"From when the US Korea trade deal was signed in 2011 to 2016 - you know who signed it, you know who wanted it - our trade deficit with South Korea has increased by more than $11 billion, not exactly a great deal.
I was gratified to learn about the new investments South Korean companies are making in the United States.
This month Cheniere is sending its first shipment of American LNG to South Korea in a deal worth more than $25 billion. We will do more to remove barriers to reciprocal trade and market access."
Let's start with the first statement. Yes, the US - South Korea trade deficit has gone up by about that much, at about the time the deal was implemented. The trade deficit in 2016 totaled $28 billion. That is a tiny deficit for an $18 trillion economy; it's a rounding error.
Now to the second. Anyone who took notes in their first macroeconomics class should know that a current account deficit is the equal opposite of a capital account surplus. What does that mean? The "current account" is a fancy term for the trade balance[1]. The "capital account" is the investment balance. As an accounting identity (of international flows of dollars that must net out) an international trade deficit means an international investment surplus. Why again? see note 2 below. Another way to put it is that we have an investment surplus with the world because we have a trade deficit, and vice versa.
The dollars that flow to South Korea for purchasing imports do not have to come directly back in the form of investment. South Korea may trade goods services and investments with other countries who then trade with us, balancing the flow of dollars out. This means it is possible for a country with no trade deficit / surplus in general to have a bilateral trade deficit / surplus with individual countries. It is illogical (and betrays basic ignorance of a topic Trump supposedly cares a lot about) to worry about bilateral trade balances trade, and equally illogical to be mad about a trade deficit and happy about an investment surplus[3].
Trump then goes on to highlight an export deal to South Korea worth almost the entire trade deficit, again underlining how small it is[4], and promises to pursue even freer trade with South Korea. What else is free trade besides seeking to "remove barriers to reciprocal trade and market access"?
So, if I've got this right, the free trade deal with South Korea was bad. But the South Korean investments it facilitated are good. Also South Korea is an export opportunity for american companies, and we should do more to remove trade barriers between the US and South Korea.
Um, what?
Populist/Nationalist economics makes no sense. It's just xenophobic knee jerk reactions. Now maybe it's expecting too much of a president to be this knowledgeable on every topic. That's why presidents have advisers. But this president has not even staffed the Council of Economic Advisers and has otherwise hired rich businessmen and populist hacks who have betrayed similar economic illiteracy[5]. Either they are plain stupid, out of their depth, afraid to contradict Trump, or have tried to teach him and given up[6]. Any of those would be concerning. The president has no idea what he's talking about and endorsing a mutually exclusive and incoherent mix of policy.
1. plus net income from abroad and net transfers.
2. This is because it is an accounting identity (like how C+I+G+(X-M)=Y, aka GDP, why? it's constructed that way), and because we send dollars overseas to buy goods, services, and investments, and foreigners send dollars back to buy goods, services, and investments. Only we can create dollars, and foreigners get them through trade with us. The amount of dollars that comes back must therefore equal the amount that was sent out, adjusting for dollars held in reserves. A trade deficit must mean there is an investment surplus, otherwise the flows of dollars would not be equal.
3. This is also why all the worries about trade deficits, particularly bilateral ones, are misplaced. They don't matter for GDP and employment. Yes net exports (aka the trade deficit) is subtracted from GDP, but the consumption of imports and foreign investments are added to GDP. That's why the trade deficit is subtracted, to avoid double counting. Also who said GDP is the be all end all of economic progress anyway?
4. Also he made that statement right after praising South Korean investments in the US. Does he not know that's not investment? Or is he bouncing between two different subjects each sentence? Take your pick, either way he sounds pretty dumb.
5. For example, Peter Navaro, Trump's chief trade adviser who somehow scammed Harvard out of a PhD in economics, as well as Wilbur Ross, the Commerce Secretary and a former banker with no relevant background in economics think that reducing imports would boost GDP by making net exports less negative (it's subtracted from GDP), forgetting that we consume imports (which counts towards GDP) and that the opposite of a trade deficit is an investment surplus (which counts towards GDP). Either they're hella stupid or being disingenuous.
6. I vote a mix of out of their depth (business isn't economics) and stupidity. After all, it seems Trump only wants people who agree with his general worldview. It's looking pretty damn hard to staff a whole federal government with people who are competent and agree with Trump's worldview. There just aren't that many smart white populist/nationalists in this country. That's reassuring at least.
Though I can see Trump being unteachable too. He's dumb af.
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