Trump’s knowledge deficit is going to cost you money

You live in an area of Middle Georgia and drive to the nearest grocery store. At least once a week, sometimes more, you and your neighbors make a trek to stock up. Because the cost of living in your area is low, more people move to the area and it starts to grow. Right now, you and all your neighbors have a trade deficit with the grocery store you drive to.

The upside of that trade deficit is that the grocery store knows your area is growing at an economically beneficial rate. As a result, the grocery store will soon use its trade surplus with you to open a grocery store in your area. That is how trade surpluses and trade deficits work.

President Donald Trump and many of his supporters get this basic proposition wrong. They talk about trade deficits and surpluses in national terms, but they are not caused by countries. The United States does not have a trade deficit with Germany. Americans individuals do because they buy Bosch dishwashers and BMW and Mercedes vehicles. BMW and Mercedes, in response to Americans buying their vehicles, have built American manufacturing plants. Those companies’ trade surpluses created American jobs in the United States.

The tariffs in response to these surpluses and deficits are bad public policy. The surpluses and deficits are caused by individual Americans and American corporations choosing to buy goods from other countries. American farmers have had a surplus with a number of countries that have bought American farm goods in greater quantity than from other countries. All of this is changing because of the tariffs. Now, the costs of American goods are rising in China and Europe and their costs are rising here.

Ultimately, what is happening is consumer prices are rising after a decade of relatively stable pricing. Consumer prices are expected to rise close to 3 percent in the coming year, which could jeopardize further quarterly economic growth. In an immediate sense, the tariffs and trade war are causing Americans to spend more out of pocket than they gained from the tax cuts earlier this year. The tax cuts sparked the economic boom and the tariffs are going to smother it.

To be sure, the European Union has offered up some concessions. They are vague, nebulous concessions that allow President Trump to claim some level of victory without anything really changing. The Chinese, however, relish a trade war with the United States and are escalating it. The Chinese understand what every major economist on the left and right understands. Tariffs hurt the economy of the country imposing them. China has a command and control economy and are not terribly worried about hurting their own people. But they understand the United States is a capitalist system with mostly free markets. They can do far more damage to us than we can do to them.

One thing China is doing is buying up crops from Brazilian farmers and subsidizing farmers in countries outside the United States. They are also lowering prices of commodities sold to Europeans making their products in Europe more competitively priced compared to ours. All of this has happened because President Trump lacks the basic knowledge of what a trade deficit is and rejected basic economics on how tariffs work.

Erick Erickson is host of Atlanta’s Evening News on WSB Radio.