the general public, generated in part because of the use of the word "deficit" in both cases and in part because of populist econo-moron politicians playing the age-old xenophobe card to advance their sorry political careers. (You hear me, Lindsey Graham and Chuck Schumer?)

In a way, the trade deficit represents savings to the American consumer -- always the "forgotten man" when it comes to politicos pandering for votes. Every time you buy something made in China, it represents a choice (made by you or by the store you're shopping at or both) to provide you a product with a desirable ratio of benefit to cost, at a particular level of quality and intangibles like brand cachet.

If you need a food storage container, do you want to buy it for $1 at Walmart or be forced by The Donald's xenophobia to pay $2, or even worse, to have to go to Williams-Sonoma (one of my favorite stores) and buy a fancy French one (also contributing to our trade "deficit") for $20?

There's a subtle but important point here, one which life-long mini-dictators like Donald Trump forget: tariffs don't just punish consumers in terms of cost but also do so in terms of freedom. In the economic world envisioned by Donald Trump, the only winner would be -- you guessed it -- Donald Trump. And probably not even him, but he's not smart enough to realize it.

In any case, one can only wonder what other parts of our lives The Donald thinks he can run for us better than we can. Trump might call himself a conservative, but he's little more than an old-fashioned populist statist autocrat. That may work for him in his own business empire, but is antithetical to the economic and political well-being of the nation he claims to want to run.

The public must focus on Trump himself and not allow his mischievous questions about Obama, like a magician causing his audience to focusing on his waving left hand while he pulls your card of the deck with his right, to divert attention away from his mindless, dangerous economic policy.

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About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of “The Ross Kaminsky Show” on Denver's NewsRadio 850 KOA on Saturday mornings from 6 AM to 9 AM. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.