Donald Trump was on Gretta Van Susteren tonight and I want to focus on a few (of many) irrational things he said:
1. The United States should be taking jobs back from China.
2. Smart investors are investing in China, not the United States.
First things first, the Donald said that he had to purchase 2,500 TV's from LG instead of a US manufacturer - therefore, the US should take these jobs back. Mr. Trump seems to not understand the labor market and simple concepts of supply and demand. The US imports low-skill manufactured goods from abroad because of the low cost to production. The US does not want low-skill, low paying jobs that aren't to our comparative advantage. In order to "compete" with an Asian firm, a US firm would have to either produce less units or offer very low wages. US workers would prefer leisure to work at such wages - consequently, not creating any jobs, reducing consumption, reducing firm investment and lowering GDP (GDP = C + I + G!!). Precisely for this reason, the rhetoric and debate around "competing with other countries" needs to stop. Countries produce goods and services that are to their comparative advantage and trade with other countries to increase choice in their economies.
Secondly, US investors have been investing in emerging markets for years now. A basic concept in economics is the production possibility frontier - which the US and other developed economies produce at. Imagine a country with all the latest and greatest inputs to production. Their growth would be fixed at, say 3%, since they can't improve their inputs any further. Economies that don't have the best inputs can always have higher growth rates, but that is because they have not reached the frontier yet. China and India are a ways away from the PPF. They will grow at a higher rate than the US and other well devloped economies until they reach the frontier! This is why investors seek exposure in emerging economies - increased return with additional increased risk (political and economic).
Mr. Trump needs to brush up on some basic business and economic principles in the very near future - it's a scary thought that he is considering a presidential run.
1. The United States should be taking jobs back from China.
2. Smart investors are investing in China, not the United States.
First things first, the Donald said that he had to purchase 2,500 TV's from LG instead of a US manufacturer - therefore, the US should take these jobs back. Mr. Trump seems to not understand the labor market and simple concepts of supply and demand. The US imports low-skill manufactured goods from abroad because of the low cost to production. The US does not want low-skill, low paying jobs that aren't to our comparative advantage. In order to "compete" with an Asian firm, a US firm would have to either produce less units or offer very low wages. US workers would prefer leisure to work at such wages - consequently, not creating any jobs, reducing consumption, reducing firm investment and lowering GDP (GDP = C + I + G!!). Precisely for this reason, the rhetoric and debate around "competing with other countries" needs to stop. Countries produce goods and services that are to their comparative advantage and trade with other countries to increase choice in their economies.
Secondly, US investors have been investing in emerging markets for years now. A basic concept in economics is the production possibility frontier - which the US and other developed economies produce at. Imagine a country with all the latest and greatest inputs to production. Their growth would be fixed at, say 3%, since they can't improve their inputs any further. Economies that don't have the best inputs can always have higher growth rates, but that is because they have not reached the frontier yet. China and India are a ways away from the PPF. They will grow at a higher rate than the US and other well devloped economies until they reach the frontier! This is why investors seek exposure in emerging economies - increased return with additional increased risk (political and economic).
Mr. Trump needs to brush up on some basic business and economic principles in the very near future - it's a scary thought that he is considering a presidential run.
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