President Trump is well into his swing through Asia. And things have gotten a little awkward, as he's gone after China and Japan for their imbalanced trade relationships with America.
Unfortunately, while Trump is right to question the reigning globalized trade order, he has neither the discipline nor the know-how to build a workable alternative.
Take the two economic powerhouses Trump is visiting during his trip. China and Japan boast the biggest and the second-biggest trade deficit with the U.S., respectively. In 2016, China exported $347 billion more to America than it imported, and Japan exported $68.8 billion more.
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Trump views this as a simple zero-sum competition. "I have to say for the last many decades Japan has been winning" on trade, Trump said on Monday. He called our trade deficit with China "horrible" and "embarrassing."
All other things being equal, America's trade deficits with China and Japan really do hurt American workers. They mean demand from American consumers is going to create jobs there rather than here, while reciprocal amounts of consumer demand aren't coming back. So it's not just specific industries like manufacturing that are hurt; such a trade relationship results in a shortfall of jobs — and thus lower wages and more inequality — across the American economy.
But this situation doesn't necessarily work out well for workers in those other countries. For instance, our trade imbalance by definition means China is stockpiling a lot of excess U.S. dollars, which it stores in the form of U.S.-denominated assets, bonds, stocks, etc. But regular Chinese workers don't see that wealth; it's held by the countries' business elite. China is effectively exporting the task of employing Chinese workers to America, while building up the wealth holdings of its richest citizens — significantly exacerbating Chinese inequality in the process.
It's true that poverty in China has also fallen dramatically in the last few decades. But it would be closer to the truth to say this happened in spite of China's trade relationship with the U.S. than because of it.
So Trump's nationalist impulse — treating China and America as competing tribes — is woefully off here. It's more like business elites in both China and the U.S. are winning, and workers in both countries are being exploited in different ways.
The situation is Japan is different. It has problems with poverty and some Japanese citizens suffer from precarious employment. But its overall jobless rate is very low, its living standards are high, and its inequality problem is not nearly as bad as America's or China's. However, this again is mostly in spite of Japan's imbalanced trade relationship with us — the country has simply used other policies, such as higher taxes, to hold back the tendencies that relationship has produced in its Asian neighbor.
This gets us to the question of what Trump is attempting to do about these problems.
Mostly, his solutions center around his own supposed prowess at dealmaking. He's using this Asia trip to convince some of those rich Chinese business leaders to invest their wealth in domestic American projects, and thus create more domestic American jobs. Meanwhile, Trump's trying to cajole the Japanese into building more of their cars in the U.S., rather than shipping them over.
Which could all conceivably make things a little better. But the amount of Chinese investment in the U.S. needed to rebalance a $347 billion annual trade deficit would be astronomical. As for the Japanese auto industry, Toyota and Mazda have agreed to invest $1.6 billion in a new U.S. plant, creating 4,000 jobs — less than one-sixtieth of our trade deficit with Japan in just one year, and a tiny drop in the bucket of the American jobs shortfall. Trump could never cut enough deals fast enough to actually make a real dent in the problem.
Trump's also tried threatening countries like China with tariffs. Which again, can sort of help a little. But tariffs are a very scattershot tool: Slap one on an industry, and the trade imbalance will just move to another industry, and so on. That's because trade imbalances are a systemic problem that usually relates back to currency imbalances. Trump needs to get his arms around that whole system, either by negotiating different currency policies with the offending countries, or by getting really creative and having institutions like the Federal Reserve buy up big stockpiles of those country's assets to rebalance the currencies.
That will require bareknuckle international politics, to be sure. But it will need to be smart bareknuckle international politics, which seems entirely beyond Trump's ken.
Finally, another option is to counteract the effects of trade deficits, rather than trying to close them. Trump backed off labeling China a currency manipulator to secure that country's help in dealing with North Korea, which is understandable enough. So why not just use domestic policy to inject demand back into the U.S. economy? Trump could push industrial policy to create new jobs, expand spending on government assistance to the poor and working class, raise the minimum wage, empower unions, etc.
Unfortunately, Trump not only suffers from a blinkered nationalism, he suffers from a blinkered worship of business leaders as well. So instead of doing those things, he's leapt on board the Republican agenda of deregulation and massive tax cuts for the wealthy. One day, Trump rails against America's trade imbalance. The next, he seeks to further enrich and empower the very people who profit from that imbalance.
American workers desperately need deep reforms to the international trade system. But Trump is not the president to deliver them.
