Why Does President Trump Boast about a Ridiculous Economic Policy Toward China?

Donald Trump versus the experts?

We’re all thinking about gun violence. But, of course, Republicans have long contended (with little evidence, in my view) that their strong point is economics. President Donald Trump’s economic policies have, pretty much without exception, violated the most elementary principles of economics. In particular, he started a trade war with China on the grounds that China is beating the United States on trade and that this is somehow unfair.

Donald Trump, White House photo

President Trump spoke briefly with reporters just before getting on the presidential helicopter for a trip to the Trump golf course in New Jersey. His opening remarks focused on United States economic policy toward China.

Here is the first key passage in Trump’s brief speech: “So, we’re doing very well with China.  We’re talking to China.  We’re not ready to make a deal, but we’ll see what happens.  But, you know, we’ve been hurt by China for 25, 30 years.  Nobody has done anything about it.  And we have no choice but to do what we’re doing.”

You will notice Trump’s ongoing themes: that the United States is been weak in the past, that other countries have been beating us, and that he is now going to be strong and put a stop to it. Since Trump’s voters like strength better than anything, this base is going to admire this political strategy. He invented an imaginary problem, made out that his predecessor was weak (and pretty much all Republicans believe that Obama was weak), and then promise that he could solve it by sheer brute strength. Classic Trump.

Trump announced that the tariffs had been a tremendous success, boosted the American economy, and just as important for his rhetoric, had harmed the Chinese economy:

“So, as I said — and everybody questioned it — in the case of China, the tariffs have been amazing.  We’re taking in billions and billions of dollars.  Now, China has had their worst year in 35 years now.” 

Again, classic Trump themes: an amazing economic triumph to the United States, he said, huge amounts of money coming into the country, and, just as important, China was now being hurt. Hurting China makes him look strong, and again, that’s what his supporters like. And that passage covered another classic Trump theme: he said he was right when all the experts were wrong,

A moment later, Trump explained that he had labeled China as a currency manipulator and was retaliating against them because of: “What China is doing is, by depressing their currency and by pouring tremendous amounts of money into their system, they’re paying for it.  The prices have not gone up.  So when the Amer- — in fact, in some cases, they’ve gone down because the devaluation, plus the money supply — the amount of money that they pour in, which is a form of manipulation — has more than compensated for an increase in price.”

This is controversial for two reasons: first, Trump unilaterally stretched the law to impose import tariffs on Chinese goods. Economists, whether conservative or liberal, are pretty much universal in their belief that tariffs are always harmful, and that the country that charges tariffs not the country that is exporting, bears the cost. That’s because, in this case, importers mark up the prices they charge to American consumers. As conservative economist Greg Mankiw explains, “to most people in my field, the benefits of an unfettered system of world trade are obvious. Any good student of Econ 101 can explain the logic.”

Second, Trump retaliated against China for being a currency manipulator. Economists find that ironic, for China did indeed manipulate its currency in years past, but the current brouhaha arose when China quit supporting its currency artificially – the exact opposite of what Trump accused them of doing. C. Fred Bergsten, an expert on the Chinese economy, reminds us that China stopped manipulating its currency in 2014 and no longer meets the criteria for retaliation.

Economics is never an easy subject. As I have blogged before, tariffs are always popular, but they are always a bad idea. To experts, there is no possible argument that Trump is doing anything right. Public beliefs, however, are not necessary that simple, and the Republican Party has been waging a war against facts for many years. If people can deny obvious facts, such as that President Obama was born in the United States, or pretend that Hillary Clinton was running a pedophile ring in the basement of a tiny restaurant that doesn’t have a basement, it is no surprise that voters are unwilling to believe sophisticated economic arguments.

The tariff debate has spread through United States history since the Republics earliest days, and the pro-tariff side, which is always wrong, often wins. Nothing surprising there. Many economic truths fly in the face of what people think is common sense. By ignoring the experts and doing what he thought would be popular – what would make him look strong – Trump appealed to his base and achieved some sort of narcissistic purpose. In the long run, his policies can only harm the economy. The problem there, course, is that economic effects often lag behind economic policy by a year or two. By the time people figure out what Trump is doing wrong, it may be too late.

On a side note, in this speech Trump was trying to reset the agenda away from gun violence and toward economics. Yet reporters at the event did ask him about gun control and the NRA. Some issues, it seems, are so powerful that even Donald Trump can't avoid them,