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A Wall Street Journal interview on trade shows Trump has no idea what he’s doing

He confuses tariffs and interest rates, and invents phantom new steel plants.

US President Donald Trump and Chinese President Xi Jinping in November 2017 in Beijing.
President Donald Trump and China’s President Xi Jinping arrive at a state dinner at the Great Hall of the People on November 9, 2017, in Beijing.
Thomas Peter/Pool/Getty Images

At one point during his latest interview with the Wall Street Journal, President Trump mixes up tariffs (a kind of sales tax imposed on imported goods) with interest rates, which are the extra money you owe when you take out a loan. Bob Davis, the journalist conducting the interview, corrects the president. It’s the kind of verbal slip that could happen to anyone. Except that Trump, after acknowledging the error, flips back around and makes it again later in the interview.

It’s the kind of mixup that would get a first-term House member flayed in the right-wing press, but Trump is the president of the United States.

And it’s not just some random issue where he can’t keep the words straight. Trade policy is, along with immigration, one of his signature issues where he personally has really made a mark and is governing in a way that other Republicans probably wouldn’t. During the 2016 campaign, it was routine to warn that Trump’s blundering ignorance on trade matters would end up tanking the global economy. That hasn’t happened, and in reality, the continuation of the steady recovery that began midway through Obama’s first term has been the clear bright spot of Trump-era America.

But from listening to Trump talk, our luck seems almost unbelievable. And one thing the interview reminds us of is that of late, Trump has implemented relatively little of the Trump trade agenda. If our luck holds up, it’ll probably be because we don’t really get to see what the full Trump would look like.

Trump mixes up tariffs and interest rates

If you borrow money from a bank, the bank will want you to pay the money back — with interest. By the same token, when the government sells bonds, it eventually pays back the full value of the bond — plus interest. And the Federal Reserve Bank tries to influence the economy primarily by manipulating interest rates. If it thinks aggregate spending in the economy is too low, it makes interest rates lower. If it thinks aggregate spending has become too high and is sparking inflation, it makes them higher.

A tariff, by contrast, is a tax on imports. Instead of imposing a 10 percent sales tax on all cars, you could impose a 10 percent sales tax on imported cars and call it a tariff.

Or if you’re Trump, you could just mix up the two. Here, talking about the burgeoning trade war with China, he threatens to raise “interest rates” on China (he means tariffs), gets corrected, acknowledges that he misspoke, and then does it again:

President Trump: So but what I’m saying is that I am very happy with what’s going on right now. We’ve only used a small portion of what we have to use because I have another $267 billion [in imports] to go if I want, and then I’m also able to raise interest rates. And we have money that is pouring right now, pouring —

Mr. Davis: When you say interest rates, do you mean — do you mean tariffs, as opposed to interest rates?

President Trump: I’m sorry, the rate, the 25 percent rate —

Mr. Davis: Yeah, yeah, yeah. OK.

President Trump: Without even doing any more.

Mr. Davis: Yeah.

President Trump: We have money that is pouring into our treasury right now, and on January 1 it’ll become much more so. And here’s the story: If we don’t make a deal, then I’m going to put the $200 — and it’s really $67 — billion additional on at an interest rate between 10 and 25 depending.

Raising taxes on Chinese-made goods is, obviously, a way to hurt China that, potentially, could cause China to want to make concessions to the United States in order to get us to change course. But one of the oddities of Trump’s thinking on this is he doesn’t seem to acknowledge that a large tax increase on Chinese-made goods is also just a big regressive tax hike on Americans.

He talks about “money that is pouring into our treasury right now,” but that just means that even as he’s slashed the corporate tax rate, he is taking steps to raise taxes on everyone. So far, most Americans haven’t seen higher prices, but Trump doesn’t seem to know why that is or care that his next moves may change that.

Trump is cavalier about Americans paying more

For its initial round of tariffs on China, the US government tried to be careful and strategic and make sure to target product categories for which many foreign-made alternatives to Chinese-made goods were available. When that happens, US purchasers switch to non-Chinese alternatives, and then consumers from outside the US tend to switch around and start buying the Chinese products. The overall impact is slightly less efficient global supply chains, some real pain to Chinese firms that need to find new customers, and a limited impact on American prices.

But this only works because the US has been cautious so far. Trump, however, cites the limited impact of existing tariffs as a rationale for throwing caution to the wind in the future.

