Ok folks, let’s say what people keep refusing to say.

Trump’s economic plan makes sense and will work.


What Trump wants to do is to use tariffs to return production to the United States.  He has mentioned a 35% tariff on cars produced in Mexico, for example.

Donald Trump

This is not crazy, this is not insane, this is how economies were largely run for most capitalist history.

If a country is running a trade deficit it has more demand than it is filling domestically.  If it has unused capacity and less than full employment (both are true in the US, I would want to see the US running under 2% unemployment consistently for years before I was sure it was at full employment) then the stuff it is making overseas, which can be made at home, should be made at home.

Blah, blah, blah—competitive advantage. I’ve written the articles on why comparative advantage is irrelevant most of the time. Read them.

Free Trade is Betrayal

Ricardo’s Caveat 

Ricardo, who created the doctrine of comparative advantage, thought that free trade did not work under the circumstances the US is now in.

Free trade, if you don’t have full employment, is a rounding error.  In that case the only things you should be importing are things you need which you literally can’t make yourself.  And if you can’t make them because you don’t know how, you should be learning.

Free trade works when countries have full employment and capacity utilization. Only then does it make sense.

Trump wants bilateral trade deals.  Country X sells America what America can’t make for itself, and America sells Country X what that country can’t make for itself.

Keynes, by the way, felt that countries should produce almost all of what they needed for their daily consumption, trading only in that which they could not make and luxuries.

Trump is right.

Trump also wants full universal health care.  That will free up a lot of money.

Trump wants to tax the financial industry, that will give him a lot of money.

As for his nativist policies, well deporting millions of people while at the same time not allowing the industries which hired them to leave the country will result in increased wages and employment for the working class.  Immigration is a great thing, and a net economc positive, when you are running full employment and protectionist policies. If you refuse to have full employment due to deliberate government policy, well, it’s not for the natives.

(See “How the Federal Reserve Crushed Wages for Over 30 Years“.)

As the Rolling Stone article on Trump pointed out, Trump is winning because Trump is telling a lot of truth. Other politicians are beholden to big money interests and cannot possibly work in your interest because they are already bought. (This includes Clinton, but not Sanders).

This is simply a fact.

The policies which work for ordinary people are well known: bilateral trade deals, protection of core industries, ability to feed your own nation, tight labor markets, etc…)

Trade is often a bad thing.  It creates a race to the bottom, allowing countries to compete against each other for worst wage, worse treatment of workers and worst pollution.  It isn’t always a bad thing, but it is best when managed, not when free, and a country is most securely prosperous when it is primarily reliant on its own domestic market.

Now Trump won’t do all of what should be done. He won’t, for example, radically raise taxes on rich people. But he despises the financial industry and will hammer them, he will put up tariffs, he will redirect domestic demand to domestic industry.

You may not like it, but Trump’s economic plan will work.  It will produce a MUCH better economy for his supporters than did Obama or Bush (or even Clinton).

Can he get it thru?



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