President Donald Trump has offered lots of different reasons for hiking tariffs on American imports. He’s said that tariffs are going to make the country “rich and strong” and that they will boost tax revenue, reduce the trade deficit, and create leverage for future trade negotiations.
Many of those arguments are economically illiterate, counterproductive, or contradictory.
But the president’s latest argument might be the most foolish—and most socialist—that he’s rolled out yet: America is one big department store, and Trump is the general manger.
“Think of us as a super luxury store, a store that has the goods,” Trump said on Tuesday while meeting with Canadian Prime Minister Mark Carney. “You’re going to come and you’re going to pay a price, and we’re going to give you a very good price.”
This is the second time that Trump has reached for this analogy in the past few days, which makes it seem less like a random thought that popped into his head and more like an intentional messaging strategy. Last month, in an interview with Time magazine, Trump said America was “a department store, and we set the price. I meet with the companies, and then I set a fair price, what I consider to be a fair price.”
You probably shouldn’t worry too much about this analogy, because the justification for tariffs will probably change again in the next few days (probably to something equally silly). The best and clearest explanation for Trump’s use of tariffs is the simplest one: He just likes tariffs, and he doesn’t care what anyone else thinks, as Scott Lincicome wrote recently at The Dispatch.
Even so, it’s worth taking a moment to enjoy how utterly bonkers this idea is, on a few different levels.
The most obvious objection is, of course, that the country is not a department store. Thinking of America in those terms is collectivist, even socialist. The president is not the CEO. American workers are not his employees. He doesn’t get to decide the fair price for transactions between individuals, no matter if those people are both residing in the country or if one of them lives abroad.
In short: Factually, every single part of Trump’s analogy is wrong.
Still, let’s set all that aside for a moment and pretend that Trump is right. America is a big store that “has the goods,” and the president is the “shopkeeper.”
Then, let’s ask how a department store following Trump’s trade policies would operate.
First, that store would tell its suppliers to take a hike, since the store is currently well-stocked and the CEO doesn’t want to spend any more money on new inventory. That’s effectively what Trump told Carney during their meeting on Tuesday. “We really don’t want Canadian steel, and we don’t want Canadian aluminum and various other things,” he said.
The problem with that is that lots of American companies do want Canadian aluminum (and other imported goods). More than half the imports to the U.S. are raw materials, intermediate parts, or equipment—the stuff that manufacturing firms need to make things—rather than finished goods. Many of those imports come from Canada, which is one of America’s biggest trading partners.
Go back to the department store analogy, flawed though it is. In this case, the shopkeeper believes he’s saving money by refusing to buy products from his suppliers. Trump has said as much.
Next, the shopkeeper decides to raise the prices on everything in the store, figuring that it guarantees higher revenue. That’s the tariffs in this analogy. In his mind, the higher prices mean the store will be making twice as much, in addition to not spending anything on inventory. Mission accomplished!
The problems with this approach should be evident.
A lot of customers would buy fewer things because of the higher prices. Even so, the existing inventory would eventually be depleted. Instead of making more money, the store now has higher prices (making it less competitive than other alternatives), fewer customers, empty shelves, and the employees are starting to look around at each other wondering who gets axed first. Having pissed off his suppliers, the shopkeeper might have a hard time getting them to sell anything to the store in the future, once he realizes the mess he’s made.
In the end, nearly everyone is worse off. The suppliers make fewer sales, the customers pay higher prices, employees lose their jobs, and the store ultimately goes out of business.
What Trump doesn’t seem to understand, at a very fundamental level, is that a successful department store must buy and sell things. No one gets rich in a capitalist system by hoarding what they have and price gouging customers. That’s the sort of thinking you’d expect from a college student in a Che Guevara T-shirt, not a Republican president who is supposedly a whiz at making money.
America is not a department store—and that’s a good thing, because if it was, the shopkeeper would be driving it toward bankruptcy.
The post The Trouble With Donald Trump’s ‘Department Store’ Analogy appeared first on Reason.com.