President Trump: We have money that is pouring into our treasury right now, and on January 1 it’ll become much more so. And here’s the story: If we don’t make a deal, then I’m going to put the $200 — and it’s really $67 — billion additional on at an interest rate between 10 and 25 depending.

Mr. Davis: Including even iPhones and laptops and things that people would know?

President Trump: Maybe. Maybe. Depends on what the rate is. I mean, I can make it 10 percent and people could stand that very easily. But if you read that recent poll that came out, we’re only being — most of this is being — the brunt of it is being paid by China. You saw that.

Mr. Davis: Right. Right. I mean, well, you know —

President Trump: On the tariffs.

Mr. Davis: It depends, like, who —

President Trump: Look, I happen to be a tariff person.

Much as tariffs are not interest rates, the recent study from EconPol Europe indicating that China bears the brunt of the costs of Trump’s policies is not a poll. It’s also important to understand what those researchers are saying. Their conclusion is that the limited first round of tariffs “will increase US consumer prices on affected Chinese products by an average of 4.5%, while the producer price of Chinese firms declines by 20.5%.”

That does mean that China sees more pain than the United States, but also that both countries are going to see pain. And the key issue in determining that split is not the tax rate but the scope of the tariffs. If Trump hits a wider range of goods, as he is threatening to do, then the balance of the pain will shift. But he doesn’t care because he’s a “tariff person,” and he has a made-up story about the steel industry to justify that.

Trump thinks he rebuilt the American steel industry

One of Trump’s earliest trade moves was to impose broad new taxes on imported steel and aluminum, which has allowed him to hand out exemptions as political favors. And of course while taxing foreign metal has been good for American companies that manufacture metal, it’s been bad for American companies that manufacture things made out of metal.

Trump’s view, however, is that this policy has been a stunning success that’s made America’s steel industry “vibrant”:

I happen to be a tariff person because I’m a smart person, OK? We have been ripped off so badly by people coming in and stealing our wealth. The steel industry has been rebuilt in a period of a year because of what I’ve done. We have a vibrant steel industry again, and soon it’ll be very vibrant. You know, they’re building plants all over the country because I put steel — because I put tariffs, 25 percent tariffs, on dumping steel.

Trump’s steel and aluminum tariffs (he seems to have forgotten about the aluminum) were actually imposed using national security authority and aren’t anti-dumping tariffs at all. But beyond that, here’s a portrait of American steel production over the past 10 years.

Output is definitely up a little from where it fell in 2016, but it’s still below the level it reached in 2013 and 2014, which itself was below its pre-recession point. There’s nothing particularly “vibrant” about the situation. The companies that own steel factories have mostly taken advantage of Trump taxing their competitors to raise prices rather than increase production. And that makes a lot of business sense. Why open a new factory that’s only economical because of tariffs when the very existence of the tariffs depends on the whims of a mercurial and unpopular president?

In Trump’s mind, of course, “they’re building plants all over the country,” which is something he says constantly at rallies even though it isn’t true. Yet perhaps precisely because so much of his presidency consists of these fanciful rhetorical constructs, he doesn’t seem to understand that he has policymaking authority beyond just saying stuff.

Trump has no policy on a real industrial crisis

Cars are made out of metal, so taxing foreign metal in order to let American metal-makers raise prices is bad for American carmakers. I’m not saying that’s the reason GM announced plans to close factories in the United States, but obviously, it doesn’t help on the margin. Those plant closures will be devastating to the communities directly affected and also obviously cut against Trump’s general policy trajectory.

But while Trump has a lot of thoughts on the subject, he doesn’t actually have a policy to offer. Asked if he has “any comment on GM shutting its plants, laying off employees,” Trump starts with a nice message of solidarity: “I think GM ought to stop making cars in China and make them here.”

But Davis asks Trump to explain further. “Anything that you plan to do? Is there anything you can do?”

Trump just filibusters:

Well, it’s one plant in Ohio. But I love Ohio. And I told them: You’re playing around with the wrong person. And Ohio wasn’t properly represented by their Democrat senator, Senator Brown, because he didn’t get the point across. But we will all together get the point across to General Motors. And they better damn well open up a new plant there very quickly. You know, they haven’t closed — they’re reallocating it, it’s called. And I said, because their Cruze car isn’t selling, OK? They make a car called Chevy Cruze. And it’s not selling well. So I said: Then put a car that is selling well in there but get it open fast.

