The Art of the Flail

Specialist Paul Cosentino, right, woks with traders Anthony Carannante, left, and John Santiago on the floor of the New York Stock Exchange, Thursday, Jan. 25, 2018. Stocks are opening broadly higher as technology companies recover after sliding a day earlier. (AP Photo/Richard Drew)

If you’ve been watching stock markets, you’re probably feeling seasick. The Dow is crashing! No, it’s bouncing back! Wait, it’s crashing again!

In general, trying to explain stock fluctuations is a mug’s game. But in this case it’s pretty clear what’s going on. Whenever investors suspect that Donald Trump will really go through with his threats of big tariff increases, provoking retaliation abroad, stocks plunge. Every time they decide it’s just theater, stocks recover. Markets really, really don’t like the idea of a trade war.

So is a trade war coming? Nobody knows — even, or perhaps especially, Trump himself. For while trade is one of Trump’s two signature issues — animus toward dark-skinned people being the other — when it comes to making actual demands on other countries, the tweeter in chief and his aides either don’t know what they want or they want things that our trading partners can’t deliver. Not won’t — can’t.

As a result, incoherence rules: The administration lashes out, then tries to calm markets by saying that it might not carry through on its threats, then makes a new round of threats.

Let’s talk in particular about the will-he-or-won’t-he confrontation with China.

In some ways, China really is a bad actor in the global economy. In particular, it has pretty much thumbed its nose at international rules on intellectual property rights, grabbing foreign technology without proper payment. And to be fair, Trump officials do sometimes raise the intellectual property issue as a justification for getting tough.

But if getting China to pay what it owes for technology were the goal, you’d expect the U.S. both to make specific demands on that front and to adopt a strategy aimed at inducing China to meet those demands.

In fact, the U.S. has given little indication of what China should do about intellectual property. Meanwhile, if getting better protection of patent rights and so on were the goal, America should be trying to build a coalition with other advanced countries to pressure the Chinese; instead, we’ve been alienating everyone in sight.

Anyway, what seems to really bother Trump aren’t China’s genuine policy sins, but its trade surplus with the United States, which he has repeatedly said is $500 billion a year. (It’s actually less than $340 billion, but who’s counting?) This trade surplus, he insists, means that China is winning — in effect stealing $500 billion a year from America.

As many people have pointed out, this is junk economics. Except at times of mass unemployment, trade deficits aren’t a subtraction from the economies that run them, nor are trade surpluses an addition to the economies on the other side of the imbalance. Over all, the U.S. trade deficit is just the flip side of the fact that America attracts more inward investment from foreigners than the amount Americans invest abroad. Trade policy has nothing to do with it.