Trumped Up Trade Fallacies
Politicians of both parties are prone to making economically illiterate promises and claims during campaign seasons. Donald Trump is turning this illiteracy into an art form. One of his latest insane promises is to force Apple Inc. to manufacture in the United States.
In a recent speech at Liberty University, Trump boasted, “We’re going to get Apple to build their damn computers in this country instead of other countries.” In these few words, Trump gets trade economics wrong and shows his ignorance of modern manufacturing.
First, let’s talk costs and benefits. The benefit of an iPad or any other Apple computing device is the satisfaction it gives its user. Those benefits accrue to U.S. consumers, whether Apple manufactures their computers in China or in the United States.
The true cost of an iPad is the value that the resources, both material and human labor, used to manufacture the iPad could have created elsewhere, if they were not used to make the iPad. When Apple chooses to manufacture computers in China, rather than the United States, it’s a signal that the resources required to manufacture their products in China were less valuable in alternative uses than those resources were in the United States.
By shifting the manufacture of products to where they can be produced at the lowest cost, total output in both China and the United States increases and both countries enjoy a higher standard of living. This is international trade economics 101.
Second, what does “build their damn computers in this country” even mean? Modern manufactured goods usually comprise parts and components that are sourced from all over the globe. Saying that any one manufactured good is built in any one country is nearly meaningless.
Take Boeing’s 787, for example. It’s assembled near Seattle. Presumably, Boeing passes Trump’s test. But a deeper look at the process reveals that the fuselage is made in Italy, the engines in the United Kingdom, passenger doors in France and the cargo doors in Sweden. Furthermore, the landing gear doors come from Canada and the wing tips are made in South Korea. Is this product “Made in the U.S.A.”?
How about an Apple product made in China? In 2005, a video iPod, assembled in China, sold for roughly $300 in the United States. More than half of that $300 accrued to Apple, the retailer, and distributor, all in the United States. After material inputs from the United States, Japan, South Korea and Taiwan were accounted for, only about a quarter of the $300 was earned by Chinese firms.
The idea of forcing the production of any manufactured good into any one country is simply incoherent, unless one is consistent and entirely shuts out the global economy. Of course, pursuit of such an autarky would crush productivity and living standards.
The good news is, America doesn’t need Trump’s trade policies to be “great again.” Trump has frequently claimed, “For free trade to bring prosperity to America, it must also be fair trade.” Again, he’s wrong on both theory and evidence. Bilateral free trade is best. But, even pursuing unilateral free trade while a trading partner, like China, doesn’t, still produces net benefits. Again, this is trade economics 101.
When it comes to manufacturing, America is already “great again.” Real manufacturing output in the United States hit a peak in 2008 before the recession. As of late 2014, we had recovered and surpassed that peak. Today, the United States is producing more manufactured output than at any time in U.S. history.
All politicians pander to the fears and prejudices of voters. In doing so, they usually prey on those who are the most ill-informed. With respect to Trump, the only difference is that he’s exceptionally good at it. It is hoped Americans become wise to his nonsense before any of his economic boasts can become policy.
Benjamin Powell is the director of the Free Market Institute and professor of economics in the Rawls College of Business Administration at Texas Tech University and a senior fellow with the Independent Institute. He wrote this for InsideSources.com.