Fact Checking Trump on Trade

Cato Institute - Friday February 26, 2016

by Simon Lester

Watching the Presidential primary debates, there are numerous instances where I – and no doubt many others here at Cato and elsewhere – think, “I should really correct that inaccuracy in a blog post tomorrow.”  But sometimes you wake up and find someone else has already done the job for you.  Here areWashington Post fact checkers Glenn Kessler and Michelle Ye Hee Lee skillfully taking down one of Donald Trump’s ridiculous statements on trade:

“I don’t mind trade wars when we’re losing $58 billion a year [to Mexico], you want to know the truth. We’re losing so much. We’re losing so much with Mexico and China — with China, we’re losing $500 billion a year.”

— Trump

Trump has the numbers right on the trade deficit with Mexico and overstates them with China — but he gets the economics very wrong in both cases. A trade deficit means that people in one country are buying more goods from another country than people in the second country are buying from the first country.

So in Mexico’s case, Americans in 2015 purchased $294 billion in goods from Mexico, while Mexico purchased $236 billion in goods from the United States. That results in a trade deficit of $58 billion. In the case of China, Americans in 2015 bought $482 billion in goods from China, while Chinese purchased $116 billion from the U.S., for a trade deficit of $366 billion.

But that money is not “lost.” Americans wanted to buy those products. If Trump sparked a trade war and tariffs were increased on those Chinese goods, then it would raise the cost of those goods to Americans. Perhaps that would reduce the purchases of those goods, and thus reduce the trade deficit — but that would not mean the United States would “gain” money that had been lost.

Trump frequently suggests, as he did in the debate, that Mexico could pay for the wall out of the $58 billion trade deficit. But that is nonsensical. The trade deficit does not go to the government; it just indicates that Americans are buying more goods from Mexico than the other way around.

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