Word has it that NAFTA re-negotiations are not going well. Robert Samuelson writes that's because Donald Trump has misdiagnosed the problem:
What made America great in the 1950s and 1960s were the strength of its economy and the recognition that freer trade was a powerful political force promoting prosperity and cementing Western alliances.
It is this system that Trump is repudiating on the grounds that it has backfired on American workers and firms. “We are not going to let the United States be taken advantage of anymore,” he said in his trade speech Nov. 10. Poor trade agreements and abuses by our trading partners have caused U.S. trade deficits, the president said.
To be sure, the United States should be more aggressive in pursuing trade complaints against countries that steal intellectual property (patents) or engage in dumping and illegal subsidization of exports.
Still, these are not the major sources of our trade deficits. That distinction belongs to the dollar’s status as the major global currency, used to conduct trade and cross-border investment.
This drives the dollar’s value higher, making U.S. exports more expensive and U.S. imports cheaper. Given the nature of the resulting trade deficits — and as is obvious from the economy’s present state — the United States can achieve “full employment” and run trade deficits simultaneously.
Trump, of course, understands none of this. Ego is no substitute for intellect.
