I recently started following Donald Boudreaux at Cafe Hayek and he has been writing some incredible stuff.

Here is a letter Boudreaux sent to Peter Navarro, president Trump's alleged "trade guru".

15 March 2018
Dr. Peter Navarro
White House
1600 Pennsylvania Ave., NW
Washington, DC 20500

Dr. Navarro:
Interviewed this morning on CNBC you said that according to “some estimates” - estimates that you obviously take seriously - for every $1 billion in U.S. trade deficits, America loses 6,000 jobs. Let’s do the math, and let’s increase the plausibility of your “estimate” by looking only at the years since China joined the WTO - that is, the years from 2001 forward.

In each of these 17 years (2001-2017) the U.S. ran trade deficits in the hundreds of billions of dollars. For this entire 17-year span, the U.S. trade deficit was $9.259 trillion. According to the “estimate” that you wish us to take seriously, therefore, the number of jobs that America “lost” as a result of these trade deficits is 55,554,000 - a number of jobs more than one-third of today’s entire U.S. labor force, and nearly nine times larger than is the number of Americans who are today unemployed!

Your “estimate” doesn’t pass the smell test; indeed, it’s beyond laughable. Can you tell us then, given your proneness not only to fall for such absurd “estimates” but to perpetuate them as if they’re a sound basis on which to formulate policy, what reason have we Americans to take you seriously? Why should we pay any heed to your economically and arithmetically illiterate bloviations?

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Boudreaux's email comment: "Entrusting trade policy to Peter Navarro makes less sense than entrusting your life savings to Bernie Madoff."

How can one not like that?

Kindergarten Arithmetic 101

In Kindergarten Arithmetic 101, a Mish reader offers a real-world example of what happens when trade collapses.

If Trump extends his wall to cover the entire border, instead of just the one shared with Mexico, and then bans or punitively tariffs every single good that uses steel as an input, recursively, as well; he just may succeed in driving up the domestic price of final goods, to the point where both nominal labor compensation and nominal raw materials prices can be increased at the same time.

In doing so, he will ensure that not a single American made product of any kind, will be internationally competitive over time. This is exactly what the Latin American import substituting “structuralists” did, back in the 50s and 60s.

Mathematical Explanation of Deficits

Professor Steve Hanke provides a more rigorous example of trade math: Trump's Tariffs Show He's "Clueless About Trade".

Root Cause

Once again, the roots of this problem date back to August 15, 1971.

That is when Nixon closed the gold window, ending foreign redemption of dollars for gold.

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For further discussion, please see Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?

Self-Inflicted Wounds

By the way, those tax cuts, not balanced with spending cuts, will increase the trade deficit.

It seems Navarro and Trump need more than one math lesson.

Mike "Mish" Shedlock

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