We’ve gone from the president boldly reviving American industry by taxing foreign metal to the president kind of vaguely begging the CEO of a car company to keep a marginal factory open. Trump seems to realize this is weak, so upon follow-up, he recasts himself in a more confrontational light:

President Trump: I spoke with Mary Barra, the head of General Motors, last night. I said: I heard you’re closing your plant. It’s not going to be closed for long, I hope, Mary, because if it is you’ve got a problem.

Mr. Davis: Uh-huh. OK. And did she answer you?

President Trump: She just sort of said we’re trying to get something – you know, it’s being reallocated. You understand that, right?

Mr. Davis: Yeah. Yeah.

President Trump: So she told me: The car’s not selling. I said, so maybe you got to make a better car.

That’s Trump’s solution for Midwestern communities devastated by the loss of auto manufacturing plants. Maybe the bosses should make better cars. Maybe!

Indeed, for all his populist bluster, when it comes down to concrete details, Trump’s trade policy priorities tend to align remarkably with what the CEO class whispers in his ear.

Trump wants Europe to let big tech break the law

One place you see this is in the conflict with China.

Trump is obsessed, broadly speaking, with the idea that the bilateral US-China trade deficit represents a financial loss to the American people. That’s a nonsensical misunderstanding of how trade works, and because it’s so nonsensical, Trump has trouble articulating concrete specific demands that he wants the Chinese to agree to.

Instead, when pressed on specifics, he comes up with intellectual property, “the only deal that would really be acceptable to me — other than obviously we have to do something on the theft of intellectual property, right — but the only deal would be China has to open up their country to competition from the United States.”

The issue of intellectual property theft is real, but people should understand what the problem is: When American companies set up production in China, the Chinese often take advantage of that to learn American trade secrets and production techniques in order to launch new Chinese-owned companies. American business owners could avoid this problem by not outsourcing their production to China. But they like outsourcing their production to China since wages are much lower over there. So they are obsessed with getting the American government to pressure the Chinese government to crack down on intellectual property theft.

Similarly, but even more egregiously, when asked “what would be a fair deal” to strike on trade with Europe, Trump simply pushes for deregulation:

A fair deal is that they have to take down their barriers and that they have to start — stop charging us massive taxes for our people — and also their standards. For instance, they’ll create a standard — we’ll make a product, and they’ll make a standard that’s different than the product, lower or higher. But it’s different. So then our product can’t come into the EU. They do that all the time, like with medical equipment, OK? But they have to take down their barriers and they have to take off the taxes. And, frankly, they have to start treating our companies better, because they sue all of our companies for billions and billions of dollars. They’re picking up all this money from our companies. We should be the ones to sue our companies.

The part about “treating our companies better” is especially telling because many Republican Party politicians have been making a big show lately of staging a fake culture war conflicts with the gigantic Silicon Valley companies whose corporate income taxes they slashed last year. The issue here is that European competition regulators have hit big American technology companies with a series of large fines for violating antitrust law.

Trump’s big idea about getting tough with Europe isn’t getting them to do anything that would be helpful to the average American. Instead, he wants to threaten to raise taxes on European cars (which would cost the average American money via higher car prices) in order to get them to let Google, Facebook, and other American tech giants break antitrust law.

A strong economy, if you can keep it

The strong point of Trump’s presidency, in both political and substantive terms, has been the relatively sunny economic situation. Trump inherited an economy that had long since stabilized and begun to grow but that remained well below its productive capacity.

Upon taking office, he implemented a mix of higher military spending, higher domestic spending, and lower taxes that finally provided the necessary kick of fiscal stimulus that we’d been lacking ever since the Tea Party Congress began to impose austerity in 2011.

And the good news for both Trump and the country is that the odds of a complicated new economic problem arising in any given year are generally low. Growth will probably slow down a little in the natural course of things, but smooth sailing could easily continue for another year or two or five. But if the sailing gets rough, it’s clear that the captain of the ship of state has no idea what he’s actually doing. Worse, he seems to instinctively enjoy the idea of rocking the boat for its own sake.

So far, his trade bark has been a lot louder than his bite, so the concrete impact has been limited. With luck, that’s how it will stay. Without luck, well, just look at Trump’s approach to the auto plant closures in Ohio to see how much help he is when actual problems arise.

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