Dispelling the Economics of Trump

If you tuned into the first or second Presidential Debate, over the clamor of email misuse and sexual assault allegations, you may have caught Donald Trump delivering one of his tirades on the United States’ national debt, international trade deals, or its imperative to “beat China.”

While these issues do sound calamitous coming from the mouth of a person who is well-acquainted with personal debt, a closer look will reveal that many of these claims are, at their best, contentious– at their worst, they’re outright nonsensical. Here’s a brief analysis of three of his major talking points.

The national debt

One of the issues that riles up The Don the most is that of the United States’ $19 trillion debt. He is notoriously upset about the idea that the United States could owe such a vast amount, and often cites the figure when asked about government spending. For his insistence on raising it as an issue, though, Trump fails at every reprise to frame it within its greater economic context.

While it is true that America holds over $19 trillion in debt, which is the highest nominal debt held globally, the United States actually ranks 11th in the world in terms of debt-to-GDP, with a ratio of 104%. By this measure, the U.S. lags far behind countries such as Japan and Greece, who borrow at 229% and 177% of their GDP, respectively. In fact, a 2015 report by the IMF compares countries by their fiscal space– or the difference between their debt-to-GDP ratio and an “upper limit”, as determined by the ratings agency Moody’s– and illustrates that the United States has enough of this fiscal space to not have to worry about its debt.

Ironically, Trump’s economic proposal would actually increase the government’s debt by at least $10 trillion over the next decade on top of the $10 trillion already projected to happen under the current law.

This $19 trillion figure, then, though sizable, is by no means as dire as Trump makes it out to be– and definitely not of a magnitude large enough to make it a central issue in this election.

NAFTA

Another victim of Donald’s apoplectic rhetoric is the North American Free Trade Agreement, or NAFTA. In the first debate, he lambasted NAFTA as “the single worst trade deal ever approved in this country.” The data on this deal reveals, though, that his claims have little foundation in economic reality.

NAFTA was negotiated by President George H.W. Bush and instituted in 1994 under Bill Clinton, and eliminated tariffs on goods traded between the United States, Canada, and Mexico. Most economists would contend that NAFTA has made all three countries better-off; since its adoption, trilateral trade has nearly quadrupled from $290 billion in 1993 to $1.1 trillion in 2016.

Trump sides with NAFTA’s critics who point to the unemployment that it has caused in the U.S., particularly in the manufacturing industry. While it is likely true that NAFTA cost the U.S. jobs (600,000, by some estimates), it is also reported to create nearly two hundred thousand export-related jobs annually, which pay on average 15 to 20 percent more than the jobs that were originally lost. And while Trump laments the state of unemployment in Michigan and Ohio, places where “so many of their jobs and their companies are just leaving” purportedly as a result of NAFTA, their unemployment rates currently stand at 4.5% and 4.7%, respectively.

International competition

When it comes to international competition as a whole, Trump seems to believe that trading is a zero-sum game in which we have trading rivals whom we must “beat”. In the second debate, he announced that “We have to build up the wealth of our nation. Right now, other nations are taking our jobs and they’re taking our wealth.” While this mercantilist view of the global economy was discredited as early as 1776 by Adam Smith, it is a prevailing point of contention for Donald.

The reality of the situation is that international trade tends to make nations better-off because it provides them with goods and services that they would otherwise not have access to, and should be encouraged more often than not.

Trump often balks at the size of the U.S.’s trade deficit–

“Last year, we had almost $800 billion trade deficit. In other words, trading with other countries. We had an $800 billion deficit. It’s hard to believe. Inconceivable.”

The issue here is that a trade deficit isn’t necessarily a bad thing. Rather, it indicates that Americans are buying goods from abroad for cheaper than they would domestically, and that the U.S. is attracting investment from overseas. In fact, the trade deficit tends to expand during periods of economic growth as the U.S. buys more goods and receives more investment from abroad, and shrink during economic slowdowns.

Trump’s aversion to trade would actually even hurt American jobs by closing off this foreign investment. In the first debate, he put forth that “We are losing jobs to other countries at a higher rate than ever.” This statement falsely perpetuates the notion that trade inextricably leads to lower employment. Indeed, the offshoring phenomenon that the U.S. witnessed from 2000 to 2003 now appears to be reversing as higher costs of labor abroad, coupled with shipping costs, are making it more cost-effective for American companies to manufacture locally. This is resulting in a phenomenon of “reshoring”.

Trump is correct in asserting that the United States has some very, very big numbers on its balance sheet. By misrepresenting their meaning, though, he is actively misinforming the electorate and leveraging fear as a tool to garner votes. The United States is the world’s largest economy and sustains the strongest growth in the developed world. Is there room for improvement? Absolutely. But Donald Trump is pointing to all the wrong places to find this improvement. As the potential POTUS, his views need to be more heavily scrutinized, or we’ll all be collectively dumber and poorer for it.