Donald Trump Is No Economic Genius. But on Trade, He’s Flip-Flopping in the Right Direction.
It’s tempting to ridicule every Donald Trump flip-flop, of which there have been several in just the past few days. The president’s sudden shifts deepen the impression that he is a pliable ignoramus with no core convictions, a man who will parrot whatever the last of his handlers whispered in his ear or whatever will earn him favorable coverage on Morning Joe. In some rare cases, however, Trump’s flip-flops might represent a shift toward coherence. Consider his recent reversals on trade policy.
In an interview with the Wall Street Journal, the president stated that his administration will not label China a currency manipulator, this despite his repeated promises on the campaign trail to do just that. And though Trump had previously expressed support for abolishing the U.S. Export-Import Bank, a cherished cause among Tea Party activists, he now says it does a lot of good for U.S. exporters and—because other countries have similar agencies—getting rid of it would amount to unilateral disarmament. If these arguments sound familiar, that might be because you’ve heard them come out of the mouth of Barack Obama.
On just about every possible issue, from abortion to immigration to the wisdom of single-payer health insurance, Trump has taken a number of different and often contradictory stances, all of which he’s worn lightly. There is just one consistent theme in Trump’s worldview, stretching at least as far back as the 1980s: America is being taken for a ride when it comes to international trade. Trump has never wavered in his conviction that the U.S. ought to get tough with countries that take advantage of the relative openness of our market to imports while keeping their own markets closed to our exports.
The one thing Trump has wavered on is what exactly it means to “get tough” on trade policy. Throughout his presidential campaign, he singled out China for devastating America’s industrial base, a message that appears to have resonated in much of the Rust Belt. To make his case that China was engaging in underhanded mercantilism, he’d often fall back on the argument that China is a currency manipulator. That’s a claim that’s been made by Republicans and Democrats alike, up to and including Senate Minority Leader Chuck Schumer, who urged the president to declare China a currency manipulator as recently as January.
The beauty of the currency manipulation charge is that it is relatively straightforward and thus a perfect fit for a presidential campaign. A stronger renminbi relative to the dollar would make Chinese imports more expensive, which in turn would reduce demand for Chinese imports. If China is working to prevent market forces from driving its currency too high, of course that’d be bad for U.S. producers competing with Chinese imports. And there’s the easy talking point: We should demand that China change its currency-manipulating ways. If it doesn’t, we’ll impose tariffs on Chinese imports until it relents.
But what if China is manipulating its currency to prevent it from becoming stronger relative to the dollar? As Brad Setser of the Council of Foreign Relations explains, it’s true that the Chinese government has intervened in foreign exchange markets to prevent or at least dampen the appreciation of the renminbi. It’s just that it was doing so from roughly 2005 to 2012. More recently, the Chinese government has been intervening in foreign exchange markets to keep its currency from depreciating too rapidly. This is not to say that China won’t turn on a dime and start trying to drive down the value of the renminbi again. It’s just not doing that right now.
By flip-flopping on the question of whether China is a currency manipulator, Trump isn’t so much abandoning the idea of getting tough on trade as he is abandoning an outdated talking point that made him seem clueless to people who know what they’re talking about. That’s not the worst kind of flip-flop.
If the president isn’t going to get tough on trade by holding China accountable for an economic crime it’s not actually committing, what will he do, exactly? That’s where the U.S. Export-Import Bank comes in.
The main reason Trump changed his mind about Ex-Im is that, as the Journal reports, he had a long conversation with Boeing CEO Dennis Muilenburg about the many ways the agency helps U.S. exporters. To Ex-Im’s conservative critics, it is no more than a vehicle for “crony capitalism”—why should huge multinationals like Boeing get help from taxpayers to sell their products to foreign customers? To Ex-Im’s defenders, it offers a perfectly defensible way to get around the fact that private lenders aren’t necessarily willing to offer export credit insurance on favorable terms and, by the way, it makes taxpayers a tidy profit.
Regardless of which of these arguments you buy, Trump’s attacks on Ex-Im never really fit his sensibilities. It never made sense that a man who’s happily made use of eminent domain and all manner of government subsidies for his various real estate projects was joining Tea Party conservatives in condemning government handouts to big business. It’s not Trump’s newfound embrace of Ex-Im that’s hypocritical—it’s the fact that he ever bad-mouthed it in the first place. Once he learned what Ex-Im really does, a flip-flop was inevitable.
I’m under no illusion that the president’s recent flip-flops on trade are a sign that he finally knows what he’s doing. But it’s nice to see him flip-flop in the right direction. If we’re lucky, Trump’s advisers or some other CEO will now get Trump to rethink what it means to get tough on trade. For some time now, it’s sounded as if the president’s ultimate goal was to wall off the U.S. economy from foreign competition. On the campaign trail last summer, Trump expressed extreme skepticism about the virtues of expanding trade with other countries, warning that “they get the expansion, we get the joblessness.” His rhetoric has been all about how we ought to “Buy American,” the implicit suggestion being that we should buy American even if the alternative is better or cheaper. Alas, try as he might, he can’t turn back the clock on globalization. Bashing countries with which we run bilateral trade deficits is a fool’s errand, for a whole host of reasons.
What is also true, however, is that the decline of America’s traded sector is not inevitable. As Setser has suggested, the rise of offshoring hasn’t been entirely driven by economic fundamentals. It’s also been a product of the desire of U.S. multinationals to book their profits in tax havens and to take advantage of crony-capitalist (or shrewdly opportunistic) subsidies many foreign governments are eager to dole out. Trump would do well to advocate a more strategic approach to trade. The U.S. should indeed fight mercantilist policies in China, as Rob Atkinson and Oren Cass have argued. But it’s at least as important to ensure that American workers are producing goods and services that people around the world are eager to buy. Getting there would mean reforming the tax code to encourage more productive private investment (admittedly a heavy lift) and making targeted public investments in infrastructure, basic research, and apprenticeships. Building on Obama-era initiatives like the National Network for Manufacturing Innovation wouldn’t hurt either. Who knows? Trump might even win over some skeptical Democrats if he plays his cards right.