Like everything else President Donald Trump tweets, his latest remarks on the social network are a mixed bag. One part is correct, one part is inaccurate and reading it in the president’s voice is fun.
In his first tweet on Tuesday, the president slammed Germany once again. Trump complained about a trade deficit with Germany and lambasted the European powerhouse for not paying its fair share in NATO, a common grievance he has uttered over the past year:
We have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO & military. Very bad for U.S. This will change.
We have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO & military. Very bad for U.S. This will change
— Donald J. Trump (@realDonaldTrump) May 30, 2017
Is the president’s tweet right or wrong? Well, let’s dissect his comments, starting with the trade deficit.
Since the beginning of his presidential bid, Trump has frequently criticized the trade deficit, whether it is with China or Canada. He comes from the neo-mercantilist perspective that trade deficits are a bad thing. Like mercantilism itself, this concept of detesting budget deficits is out of date. It is too bad that Wilbur Ross, Secretary of Commerce, and Peter Navarro, Assistant to the President, subscribe to it.
Yes, in 2016, the U.S. trade gap with Germany was $67.8 billion, second only behind its $310 billion trade deficit with China. This means that America’s imports beat the value of its exports to Germany. What Trump fails to mention is that Germany also purchased more than $80 billion worth of U.S. goods and services last year. In total, the U.S. has a trade deficit of approximately $500 billion.
One of the reasons why Trump is upset by this trend is because he wants to increase U.S. exports and reduce imports. But, as legendary free market economist Walter Williams opined in March 2016, there can never really be a trade deficit in a true economic sense.
Imports can be described as goods and services that consumers voluntarily purchase.
For instance, most people maintain a trade deficit with their supermarket. When you buy $100 worth of groceries, your goods account jumps but your capital account declines by $100. It is the other way around for the grocer – his goods account drops $100 but his capital account increases by $100. There is ultimately a trade balance when you comb through the capital accounts, whether domestically or internationally. It isn’t a big deal.
Trump has mistakenly blamed the trade deficit for shuttering factories in blue-collar towns. There are three things to consider: first, it has been capital investments in labor-saving technologies (robots) that have shed jobs. Second, American factories have amplified their output, thanks to tech and global trade. Third, the goal of any society is to have the fewest jobs possible with greater levels of output and consumption over time.
There is this idea floating around that the U.S. imports everything and exports nothing at all. It is true that the U.S. doesn’t manufacture snow globes and sweatpants anymore, but the U.S. does export financial activity, professional services and aerospace technology. American manufacturing is dying, and it is not because of trade policies.
Here is another way to look at trade deficits: Americans consume more goods than they produce. Even if a country is rigging its economic policies to benefit the U.S., why would anybody complain? Isn’t this a good thing if American consumers maintain tight budgets and have sluggish wage growth? It’s relief! Everyone is better off and wealthier because they can purchase inexpensive international goods.
One last thing: trade deficits have zero effect on the taxes that Americans are forced to pay, unlike the protectionist policies that the Trump administration are proposing.
Now, let’s tackle the NATO remark by President Trump.
Throughout the 2016 election, Trump correctly referred to NATO as “obsolete,” and demanded that other countries begin to pay their fair share. Although many in the media incorrectly interpreted his comments as withdrawing from NATO, the president renewed his support for the archaic group.
Right now, the U.S. pays more than one-fifth of NATO’s annual budget – this covers the civil budget, military budget and security investment program. There are only three other countries that pay a double-digit percentage: Germany (15%), France (11%) and the UK (10%). The rest pay fewer than 8%.
When the U.S. is confronting a crippling $20 trillion national debt and trillions of dollars in unfunded liabilities and expenditures, should the U.S. continue to prop up NATO? Isn’t it about time that nations like the UK and Canada boost their contributions and take some of the pressure off the U.S.?
Since its inception, American lawmakers, like former Senator Robert Taft (R-OH) and former Congressman Ron Paul (R-TX), have warned about the dangerous consequences of NATO. If the U.S. doesn’t leave NATO then at least it should request Spain or Belgium to carry their own weight.
In the end, trade deficits are not “very bad” for the U.S., but lifting the heavy NATO load is “very bad” for the country.
Most of President Trump’s tweets are a blend of truth, facts, fibs and misrepresentations. And his Tuesday tweet was hardly an exception.Whatfinger.com