The Mathematics of Trump’s Trade Assumptions
There is actually a mathematics behind Trump’s Disruptive approach to all the things that he disrupts. The problem is that the complexity of our vast economy is far greater than a single brain can handle, even Trump’s self proclaimed greatest brain ever.
Even in a single variable x, a curve can have several local minima, but say only one absolute minimum point.
Trump sees everything in the world as stuck at a higher local minima, say x2. He thinks he will be considered a genius if he perturbs the quantity x enough to jump from x2 to the more or absolutely stable (and presumably more lucrative) point x1.
For example, one point that I agree with his trade negotiation with China, is that our companies should not have to give up their technical secrets on a product to get it manufactured in China. One point I disagree with is to single-handedly overrule our government sanctions on ZTE telecommunications, on the same day that China gives the Trump organization a $500 million loan on a hotel in Indonesia.
The problem is that trade is not one dimensional, it is, in emphatic contrast, the most complex system that mankind has devised. It involves everyone on earth, consumers, service industry, and manufacturers. I will give some data to emphasize this. But not even our best computers could handle to this complexity to search for the absolute minimum. And even if you find the absolute minimum, the cost of disruption to get there would probably be prohibitive.
While “Free Trade” sounds like a simplest system, it already has small tariffs, and some large ones. It is incredibly disingenuous of Trump to focus on the single largest tariff with Canada, to put in limbo all of our trade with Canada. That is the 280% tariff on imported milk. Even though I have never been on a farm, we all love our Elsie’s (cows, in a very old ad for milk).
But the point is that everybody and every industry has already settled on trade agreements, and has set up everything on an historically well established basis. You can’t give a hard yank on a segment of a web, without shaking the whole thing. (Probably the most important theorem in the mathematics of webs.)
Let’s start with complexity of products. One car has 30,000 different parts in it. In modern “on demand” manufacturing, they are made slightly before the final car is assembled, to avoid excesses.
Next let’s look at the number of businesses. In the US’s $20 trillion economy, which is a quarter of world GDP, there were as of 2015 5.9 million firms. Of these, 5.27 million were small, of less than 20 employees. Yet, almost 20,000 firms had more than 500 employees.
In California alone, in 2015, there were 740,000 firms, of which 657,000 had less than 20 employees. Yet, California has 6,060 firms of greater than 500 employees.
Trump’s outlook that he could negotiate separate trade deals with all 200 countries covering every major product and company, especially with his handful of economic advisors, and never using State or Commerce (deep state), was simply evidence of his megalomania.
We really need to return to trade treaties that are run by the responsible departments of the executive branch, and approved with the advice and consent of the Senate.
Another aspect of Trump’s mathematics is his doubling down gambling on trade deals. A Martingale betting system is one for head or tails, where if you lose, you double down on the next toss. Trump starts out with a 25% tariff. When the country in question answers back with equal tariffs (but well placed to harm Trump voters), Trump doubles down to twice as much in tariffs, or to 50% tariffs. In gambling, this can go on until you reach a long enough losing streak to bankrupt you. The House does not get bankrupted. If you are going to use this scheme, you don’t start out with large amounts, like 25%.
As in Trump’s businesses, he is gambling with real people’s wealth and jobs, just not his own.
Trump is also great at inventing data, and bragged about pulling numbers for trade deficits out of the air when dealing with Canada’s Prime Minister Justin Trudeau. He also is great at multiplying by 100s or thousands when trying to emphasize threats to Americans. Trump also only discusses our goods deficits, not our services trade profits.
Since Trump deals with Hotels, Casinos, and Golf Courses, let me give some examples of Disruptive variability. What if a President ruled that the numbers 13 has to be skipped in all room numbers, but they still must be numbered consecutively, resulting in all room numbers greater than thirteen having to be renumbered? What if the rules of Roulette were changed to add a 000 slot to each wheel and betting mat? What if the game of golf was changed to only include 17 holes?