California limousine driver “Mad Mike” Hughes recently launched himself in a homemade rocket in an attempt to prove the earth is flat.
Outside of Mad Mike, no one was harmed. But imagine if President Trump hired him to run NASA. That’s similar to what appears to be going on with U.S. trade policy. Some officials in the Trump administration seem to hold views on international trade that are no more legitimate than believing the earth is flat.
For example, Trump trade advisor Peter Navarro said “When we run these large [trade] deficits, we’re basically turning over our country, over time, to the rest of the world.” According to U.S. Trade Representative Robert Lighthizer, “trade deficits do matter and we intend to reduce them.” Commerce Department Secretary Wilbur Ross recently asked, “can we continue to afford these mammoth trade deficits that are sucking money out of our country?”
If trade deficits really were sucking money out of our country, Americans would be better off if the government closed every port in the country and refused to let goods enter or leave.
This administration’s confusion about how trade deficits work is somewhat understandable. The dictionary defines “deficit” as “the amount by which a sum of money falls short of the required amount.” It’s no surprise that most people who hear the word “deficit” think we are “losing.” It’s as straightforward as looking out the window and observing that the earth is flat. It’s also just as wrong.
In reality, if the trade deficit goes up, it doesn’t mean America owes China or any other country a single penny. Just as scientists know the earth is not flat, economists and accountants know a trade deficit does not mean the United States is losing.
Instead of explaining this to President Trump, his trade advisors have egged him on, resulting in a slew of embarrassing headlines:
A brief, simple explanation why the Trump theory on trade deficits is wrong
Trump just made a humiliating economic error in front of South Korea’s president
Economists Say Trump Seems To Misunderstand Significance Of Trade Deficit
It is not even clear if President Trump's trade advisors have explained to him that their proposed Section 301 tariffs on Chinese imports, if successful, would make China a much more attractive place for American firms to do business.
The head of NASA probably wouldn’t have a job for long if he advised President Trump that the earth is flat. The same should hold true for advisors who allow him to make flat-earth statements about trade policy.