Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Trump's First Priority Should Be to Balance Trade
The real drag on the American economy since the 1970s has been the foreign trade deficits and the multilateral trade agreements which caused the loss of millions of American manufacturing jobs, the movement of thousands of American companies overseas, and converted the U.S. from the world’s leading creditor to the world’s leading debtor. Balancing U.S. trade with the rest of the world is the only economic policy capable of restoring the U.S. economy and making the U.S. really great again. All the other Trump initiatives will do some good but cannot arrest the decline of the American economy and the stagnation and reduction in the American standard of living. These facts are concealed by the booming stock market which is based on unrealistic expectations. Without balancing trade, the decline in American power and economic well-being will end in a political Armageddon.
The booming stock market is based on an expected reduction in corporate income tax rates, a continued policy of keeping interest rates low, and an economy growing faster than the slow growth (less than two percent) of the past two decades. Reduction in corporate tax rates is likely because all Congressmen favor cutting taxes but it will do little for the American economy but worsen the distribution of income in favor of the already wealthy. Without a growing economy, interest rates will remain low. Interest rates will continue to be low until the economy begins to grow at a faster rate but without balancing the U.S. foreign trade deficit, there will be no substantial acceleration of economic growth. Trump’s economic policy of reducing the massive regulations that Obama and his predecessors imposed can be achieved by presidential directives during his first hundred days and will provide a mild stimulus to the economy. Converting Obamacare to something less expensive for the government and policyholders also will provide a mild stimulus. A massive expenditure on roads, bridges, and economic infrastructure including the building of oil and gas pipelines will also have a temporary and modest stimulus to the economy. But there will be no substantial increase in the growth rate without elimination the international trade deficits.
The standard of living of 90 percent of Americans depends on the number of jobs that are created and rising labor productivity levels. We have been creating too few jobs and these are entirely in the services sector. A few in the service sector, which has been growing at the expense of a decline in manufacturing employment, have benefited greatly but most are paid wages much lower that those of manufacturing workers. Only the upper middle class has benefitted during the slow growth of the U.S. economy during the past several decades. The rest of the U.S. middle class has been suffering from decreasing or stagnating incomes.
While nearly all the Trump proposals are good, none of them will succeed in restoring or preventing the decline of US greatness without bringing the trade deficits under control. Instead of the anemic actual growth rates, had trade been balanced since 1999 and exports remained the same, growth rates would have in most years doubled the recorded growth rates. Instead of stagnation, we would have realized personal income growth and a prosperous working class.
Gross Domestic Product and Net Exports. Selected Years (1999 – 2015) [Billions of chained (2009) dollars]
Year 1999 2006 2010 2015
Gross Domestic Product $12,066 $14,614 $14,784 $16,397
Net Exports of Goods and Services $ -377 -794 -459 -540
Net Exports as % of GDP -3.13 -5.44 -3.1 -3.29
Growth of GDP Over Previous Year 4.69 2.67 2.53 2.60
Growth If GDP Were Zero 7.82 8.10 5.64 5.89
Is there a policy that would have enabled such growth. In our book, Balanced Trade (Lexington Books, 2014) we recommended a single-country-variable-tariff (called the Scaled Tariff) which, notwithstanding the trade treaties, would have balanced trade. The only countries could avoid the trade-balancing tariffs would be to buy as much from us as we buy from them, an action which would obtain the benefits of increased efficiency for both parties. So long as trade were to remain unbalanced, U.S. tariff revenues would ensure that what we lost because of the trade deficits would be compensated by increased revenues. The incentives for our trading partners to abandon their beggar-thy-neighbor policies would be very great. After all, what is trade? An exchange by both parties of goods of less value in their countries for goods of greater value in their countries. Balanced trade!
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