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A Down-to-Earth Explanation of the Sound Economics of Trump's Trade Policies

By       Message Seth Rutledge       (Page 1 of 1 pages)     Permalink    (# of views)   1 comment

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One of the most important issues to USers, although many don't know it, is the trade deficit. To understand the consequences of a massive trade deficit first we have to know a little bit about international finance, and the related issue of US imperialism.

To simplify the picture imagine the US and China as peddlers in a market. Let's say the US is selling eggs, and China is selling cheese. The US is printing egg dollars--one dollar equals one egg, and China is printing cheese yuan--one yuan equals a block of cheese. One day the US comes to the market and trades an egg (or an egg dollar) for a block of cheese (or a cheese dollar.) This day was a balanced day of trading, but what happens if there is an imbalance?

Let's say the next day the US comes and wants two blocks of cheese (two cheese yuan) but only has one egg, so the US prints an extra egg dollar to trade for cheese yuan to buy the cheese with. This is a trade deficit, and the US responded by printing an extra egg dollar so they can keep getting their block of cheese.

Now China has these extra egg dollars, but the US is still bringing the same amount of eggs to the market, so China can't get an egg for each egg dollar. The US has printed twice as many egg dollars as there are eggs. The egg dollars have been devalued, and now in order not to run out of eggs, the US has to charge two egg dollars to buy one egg.

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In international finance this is the natural consequence of a trade deficit--the currency of the country that has a trade deficit will devalue. This leads to a natural balancing out of the trade deficit because, as a country's currency devalues, they are able to purchase less of other countries' goods. So, now that egg bucks are worth only half an egg, China won't accept one egg buck for their block of cheese (or one cheese buck) so the US will only be able to get half a block of cheese with their one egg dollar as a consequence of them bringing half the eggs as before they can only get half the cheese. So you can see how, as the currency devalues and the country looses purchasing power, the balance of trade is naturally restored.

Now let's make this a bit more realistic. The US wants to keep getting China's stuff even though they aren't bringing as many eggs to the market, so what have they done? They get their stick and go over to Saudi Arabia who is selling their bottles of oil for one Saudi Dinar. The US says, "You are going to sell your bottles of oil for egg dollars, or I'll whack you," and Saudi Arabia agrees.

Now, since China needs bottles of oil, they need egg dollars, so the value of the egg dollar goes back up. Even though the US isn't bringing as many eggs to the market, they still can print the extra egg dollars and get a whole block of cheese, and the egg dollar is again traded for one block of cheese yuan because China needs the egg dollars to get their oil.

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This is the economic situation in the world. The US military is enforcing economic imperialism, allowing them to print dollars (or borrow) and buy tons of extra stuff running up a massive trade deficit. This works until Saudi Arabia gets a bigger stick, tells the US they aren't going to play along, and starts selling their oil for Saudi Dinars again. Then the egg dollars will devalue and the US will be stuck with only half a block of cheese, unless they can produce more eggs.

If the US military is defeated globally, the dollar will devalue and we will have a massive price increase on all imported goods resulting in a drop in standard of living and possible starvation as we are cut off from vital food and energy imports.

So what is to be done? See my economic program for a complete list, but two things that need to happen are:

1. The US needs to reinvigorate its manufacturing and exports. To do this we need to stop the free-trade agreements, like NAFTA and the TPP, that allowed US companies to offshore their factories to China.

2. We need to protect US industries from predatory price manipulation that has been destroying US companies. A good example of this is the steel industry: the Chinese government has been subsidizing their steel industry, driving prices down to below the cost of production, killing US steel. To stop this the US needs to institute a protective tariff so that foreign steel (and other goods that are being flooded into the US market at artificially low prices) is sold at a realistic price and US companies can compete.

Thankfully Trump is instituting these policies. The politicians of the past decades have sold out US manufacturing; they represent parasitic financial interests who profit from the destruction of the economy. Trump is also driven by greed, but he is a businessman and profits from the success of the economy. There are plenty of reasons to dislike Trump, but when it comes to trade, jobs, and economics, he is helping the US economy and every USer benefits.

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Seth Rutledge is a writer and activist from Syracuse, NY. Follow him on Twitter

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