Judis: In his campaign and presidency, Donald Trump has made a big issue of America’s trade deficit, and has cited China, Mexico, and Germany for blame. When Trump was in Europe recently, he attacked the Germans for having a trade surplus. He even threatened to block German car exports to the United States. Do you think he wasjustified?
Rodrik: Donald Trump’s causes have some truth in them, the grievances he addresses are as real as they could get. However, the problem is with handling such grievances. That is where he gets it wrong. For instance in the case of Germany, I honestly think that it is the world’s greatest mercantilist power at the moment. A title that they have taken from China since Her surplus has gone down in the recent past. Germany, with her current trade surplus, is literally exporting deflation and unemployment.
There is no way it is not the world’s greatest mercantilist power.
The problem is however with the greater Europe and doesn’t really affect the States. The problem is itself not a trade problem but rather, a macro-economic one. The only way to deal with this is to get the Germans spending, citizens and the government alike. The problem is beyond the trade policies of other countries and unions. This is analogous to how Trump picked up grievances about foreign trade policies in the US, creating losses. A legitimate grievance, but poorly dealt with. This is among the true problems being faced by the US at the moment but there has been no realistic measure taken to deal with them.
Judis: So you do think our trade deficit is a problem?
Rodrick: It goes without saying, trade deficit is a problem. However, it is not a priority at the moment. It has been in the past, but not currently. The US faces a greater problem of a relatively low aggregate demand. This could have trickled down from the effect of having a trade deficit. However, more aggregate demand can be achieved by more effectively by a more aggressive fiscal stance on the part of the states and the federal government. This can be by more expenditure on infrastructure. The problem of low labour force participation is a subject of interest too; it should be increased a notch. A lower trade deficit may contribute to the raising the labour force participation but it would have a greater impact in the long run as it is not where the major action is at.
Judis: Do you think there is a point in trying to renegotiate the North American Free Trade Agreement (NAFTA)?
Rodrick: The NAFTA milk has already been spilled so to say. Huge losses have been faced, jobs lost under the grimace that is NAFTA. However, thinking of a way to recuperate these adverse losses would be wasting time as there practically no way to do that, that ship has sailed so to say. We would be making fools of ourselves in trying to reverse the consequences of NAFTA.
If we were to have renegotiation talks with NAFTA, we would be able to put a mark in history with a new kind of trade agreement. However, the new administration seems to have different idea up their sleeve. The best approach would leave NAFTA untouched, just let it be. Then TPP would have to be put on hold and a new approach to trade agreements be articulated before new agreements are tabled and signed. A great disparity and disconnect exists between what Trump’s manifesto had on trade agreement and what is unfolding at the moment.