Wednesday, January 25, 2017

Trump Has Less Understanding of Macroeconomics Than I Do

Or his genius has yet to be appreciated.

Renegotiating NAFTA would be a long, complex process, requiring approval from the US Congress as well as the governing bodies of Canada and Mexico.

Then there's not a chance of him doing it anyway. He has the attention span of a gnat. 

It’s unclear exactly what changes Trump would bring. In June, he rolled out seven steps he planned to take to reform trade, including taking tougher stances on trade partners that violate laws, appointing the “toughest” and “smartest” trade negotiators on the nation’s behalf, and cutting NAFTA and the TPP.

That last step has made some analysts and corporations uneasy. Trade officials have noted that 48 of the 50 states engage in the majority of their trading and job-creation through relations with either Mexico or Canada, and that US tariffs could prompt other countries' countertariffs, possibly sparking a trade war.

The article goes on that if we put tariffs on their goods, they put tariffs on ours. And:

Another problem is that US businesses that currently buy less expensive goods from Mexico, facing tariffs, would not necessarily switch to buying American goods. Instead, they would likely switch to the next cheapest supplier from a different country, leaving US business at a continued disadvantage. Because Mexico is less reliant on American goods than the US is on Mexican goods, threats from the US to pull out of NAFTA could prove to be little more than empty bluster.

Trump does empty bluster so well, too. And the Mexicans added, "We're not paying for that stinking wall, gringo."

I suppose Trump could declare war on technology

Automation, not trade, is the real culprit in manufacturing job loss. And while NAFTA has surely created winners and losers within the United States, overall it has not been the horrific deal Mr. Trump suggests. The combined trade deficit with Mexico and Canada was $73.4 billion in 2015 (the most recent full year for which data exist). Subtract petroleum and it shrinks to $13.9 billion, a rounding error for the $18 trillion U.S. economy. Chances are that the deficit will shrink as American oil producers crank up for exports.

A smart negotiator would take all that into account before risking trade wars that might do far more damage to American companies, workers and consumers than the status quo allegedly does.

Fortunately, Trump is like a smart person. He's successfully declared bankruptcy 6 times. 

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