Spotlight: Trump gets them wrong, from trade balance to basic economics

U.S. Republican presidential front-runner Donald Trump's blunt accusation that China "raped" the United States in trade and committed "the greatest theft in the history of the world" was refuted by western media and experts for its naive logic.

TRADE DEFICIT NOT A LOSS OF ECONOMY

"We're losing now over 500 billion U.S. dollars a year in terms of imbalance with China...We're losing our jobs. We're losing our base. We're losing our manufacturing. We're losing everything," Trump claimed.

It's true that the United States now runs a significant trade deficit with China, as it does with the world. The country last ran a trade surplus in 1975, the Financial Times said.

However, an increasing number of economists argue that bilateral trade balance does not matter as much as it once did. "Many believe it is the wrong measure of a country's economy and that a trade deficit can actually be a sign of strength in an economy as it effectively shows consumers have the economic power and confidence to buy more goods than they sell," said an FT article.

Dan Griswold, director of Center for Trade Policy Studies at Cato Institute, wrote: "An examination of the past 30 years of U.S. economic performance offers no evidence that a rising level of imports or growing trade deficits have negatively affected the U.S. economy."

"In fact, since 1980, the U.S. economy has grown more than three times faster during periods when the trade deficit was expanding as a share of GDP compared to periods when it was contracting. Stock market appreciation, manufacturing output, and job growth were all significantly more robust during periods of expanding imports and trade deficits," he added.

Though Trump's negative "trade balance" card has sent a powerful message that's resonating with voters, it is just wrong, according to experts and the media.

"Using the trade balance as a scorecard to evaluate the overall effect of free trade on the economy fails to provide an accurate picture of the benefits of global trade and commerce," said Financial Post, an English Canadian business newspaper.

In fact, the notion has become so obsolete that the World Trade Organization has launched a global initiative to determine how to better account for global trade flows.

In his article on the Federalist website, Scott Lincicome gave an example on Iphone: each device imported into the United States from China accounts for about 300 U.S. dollars towards the bilateral trade deficit, yet China gets only about six bucks worth of value from the item's assembly and shipment, while the U.S.-based Apple gets hundreds of dollars from the iPhone's final U.S. sale.

"Basic economics teaches us that a country's surplus cash sent abroad to buy foreign goods eventually returns (minus the value of the same country's exports) in the form of investment," said Financial Post.

In 2015, the Americans purchased 482 billion dollars worth of goods from China and the Chinese purchased only 116 billion dollars in goods from the United States. That resulted in a U.S. trade deficit of 366 billion dollars.

But this figure ignores that Chinese investors purchased more financial assets from the United States than American investors purchased in China.

The net result is that the U.S. deficit on the current account is essentially matched by a surplus on its capital account, according to the website.

CHINA TRIES TO CURB CURRENCY DEVALUATION

Trump has also attacked China's trade policy, claiming the country's currency devaluation would "suck the blood out" of America.

However, Chinese Premier Li Keqiang has repeatedly voiced his opposition to the devaluation of China's currency renminbi, or the RMB, as it would hurt China's export in the long run and harm the ongoing structural reform of the Chinese economy.

Li also stressed last year that since the current Chinese government took office in 2013, the real effective exchange rate of renminbi against the U.S. dollar had risen 15 percent.

Many western analysts predict that if Beijing lets the market determine the currency's value, renminbi would devaluate, not appreciate.

TRUMP ATTACKS CHINA TO WOO VOTERS

Analysts also believe Trump's verbal attacks on China were merely a tactic to cater to blue-collar voters who have suffered loss of jobs and industry.

"Even if the plan (Trump's China plan) is nothing more than a ridiculous talking point, it still deserves our mockery and derision because it feeds the well-worn myth that America's problems are caused by cheating foreigners and easily solved through protectionism," Lincicome wrote.

"This myth helps Big Government politicians and their cronies avoid blame for the failures of their retrograde statism and corruption," he added. Endi