4th Market Economy Colloquium: Trump’s Misconception—A Nation Is Not a Company

4th Market Economy Colloquium

Date and time: 11:00 a.m., March 21, 2025, Venue: Yeollim Hall

Topic: Trump’s Delusion: A Country Is Not a Company

Presentation:

Hyukchul Kwon, President, Free Market Institute

Discussion:

Jaewook Ahn, Chairman, Center for Free Enterprise (CFE),

Youngyong Kim, Emeritus Professor, Chonnam National University, Sung-no Choi, President, Center for Free Enterprise (CFE)

Trump’s Delusion:

A Country Is Not a Company

Hyukchul Kwon, President, Free Market Institute

As U.S. President Donald Trump had foreshadowed even before taking office, he is now waging a so-called “tariff war.” In a recent interview, he declared that the implementation date for the “reciprocal tariffs” scheduled for April 2 would be “America’s Liberation Day,” effectively proclaiming that his policy is in fact a kind of “war.” At the political or strategic level, one can at least somewhat understand the rationale for waging a tariff war against China, though not without reservation. But President Trump does not stop there. In short, he is expanding the front lines and waging a tariff war against all countries around the world, whether adversaries or allies. In the interview mentioned above, he said, “We allowed the United States to be ‘raped’ and ‘pillaged’.... We have been ripped off by every country in the world, friend and foe,” adding that it was “the doing of many allied countries” as well.

What he means by “ripped off,” “raped,” and “pillaged” is roughly this: U.S. import tariffs are nonexistent or low, while tariffs on American goods in other countries are relatively high; as a result, American goods do not sell, while cheap imports flood in and harm American producers; U.S. producers cut production or shut down, causing good manufacturing jobs to disappear; laid-off workers are forced into lower-wage jobs, which in turn leads to increased government welfare spending such as Medicaid. In this way, the United States is being “ripped off” and “pillaged” and is suffering economic hardship, while all the countries of the world are prospering by exploiting and plundering the United States. Therefore, if the United States also erects tariff barriers to block or reduce the inflow of foreign imports, good jobs in American manufacturing will increase, and the remaining problems will automatically be solved as well. That is why Trump declares: “Now it’s their turn to pay.”

This, then, is the reason—or justification—President Trump gives for launching a tariff war while describing international trade relations with extreme words such as “rape” and “pillage.” He says: “I represent only the interests of the United States.” He goes on to say that through this tariff war, “the United States will have the strongest economy in the world, in history.” In other words, he understands international trade not as a mutually beneficial, win-win game, but as a zero-sum game among nations—a life-or-death, win-lose contest. And in this game, he intends to wage and win a tariff war for America’s benefit, thereby creating “the strongest economy in history.”

But this way of thinking is nothing more than a foolish fantasy rooted in a profound misconception. Trump, once the head of a business group, seems to imagine that he is now the head of a “company called America.” As a result, he imagines that the United States is engaged in fierce competition in the international marketplace with a “company called Europe,” a “company called Japan,” a “company called Korea,” and so on. There is simply no chance that a tariff war based on such a misunderstanding will produce the intended results. In fact, it is destined to produce the wrong results. The longer the tariff war drags on, the less likely it is to strengthen the U.S. economy; instead, it will only push the United States into deeper trouble and drag the entire global economy into difficulty as well.

Let us consider several ways in which President Trump is mistaken—namely, the ways in which he fails to distinguish between a country and a company.

First, he mistakenly assumes that a country, like a company, has a single objective and a single interest. He says, “I represent only the interests of the United States.” That is, he assumes there is such a thing as “the interest of the United States.” In the case of a company, profit maximization can indeed be regarded as a single objective, and this objective is shared by all members of the firm. But does a country have such a single objective and interest shared by all its members? Trump seems to believe that banning imports and producing goods in the United States would serve America’s interest. But Americans are not only producers; they are also consumers who buy cheap, high-quality imported goods. And among producers, there are also those who make and sell goods using imported inputs. These people will be harmed by a tariff war. The auto industry, including Ford Motor, has already expressed concern that tariffs will “add enormous cost and chaos” to the industry, and consumers will be unhappy about tariff-driven price increases. In other words, there is no single “American interest” shared by all Americans—at least not on economic matters. The idea that there is a single “American interest” is merely Trump’s delusion. At the same time, these conflicting interests among Americans offer some hope that Trump’s tariff war may not last long.

