It remains unclear if Trump fully understands how the federal debt works

Twice on Thursday, President Trump made comments that conveyed a remarkable lack of familiarity with basic aspects of the American economy.

It began with remarks he made to reporters during an event in the Oval Office.

“You mentioned all the economic indicators are going up,” a reporter asked. “Why, then, is the — are U.S. deficits and the financial debt increasing at a time when the economy —”

Trump jumped in.

“Well, the trade deals won’t kick in for a while,” he said. “You know, number one, the USMCA” — the revised version of NAFTA that Trump’s administration negotiated with Canada and Mexico — “hasn’t even been approved yet. It has to go before Congress and get approved. Now, it should get approved quickly.”

Before NAFTA, Trump said, “we had huge surpluses with Mexico. With NAFTA, we have huge deficits. We lose $100 billion a year on trade with Mexico. Does that sound good? And this has been going on for many years. So I stopped it. I stopped it a lot.”

You probably noticed that Trump took a question that’s obviously about the federal budget deficit and gave an answer that dealt with the country’s trade deficits. Both are deficits, sure, but they relate to each other in about the same way that a tuning fork relates to a dinner fork. The term “deficit” describes something similar in each case, and they can even share similar properties, but the two are by no means equal.

If the entirety of trade between the United States and Mexico was your buying a $20,000 car from Mexico and selling someone there a $99 piece of software, the United States would have exported far less in goods than it imported, to the tune of $19,901. If, the next year, you sold another $99 software package but purchased only one $3 avocado, suddenly the United States would be running a trade surplus — $96 worth. That’s a change of nearly $20,000 in only one year!

None of this money, though, affects what the government is doing. Your car or that avocado doesn’t go into the U.S. Treasury as a tax receipt. Read more

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