Donald Trump’s stump thump against Mexico is that it runs a $58 billion annual trade surplus with the United States. Trump somehow thinks this leaves America the poorer.
He claims that it is out of that money, presumably sitting in some giant vault in Tijuana, that Mexico will pay for the border fence he wants to build to keep immigrants from entering the United States illegally. Trump’s pronouncements only demonstrate how he keeps facts and reason from entering his thoughts, and how he would keep Americans from making their own free choices in a free market.
International Free Trade Is Win-Win
Trump’s very language reveals a glaring error concerning trade. Mexico and America do not trade. Mexicans and Americans do. Mexicans have $58 billion more in cash (pieces of paper with George Washington’s picture on them or the equivalent credits on bank ledgers) and Americans have $58 billion more in goods (electrical equipment, Trump-themed apparel).
And Trump doesn’t bother to ask, what are those Mexicans supposed to do with those pieces of paper? If they don’t spend them in America, they’ve got nothing but useless paper. So the Mexican trade surplus also means that Mexicans are investing an equivalent amount in America, helping the U.S. economy grow.
Further, the fundamental nature of trade between individuals is a win-win situation. Someone who buys an orange Donald hat for $20 to show his support for the former host of “The Apprentice” values the hat more than the twenty. And the manufacturer in Mexico who has a warehouse full of said head gear prefers the $20.
If The Donald slaps a 30% tariff on all goods coming from Mexico, maybe his starry-eyed supporters would shell out $26, the higher cost of the hat. But a poor mother with five kids seeing the price of a pair of shoes jump from $20 to $26 might be hard-pressed to afford the extra $30 she’d need to cover the feet of all her five little ones.
But Trump doesn’t care. He wants to get rid of that pesky trade imbalance and what better way than to discourage that mom from buying Mexican-made shoes for her family! On the other hand, maybe he will notice when Mexican investors pull out of his latest golf resort or skyscraper projects, because his policies have destroyed their profits.
Trump's Grocery Store Trade Deficit
If Trump is so against trade deficits, he should have a serious problem in his own household. Trump no doubt runs a huge trade deficit with his grocery store. He gives them piles of money when he buys food — no doubt top-priced cuisine — but the store never buys anything from him.
Maybe he should boycott it. Maybe we should all boycott our local grocery stores lest we be victims of a trade deficit. Maybe if elected president, Trump will slap a 30 percent “grocery tariff” on everything that those stores try to sell to us poor, exploited schleps until those stores start purchasing stuff from us.
Trumps vs. Liberty
Trump poses as a friend of the people, but he wants to use government to prohibit the Americans from purchasing goods from whomever they wish—including Mexicans. The Donald presumes to know better what individual Americans should buy with their own money and at what price than they do. He’s determined to drive up the prices for Americans buying from Mexicans to teach those Mexicans a lesson. So what if American consumers and businesspeople are collateral damage.
Trump’s policies would only add more instability to an already unstable world. Ayn Rand explained that
The essence of capitalism's foreign policy is free trade — i.e., the abolition of trade barriers ... the opening of the world's trade routes to free international exchange and competition among the private citizens of all countries dealing directly with one another. During the nineteenth century, it was free trade that liberated the world, undercutting and wrecking the remnants of feudalism and the statist tyranny of absolute monarchies.
When governments take away the liberty of individuals to pursue their self-interest by trading freely with other individuals — a win-win situation — they set the stage for conflicts and even wars between countries.
Trump’s proposed trade war is really a war on the American people.
Edward L. Hudgins
Edward Hudgins is Director Of Advocacy and Senior Scholar at the Atlas Society. He is formerly director of regulatory studies for the Cato Institute and editor of Regulationmagazine, is an expert on the regulation of space and transportation, pharmaceuticals, and labor. He served as a senior economist for the Joint Economic Committee of the U.S. Congress and was both deputy director for economic policy studies and director of the Center for International Economic Growth at the Heritage Foundation.