John Oliver on Trade
I just watched John Oliver’s “Last Week Tonight” show on trade and I was disappointed. Usually his main topic is well done, but tonight’s was not. He said there is no such thing as a trade deficit, when clearly there is. Just Google “trade deficit.” Investopedia says:
A trade deficit is an economic measure of international trade in which a country’s imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets. It is also referred to as a negative balance of trade (BOT).
Oliver seems to be saying, as many anti-Trump people do, that there is no trade deficit because you get something for the money you send to another country. We may pay China much more for goods than China pays us, but we get lots of T-shirts in return for the extra money. This is like saying that you can charge all you want on your credit card, because you get lots of stuff for the money you charge. At some point, you have to pay the bill. That is true in trade, too.
He also criticized the amounts cited by the administration as “trade deficits.” He probably has a point but only regarding the definitions. The huge numbers cited as “trade deficits” were probably numbers for a “balance of trade over an extended period.” The Census Bureau says the monthly US trade deficit in goods with China for 2018 averaged around $35 billion. The New York Times, hardly a conservative mouthpiece, said the annual 2017 “trade deficit” with China reached a record $375.2 billion. The US finances its trade deficit with China by giving China IOUs, selling bonds to China that the US will have to pay off or roll over one day. Bloomberg reported that China last year held $1.18 trillion of US debt, up $126.5 billion from the previous year.
Oliver also said that a tariff is stupid because it is a tax on ourselves, which is to some extent true, but he ignores the fact that there are various purposes for taxes. The point of a tariff is not at this time to raise money, but to penalize what appears to be bad conduct. It’s true that raising prices of aluminum and steel will raise the price of goods made from aluminum and steel in the US in the short term. But if China subsidizes its steel exports to the US to make Chinese steel so cheap that no one in the US will buy American steel, then American steel companies will go bankrupt. Then, when there are no American steel producers, China can raise the price of its steel to whatever it wants, and American end users will find themselves paying much higher prices for steel and having to raise prices for US consumers, or go out of business.
Oliver said trade is a complicated issue, but then he tried to oversimplify it, doing a disservice to his viewers.
Trump’s trade adviser, Peter Navarro, is not a conventional economist and is probably leading our trade discussions (or war) in the wrong direction. But Oliver made Navarro look good by failing to present an accurate picture of the US trade situation.