AP FACT CHECK: Trump miscasts trade balance to make the case for tariffs

Thursday , March 08, 2018 - 4:00 AM


President Donald Trump is presenting a skewed picture of the decline of manufacturing in making his case for import penalties that could spark a trade war. Here's a look at his latest statement on the subject as he prepares to impose heavy tariffs on foreign steel and aluminum this week:

TRUMP: "From Bush 1 to present, our Country has lost more than 55,000 factories, 6,000,000 manufacturing jobs and accumulated Trade Deficits of more than 12 Trillion Dollars. Last year we had a Trade Deficit of almost 800 Billion Dollars. Bad Policies & Leadership. Must WIN again!"

— tweet Wednesday

THE FACTS: Trump persistently miscasts the trade balance, citing the U.S. deficit in goods and ignoring the U.S. surplus in services. The actual trade deficit last year was $566 billion.

As for manufacturing, Trump leaves out what is widely regarded as the main reason for the decline in factory jobs — automation and other efficiencies. Trade is certainly a factor as well.

He's in the ballpark when referring to how many factory jobs have been lost since January 1989, when George H.W. Bush became president. The number he cites as 6 million is actually 5.5 million, according to the Labor Department.

What he doesn't say, though, is that despite the loss of those 5.5 million factory jobs, the U.S. economy overall has added a net total of about 40.6 million jobs in that time. Incomes from those jobs have paid for the imported goods that have added to U.S. trade deficits.

He also does not offer a larger historical context. The U.S. lost 1.6 million manufacturing jobs in the decade before Bush, a pace of decline only slightly lower than that during the 30-year period cited by Trump.

Factory jobs dropped during the severe downturns of the early 1980s, stayed fairly stable until about 2000, then dropped sharply. Economists are divided about why.

The big drop after 2000 roughly coincides with China's entry into the World Trade Organization in December 2001, which meant U.S. manufacturers increasingly competed with China and gained an incentive to move factories there. Some economists put the most blame on technology.

Ball State University's Center for Business and Economic Research, for instance, found in a 2015 study that trade accounted for just 13 percent of factory job losses, with technology devouring most of the rest.

TRUMP: "If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!"

— tweet Saturday

THE FACTS: He's wrong that automakers find it impossible to sell U.S.-made cars in Europe and that European cars come into the U.S. "freely." He's right about a big imbalance, but his impulse to exaggerate is on display here.

The U.S. Census Bureau shows $13.8 billion in U.S. auto and parts exports last year to four countries in Europe: Germany, Britain, Belgium and France.

It shows $51.3 billion in U.S. imports of autos and parts from five countries in Europe: Germany, Britain, Sweden, Italy and Austria.

The EU applies a 10 percent duty on cars made in the U.S. The U.S. applies a 2.5 percent duty on cars made in Europe.

In addition, Ford and Fiat Chrysler make vehicles in Europe, while Mercedes, Volkswagen and BMW have factories in the U.S. — operations that could also become part of a trade war.

TRUMP: "When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don't trade anymore-we win big. It's easy!"

— a tweet on Friday in support of his announcement that he will impose tariffs of 25 percent on steel imports and 10 percent on aluminum imports

THE FACTS: Trade wars have not been easy to win.

The president's argument, in essence, is that high tariffs will force other countries to relent quickly on what he sees as unfair trading practices, and that will wipe out the trade gap and create factory jobs. But the record shows that tariffs, while they may help certain domestic manufacturers, can come at a broad cost. They can raise prices for consumers and businesses because companies pass on at least some of the higher costs of imports and imported materials to their customers. A trade war is also bound to mean that other countries will erect higher barriers of their own against U.S. goods and services, thereby punishing American exporters.

The United States first became a net importer of steel in 1959, when steelworkers staged a 116-day strike, according to research by Michael O. Moore, a George Washington University economist. After that, U.S. administrations imposed protectionist policies, only to see global competitors adapt and the U.S. share of global steel production decline.

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