Second, Trump mistakenly believes that countries compete in the same way firms do. The same misconception was on display years ago in Lester Thurow’s book Head to Head. In that book, Thurow viewed international trade as “a battlefield of life-or-death competition.” That is a classic misunderstanding. Countries do not compete the way companies do. For example, Hyundai Motor Group and Toyota Motor compete with one another, and Hyundai Motor Group may grow dramatically while Toyota declines or collapses. And that would be good for Hyundai Motor Group. But if the Japanese economy were to collapse, would that benefit the Korean economy? For the Korean economy, a rich country with the purchasing power to buy many Korean goods is far more valuable than a poor country like North Korea that lacks the means to buy them. Unlike competition among firms, in relations among countries, it is better for us when our neighbors prosper. The notion that countries engage in life-or-death competition, in a struggle of taking and being taken from, is a misconception.

Third, Trump’s repeated references to countries with “trade surpluses” in the context of a tariff war show that he mistakenly treats a country’s trade balance as if it were a company’s balance sheet, and wrongly believes it indicates national competitiveness. In other words, he thinks of a trade surplus as if it were corporate profit (and thus a sign of competitiveness), and he thinks of a trade deficit as if it were a corporate loss (and thus a sign of weak competitiveness). But a country’s trade balance and a company’s balance sheet are fundamentally different in nature. The trade balance is simply one component of a country’s balance of payments, together with the capital account. In other words, the trade balance records the flow of goods, while the capital account records the flow of capital; together they make up the balance of payments. What is important is that a trade surplus is associated with a capital account deficit, and a trade deficit is associated with a capital account surplus. To illustrate simply: if a household spends more than it earns, the gap must be financed by borrowing. Likewise, if a country imports more than it exports (= trade deficit), it must finance the gap through borrowing (= capital inflow = capital account surplus). The reverse is also true. That is, a trade surplus appears as a capital account deficit, and a trade deficit appears as a capital account surplus. A trade surplus or deficit is therefore entirely different in character from a company’s profit or loss.

Fourth, the idea that a trade surplus or deficit indicates a country’s competitiveness is itself a serious confusion between a company and a country. In the case of a company, a surplus or deficit may indeed be viewed as an indicator of competitiveness. But in the case of a country’s trade balance, the situation is entirely different. If a country runs a trade surplus, then, as noted above, it runs a capital account deficit. That means capital is flowing out abroad. Conversely, if a country runs a trade deficit, its capital account shows a surplus, meaning capital is flowing into the country from abroad. So which economy is more competitive: one with a trade surplus from which capital flows overseas, or one with a trade deficit into which capital flows from abroad? For reference, during Korea’s period of rapid growth, Korea ran chronic trade deficits, while its capital account was in chronic surplus. If one were to judge that long period of high economic growth as a period of weak competitiveness simply because the trade balance was in deficit, would that really be a sound judgment? We must not fall into the error of treating a trade surplus or deficit as an indicator of national competitiveness.

As in other cases, economic policies pursued by politicians on the basis of illusion and misunderstanding drive the economy into distress. Nevertheless, the reason politicians so often bring out “economy-destroying policies” such as tariff wars is that they believe such policies provide a convenient excuse for covering up policy failures, shifting political responsibility, or advancing anti-market policies. Now that tariff wars are flaring up again, this is also a time when a sound understanding of economics—and proper economic education—is urgently needed.

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Original title: 제4회: 트럼프의 착각_국가와 회사는 다르다

Author: Market Economy Colloquium

Date: 2025-03-21

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=collo&pn=1&idx=27421