November 13, 2018
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The difference between Don Quixote and Donald Trump

George Danby | BDN
George Danby | BDN

Pablo Picasso’s “Don Quixote” sketch has been on my mind recently. The 1955 drawing portrays Don Quixote de la Mancha as a colossus on horseback, dwarfing the windmills below him. In the 17th-century Spanish novel by Cervantes that inspired the artist, the windmills were of course full-size, and the Don, after becoming delusional from reading too many books about chivalry, jousts with them in his quest to bring justice to the world.

It is not far-fetched to draw a comparison between President Donald Trump and Don Quixote — with the tiny windmills but minus the idealism. They both see illusionary wrongs, set out to make them right and then claim victory at the end of each battle against imaginary enemies.

Take for example the U.S.-China trade war that Trump has started. The present-day “Don” claims that China has stolen millions of U.S. manufacturing jobs and that the trade deficit with China is proof that America is losing. Yet, the evidence shows that his analysis is a fantasy.

U.S. gross domestic product is the sum of personal consumption expenditures (consumer spending), gross private fixed investment (business spending), government spending and net exports (exports minus imports). In 2017, consumer spending accounted for about 70 percent of the United States’ $19.39 trillion GDP. That percentage was unchanged from six years earlier, when the Federal Reserve Bank of San Francisco issued a report called “The U.S. Content of ‘Made in China.’” The 2011 study showed that 88.5 percent of American consumer spending was on items made in the United States.

The San Francisco Fed’s report also found that goods and services from China accounted for only 2.7 percent of U.S. consumer spending — but just 1.2 percent was paid to China. The rest went to American businesses and workers transporting, selling and marketing goods carrying the “Made in China” label. Fifty-five percent of the content of goods labeled “Made in China” reflected U.S.-added value and content.

“Although globalization is widely recognized these days,” the study said, “the U.S. economy actually remains relatively closed. The vast majority of goods and services sold in the United States is produced here.”

A 2017 paper for the Bureau of Economic Analysis, “Offshore Profit Shifting and Domestic Productivity Measurement,” memorably analyzed the contents and costs of an assembled-in-China iPhone to demonstrate how modern complexities of manufacturing and accounting distort economic statistics. The authors reported that though the official U.S.-China trade deficit with China in 2012 was $537 billion, the undercounting of exports and overstating of imports inflated that figure by more than half — the real trade deficit was $257 billion.

Even if we take recent trade-deficit reporting at face value — the 2017 deficit with China was pegged at less than 2 percent of U.S. GDP — there is no need for alarm. If we assume a GDP of $1,000, a 2 percent trade deficit would mean someone had sold us $20 more in goods than we sold to them. And we would have received quality merchandise for that $20.

Trump’s anti-China trade demagoguery may work in firing up his base, but it does a disservice to the truth. Claims that America’s “losing” trade policies over the years have been disastrous are contradicted by the fact that unemployment was low before Trump took office and we are now near full employment. In particular, manufacturing jobs have been steadily climbing in the decade since the 2008 financial crisis.

Bilateral trade deficits are not evil; historically, better growth in the U.S. economy has led to larger trade deficits. With open markets, the nation’s trade deficit with China would shrink as we export more natural gas and agricultural products and as China’s consumers could afford to buy their preferred “Made in America” products.

Don Quixote de la Trump has created an illusion of a problem that only he can resolve by waging the trade war now underway. In the process, he is damaging friendships, alliances, supply chains, long developed business contracts, market efficiencies and hard-won, well-established treaties.

When it comes to China, there are genuine giants that need to be conquered and dragons to tame. Protecting intellectual property rights and leveling the playing field for international trade are serious matters that must be resolved. But that will happen through honest negotiation. Jousting with imaginary monsters will only hurt America’s credibility and hamper real progress toward solutions.

Neil Bush is the chairman of the George H.W. Bush China-U.S. Relations Foundation.

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