AP FACT CHECK: Trump’s trade theories don’t hold water

Published 8:16 am Wednesday, May 15, 2019

WASHINGTON — President Donald Trump cast a fog of misinformation over the U.S. trade dispute with China, floating inaccurate numbers and skewed economic theories as big tariffs kicked in on Chinese goods.

At stake in the rupture is a trading relationship between the world’s two largest economies that employs nearly 1 million Americans, supplies affordable goods to U.S. households and, in the view of Trump and a bipartisan group of trade hard-liners, puts U.S. business at an unfair disadvantage.

Trump’s torrent of tweets on the subject Friday followed a rally infused with familiar falsehoods about his achievements (the economy, veterans’ health) and grievances (the Russia inquiry). A look at his words over the past week:

Email newsletter signup

Trade

TRUMP: “Tariffs are NOW being paid to the United States by China of 25 percent on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S.” — tweet Friday.

THE FACTS: This is not how tariffs work. China is not writing a check to the U.S. Treasury. The tariffs are paid by American companies, which usually pass the cost on to consumers through higher prices. One of the theories is that the higher prices will encourage consumers to buy goods made in the U.S. or elsewhere instead. But the risk is that consumers could simply respond by spending less than they otherwise would, which would hurt growth.

The burden of Trump’s tariffs on imports from China and other countries falls entirely on U.S. consumers and businesses that buy imports, said a study in March by economists from the Federal Reserve Bank of New York, Columbia University and Princeton University. By the end of last year, the study found, the public and U.S. companies were paying $3 billion a month in higher taxes and absorbing $1.4 billion a month in lost efficiency.

On “Fox News Sunday,” Trump economic adviser Larry Kudlow acknowledged under questioning that China isn’t paying the tariffs. “I don’t disagree with that,” he said when interviewer Chris Wallace pointed out that U.S. businesses and consumers bear the cost.

“Both sides will suffer on this,” Kudlow said, noting that China risks seeing its exports shrink and economy slow. That statement, unlike Trump’s, is in accord with the view of economists.

Kudlow said that after years of unfair trading practices by China, “this is a risk we should and can take without damaging our economy in any appreciable way.”

TRUMP: “Your all time favorite President got tired of waiting for China to help out and start buying from our FARMERS, the greatest anywhere in the World!” — tweet Friday.

THE FACTS: The notion that China doesn’t buy from U.S. farmers is false. China is the fourth-largest export market for U.S. agriculture. It bought $9.3 billion in U.S. agricultural products last year.

As for calling himself “your” favorite president, he is addressing only his supporters, not the country. Polls find Trump’s approval rating to be high among Republicans but it generally ranges between about 35 percent and 45 percent among Americans overall.

TRUMP: “We have lost 500 Billion Dollars a year, for many years, on Crazy Trade with China. NO MORE!” — tweet Friday.

THE FACTS: That’s wrong. When sizing up the trade deficit, Trump always ignores trade in services — where the U.S. runs a surplus with China — and speaks only of goods. Even in that context, he misstated the imbalance.

The U.S. trade deficit with China last year was $378.6 billion, not $500 billion.

On goods alone, the deficit was $419.2 billion.

Trump is also misleading when he puts the deficit in that ballpark for many years. It’s true the imbalance has long been lopsided. But the U.S. Trade Representative’s Office notes that exports of goods to China have increased by nearly 73 percent since 2008 and U.S. exports to China overall are up 527 percent since 2001.

Nor is the trade gap a “loss” in a pure sense. U.S. consumers and businesses get electronics, furniture, clothing and other goods in return for their money. They are buying things, not losing cash.

TRUMP: “Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind. Also, much easier & quicker to do. Our Farmers will do better, faster, and starving nations can now be helped. Waivers on some products will be granted, or go to new source!” — tweet Friday.

THE FACTS: In addition to repeating the canard that China pays the tariffs, he’s failing to account for the damage that tariffs can do.

By most private estimates, a trade war leads to slower growth rather than the prosperity that Trump is promising. The president’s tweet also goes beyond past claims that tariffs are simply a negotiating tactic to force better terms with China. Trump appears to be suggesting that a tariff increase would generate revenues that could then be spent on farm products and infrastructure, something that might in theory require support from Congress.

But on their own, tariffs are a clear drag on growth.

Analysts at the consultancy Oxford Economics estimate that implementing and maintaining the latest increase would trim U.S. gross domestic product by 0.3 percent, or $62 billion, in 2020. This would be equal to a loss of about $490 per household.

Economists at Nomura note that gross domestic product this year could take a hit of as much as 0.4 percent if Trump expands the taxes to all Chinese imports as business confidence slumped and financial conditions tightened.

Economy

TRUMP: “And our unemployment numbers are the best in 51 years. And for certain groups, … women is now 71 years.” — remarks Monday to the U.S. Military Academy football team.

THE FACTS: The unemployment rate for women is solid, but it’s not the best in 71 years.

According to the Labor Department, the women’s unemployment rate fell last month to 3.1 percent. That’s just the lowest since October 1953, or 66 years ago, when it also was 3.1 percent. The lowest on record was 2.4 percent in May 1953.

TRUMP, boasting that his economic record has delivered the “highest income ever in history for the different groups — highest income.” — Panama City Beach, Florida, rally Wednesday.

THE FACTS: Not so. He did not achieve the best income numbers for all the racial groups. Both African Americans and Asian Americans had higher income prior to the Trump administration.

The median income last year for a black household was $40,258, according to the Census Bureau. That’s below a 2000 peak of $42,348 and also statistically no better than 2016, President Barack Obama’s last year in office.

Many economists view the continued economic growth since the middle of 2009, in Obama’s first term, as the primary explanation for recent hiring and income gains. More important, there are multiple signs that the racial wealth gap is now worsening even as unemployment rates have come down.