On Monday, President Trump called trade a privilege. Here’s what Trump gets wrong.
In his press conference on the long-awaited agreement on the USMCA trade deal that replaces the North Atlantic Free Trade Agreement, Trump told the audience, “It’s a privilege for them to do business with us. And I am not talking about Mexico. I’m talking about everybody – everybody. It’s a privilege for China to do business with us. It’s a privilege for the European Union, who has treated us very badly, but that’s coming along, to do business with us. Japan, every country, it’s a privilege for them to come in and attack the piggy bank.”
The premise behind this characteristically rambling statement is that Americans buying things from other countries is bad for America, and is instead a favor to the seller countries. Profits that flow to foreign countries constitute an “attack” on the “piggy bank” of the U.S. economy.
There’s a lot of problems to that approach.
For one thing, trade is beneficial to all involved. At its most basic, trade is one person or entity exchanging something with another for something that is of higher value to them. That means that both parties involved come away with something more valuable that when they started — otherwise they wouldn't have given up what they had for what the other person had. The more of this that happens, the better off everyone is as more people get more things they want.
That sounds impossibly simple. And it is. But that’s also what Trump gets wrong when he says that trade is a privilege. By definition, trade is not a one-sided activity. An exchange only happens if both parties agree.
Trump also talks about the trade deficit as if U.S. is being ripped off. A trade deficit, spending more on imports than exports, however, is not a loss. Americans have money and spend it, exchanging currency for the items that they want. This makes sense. America is a wealthy country, so its citizens have more money to spend, so, of course, they would spend more than their less-wealthy counterparts in other countries.
And, when the economies of other countries, yes, even China, grow, then their citizens have more money to spend and purchase more U.S. goods and services. That’s good for both countries — actually adding money to the economy “piggy bank,” not robbing it.
In short, trade is not some privilege to be withheld but a net good for everyone — individuals, countries, and yes, the United States.
Finally, by casting trade as a "privilege," Trump calls into question a fundamental understanding of freedom. If Americans are not free to spend their money how they would like, including on foreign goods, not only is that damaging to the economy, but it also limits freedom of choice. When Trump says that other countries trading with the U.S. is a privilege, he seems to forget that that also implies that Americans trading with those countries must then also be a privilege.
To be fair, there are circumstances when the government might be justified in limiting trade, especially for specific items, with a foreign power. One example would be things like materials used in producing nuclear weapons or when sanctions are imposed against a government for specific actions. Those instances, however, must be the exceptions, not the default approach.