The Art of the (Trade) Deal, according to the Trump administration
President Trump has ordered a comprehensive review of the 14 free trade agreements the United States has signed with 20 other nations during the past three decades, fulfilling a campaign promise to replace “bad” trade deals with “good” deals that will benefit American workers. Even if you haven’t read the president’s book The Art of the Deal, we can get a sense of President Trump’s bargaining agenda from what he and his trade advisors have said repeatedly about how to improve U.S. trade policy.
According to the Trump administration’s view of trade, a bad deal is one in which Americans are left free to buy more useful goods and services from producers in the other country than consumers in the other country buy from us.
A good deal is one in which we send more useful stuff abroad each year than we get in return. With China, a better deal is one in which its currency is required to become more valuable relative to the U.S. dollar, which would mean that for every ton of soybeans we ship to China, we would receive 25 pairs of shoes in exchange rather than 30 pairs.
A bad trade deal is one in which a foreign country reduces its average tariff rate on U.S. exports from 10% to zero percent in exchange for the United States reducing its average tariff rate on imports from the other country from 3% to zero percent.
A good deal is one in which U.S. tariffs are set at a rate that is the same as the other country’s tariffs before we signed a bad trade deal with the other country. Setting tariffs at zero percent for all countries in the trade agreement does not count as reciprocal trade (see above) but instead is unfair.
A bad trade deal allows U.S. manufacturing companies to lower their production costs by importing capital machinery, raw materials and intermediate inputs such as steel at global prices. A good trade deal protects the domestic U.S. steel industry and its 150,000 workers by raising the costs of production for steel-using manufacturing companies that employ 6.5 million U.S. workers.
A bad trade deal lowers or eliminates tariffs on the imported food, clothing and shoes that make up a disproportionately larger share of the family budgets of working class Americans and the 45 million Americans living below the poverty line, thus allowing their real wages and standard of living to rise.
A good deal protects the few hundred thousand remaining manufacturing jobs in the U.S. textile, apparel and footwear industries by maintaining a regressive tax of duties on food, clothing and footwear that imposes an effective tariff on the poorest 10% of Americans that is 5 times higher than the effective tariff on goods purchased by the richest 10%.
A bad trade deal makes it easier for people outside the United States to acquire U.S. dollars by selling us goods, services, and titles to foreign assets, and for those foreigners to then spend those dollars to buy U.S. goods, services, and titles to U.S. assets, thus promoting an expansion of two-way trade and foreign investment and increasing output through specialization.
A good trade deal makes it more difficult for foreigners to acquire U.S. dollars by restricting their ability to sell us goods, services, and titles to foreign assets, and thus reducing the supply of dollars foreigners have available to buy U.S. goods, services, and titles to U.S. assets, including U.S. Treasury bonds at a time when the U.S. government will be issuing even more of them to finance infrastructure and defense spending.
A bad trade deal is one in which foreign suppliers are free to offer lower-cost bids on government procurement contracts in the United States in exchange for U.S. suppliers being free to offer lower-cost bids on government procurement contracts in the other country.
A good trade deal requires U.S. infrastructure projects to “Buy American,” driving up the cost of such projects and ensuring that fewer roads and bridges are rebuilt for a given amount of tax dollars spent. A good deal also requires the U.S. military to “Buy American,” ensuring that tax dollars earmarked for the Pentagon buy fewer boots, uniforms, guns, tanks, ships, and fighter jets than if foreign contractors were able to bid for government procurement. A good deal leaves foreign governments, including U.S. allies, free to block U.S. companies from offering lower-cost bids to improve their infrastructure and their militaries.
A bad trade deal allows U.S. multinational companies to invest in their affiliates abroad, where they sell twice the value of goods and services — more than $6 trillion a year — than U.S. companies export from the United States. A bad deal allows them to continue to sell more than 90% of their output abroad to customers abroad.
A good trade deal forces U.S. companies to reduce their output, employment, and investment in their affiliates abroad, ceding those markets to competing multinational companies based in other countries where their governments do not negotiate such good trade deals. A good deal allows the U.S. parent companies to reduce their employment and output in the United States because there is less activity to support in their affiliates abroad.
In sum, the art of the trade deal according to the Trump administration teaches us that Americans win when the dollars in our pockets buy less in global markets; when we pay higher prices for the goods and services we use every day; when U.S. producers face higher costs of production than their foreign competitors; and when the taxes we pay buy less infrastructure and national defense.
That’s a trade deal that sounds too “good” to be true.
