When Donald Trump goes shopping for large aircraft, which he does from time to time, there is one item at the top of his “non-negotiable” list. Trump insists on British made Rolls Royce turbo fan jet engines. He doesn’t worry about the interior, or even the cockpit windshield when jet shopping, as those refinements can be redone. (Both were redone, in fact, on the Trump 757.)
However, the engines must be Rolls. For the record, the “standard equipment” engines for both planes are Pratt and Whitney turbo fans, produced by highly paid union members in Connecticut, among other places. Certainly those American workers would want the Donald to “buy American,” wouldn’t you think?
Moreover, when those British engines hit some port on American shores, they added big numbers to America’s trade deficit figures. This is very bad, right? After all, this particular notion of international trade was cheered in places like Ohio, Wisconsin, Michigan and Pennsylvania I’m told.
Don’t let this get around, but the truth is, this deficit transaction was not bad at all. Deliciously ironic and a tad hypocritical, but not bad. The Rolls Royce engines are superior, more expensive, and were the engine of choice by the customer. No one, even President Donald Trump, should stand in the way of such customer/manufacturer decisions, made by anyone.
Besides, the British engines were merely part of an even more massive American jetliner project, assembled by American workers, and sold by an American company, for an American profit. God knows what other components are imported for 757s and 727s, and every one of them added to our “trade deficit” on paper. Yet the sale of the finished jet did nothing to balance this.
Today this jet roars around the country buying American jet fuel, paying American landing fees, and employing American captains and crew. Trump’s crew lives in America and spends their paychecks in America — that is, unless they overnight in Dubai or Scotland –at a Trump golf resort property.
But even then, no American hotel or restaurant is a “loser” simply because Americans spent money with them.That’s leftist zero sum thinking, and we used to understand that.
To be honest, trade deficits are mathematical facts, but they are economic fictions. They only tell a tiny bit of the story. To be even more honest, this transaction was not “America trading with Britain.” It was Boeing, per their customer, trading with Rolls Royce. Everyone was tickled with the deal no doubt. As is the case in most deals, no one “lost.”
Since you and I don’t buy jets, let’s boil this point down even further.
When a hundred million dollars worth of Chinese steel hits an American port, the trade deficit with China ticks up 100 million. It’s a clean mathematical equation, as a hundred large goes into the debit column. If fifty million dollars worth of American goods hit a Chinese port the same day, the trade deficit would record the day as America minus 50 million. Obviously I’m simplifying here, but this is how trade balance accounting works.
Keeping this score is easy, but does the score really mean anything to you? Not per se.
The first thing that happens to that ship carrying Chinese steel is that a highly paid American Harbor Pilot takes control of the vessel, and guides the foreign ship into his harbor. Once the ship is in the port, highly paid American longshoremen off load the steel. Very highly paid longshoremen I might add.
The ship then purchases American fuel from the port — in America–for its return trip. The crew go on shore leave and spend money in American bars, restaurants, stores, and perhaps on an off day, establishments of ill repute.
The steel that started all these dominos tipping is then shipped by an American trucking firm to an American destination, while the longshoremen go home in a car they bought in America, to a house built in America, and they drink beer bought from an American grocery store. They may also use their pay check to take their American kids out to an American yogurt shop, or an American little league game. And so forth.
The steel’s value hasn’t been enhanced yet, and already a whole lot of Americans are making money off of this evil “trade deficit” event. You might say they’re “winning.” If this keeps up, they may get tired of winning.
And yet, none of these transactions are weighed against the fictional fifty million dollars worth of deficit.
But this steel is just getting started. When it arrives at a plant, in America, it might be turned into cars, trucks, lawn mowers, motor graders, cookware or even guns! Perhaps it’s turned into a sky scraper built in….wait for it….AMERICA! These items (except for the building) then must be shipped by truck or rail to either a wholesale or retail destination. Americans are getting paid at every step along the way, and the manufacturer has made a profit. He may invest that profit in more American workers, or build a bigger American home.
Damn all this winning!
Then of course, all of the aforementioned Americans take the pay and spend it on cars, homes, health clubs, clothes, etc. Maybe even at a Sushi bar. (oops, bad example. Even the sushi bar will be in an American shopping center, however. Besides, if an American wants to eat Asian food, that’s not a bad thing! It’s called liberty.)
The point is, this hundred million dollars worth of steel becomes billions of dollars worth of refined products and purchased services, and a lot of Americans make a lot of money every step of the way. All of this enhanced wealth stays in America, yet none of it in our example is reflected in the trade “deficit” figures.
The point is, none of this, whether it’s importing Chinese steel, or importing Trump’s foreign made jet engines, is normally a negative. Quite the opposite, yet the positive impact is not reflected anywhere in the “trade deficit” figures.
You might say but wait, why didn’t they buy American steel? For the same reasons Trump insists on the Rolls — it’s what they wanted. The particular reason, be it price, quality, or image, is moot. Supply, demand and price are realities, and world history is replete with disasters when governments try to manipulate them.
Besides, why is a steel worker’s job more important than a longshoremen’s job, or a Boeing job? It’s the 800 pound gorilla question who’s answer doesn’t fit neatly on a baseball cap.
The bottom line is that manufacturing is not being “hollowed out” by trade. In fact, in places like South Carolina and Texas and Alabama, it is booming, largely due to trade. BMW’s made in Greenville sell all over the world , and in order to export them, it involves all of the aforementioned truckers, longshoremen, etc, in reverse order, from the Chinese steel example. A trade war would bankrupt South Carolina virtually over night, given the impact of the Port of Charleston, and the upstate manufacturing sector, and the resulting synergies.
America manufactures more than ever today, but it simply require less people. We could “blame” technology, but what can you do about that? We can’t deny tech advances to protect the buggy whip industry, so to speak. We would really lose then.
So what to do? First, stop obsessing over China, Mexico and Japan. Focus on making the rust belt areas more like the booming south. In fact, make all 50 states a low tax low regulation haven, make unions optional, and watch the winning really take off.
Thankfully, Trump has sent signals that he is going to head in this direction. His choices to run the EPA and HHS are fabulous first steps. However, no one can deny the reality that his campaign focused more on threats and tariffs, and those were the notions that super charged many of his supporters. If the Trump administration can do the former, then no one will care about the latter, or China, or Mexico.
NOTE: The issue of “leveling the playing field” and “fair trade” will be addressed in another installment. This was solely about the notion of balance of trade accounting.
Edmund Wright is a contributor to Breitbart, American Thinker, Newsmax TV and Talk Radio Network, and author of numerous political books.