America First, and What It Might Cost

On the debit side of its balance seat, President Trump’s administration has gotten into more or less serious trouble with institutions that most Americans still regard as worthy of respect. Congress, above all, is one. And more than once when he tried to use Presidential power and the law of the land made him turn back, he renounced the courts’ “so-called judges”. He dismissed the head of the Federal Bureau of Investigation as someone who should have been loyal to him personally (and many Americans then realised that the head of the FBI ought not be loyal to the President, but rather to the law, especially if the President is breaking it), and he has only just escaped from accusations of obstruction of justice. Both he and his son-in-law are being investigated for illicit contacts with Russian government agencies. None of these complications are likely to lead to an impeachment, but they prompt the question, why have Americans elected Donald Trump as their President?

Donald Trump seems to have few beliefs about economics, but he believes them firmly enough. One of his firm beliefs is that exports are good and imports are bad, because they destroy American jobs while the exports only destroy foreign jobs. These are countries that have a surplus in their trade with America, and this is the case in the administration’s view because they are disloyal, and they “manipulate” their exchange rate and give subsidies to their exports. President Trump has indicated three countries—Mexico, China and Germany—as being “disloyal” in their trade with America. He has punished Mexico by telling the Ford Motor company via twitter to give up their plan of establishing a major car factory in Mexico. Further punishments are likely to follow. China used to be a sinner in the President’s book, but is now expected to help America in disciplining North Korea, and as long as Tump believes that China will be helpful, there is no more talk of disloyal trade by the Chinese. All the White House’s ire is now concentrated on the third sinner—Germany.

On the occasion of a NATO meeting in Brussels at the end of last May, President Trump spoke to Jean-Claude Junker, President of the European commission, and complained of the invasion of German cars in the American market (as if Jean-Claude Junker were responsible for American customers liking Mercedes and Audis). This was “bad, very bad” and President Trump promised to take the necessary measures in response. Assuming that he will punish the export surplus of Germany by whatever it will take to make German cars much more expensive in America, he will by the same token bring about increased demand for Fords and General Motors cars from customers who would otherwise have bought Mercedes and Audis. There being reasonably full employment in America, increasing demand for Fords and General Motors will have to be counter-balanced by a decrease in other output, notably in high-tech production and equivalences. Thus there will be an increase of the marginal product in Fords and General Motors and a decrease of the marginal product in high-tech industries. Similarly, there will be an increase of the marginal product in the car industry and a decrease in that of the high-tech one. In other words, there will be increased employment of the low productivity margin and a decrease in the high productivity one. American industry, on balance, will become marginally poorer.

While this is happening in America, German industry will also become poorer. As there are fewer Mercedes and Audis exported to America, the marginal product in their auto industry will decrease. In order to maintain full employment, the decrease in car production will be counter-balanced by an increase in infrastructure investment, such as roads, railways, and other public works or marginal equivalences, where productivity is much lower than in the car industry. The adjustment in the German economy would, in other words, be the same kind as in the American one with the marginal product moving from the high to the low productivity employment in either country.

There is always the hope that President Donald Trump will not do what he has promised to do, but we would have to be lucky to avoid it. Should we be the victims of President Trump and his play with economies whose functioning he is unable to understand?

The American electorate has chosen to put Donald Trump in the Presidency, and the consequences for the next few years could be anybody’s guess. With the democratic mechanism as it is, in less than four years the electorate will once again have the power to put another Donald Trump in the White House, or leave the one we have to be President for another four years. With such prospects, there may be reason for demanding that the democratic mechanism, with “one man (woman) one vote” producing outcomes that the voters can only regret once it was too late, should be seriously put in question.