White House Advisor Promotes One-Sided Trade Deals Contradicting Free-Market Principles

Capitalism is often described as a system where people take care of those they do not know, as it facilitates the exchange of goods and services between strangers. For instance, Americans rely on people from various regions, including Vietnam, for their food, housing, and clothing. However, recent statements by the chair of the White House Council of Economic Advisors, Stephen Miran, suggest a shift towards a zero-sum mindset in trade relations. Miran described a new trade deal with Vietnam as "fantastic" because it is "extremely one-sided," implying that Vietnam's prosperity comes at the expense of the United States.

This perspective contradicts the principles of free-market capitalism, which Adam Smith outlined in his seminal work. Smith argued that voluntary exchanges benefit both parties, leading to increased wealth for all. He noted that people have an innate tendency to trade and exchange goods, and the more they do so, the wealthier society becomes. In contrast, extracting one-sided trade deals can make both sides poorer by disrupting the natural flow of goods and services.

The trade deal Miran touted is so one-sided that Vietnam has not even agreed to it. Similarly, the president imposed one-sided deals on Japan and Brazil, using capitalized nouns in letters that revive an 18th-century practice. The letter to Japan complained that the relationship between the two countries has been "far from Reciprocal," because the US sends more money to Japan than it receives. However, Smith would explain that the primary purpose of trade is not the importation of gold and silver, but the increased availability of goods and services for all.

To judge trade relationships solely by the flow of money is to assume that trade is a zero-sum activity. This outlook appears to be one of the few areas of bipartisan agreement. A study co-authored by Stefanie Stantcheva found that urban dwellers, PhDs, and young people are most likely to have a zero-sum view of the world. This trend is troubling, as it suggests a departure from the principles of free-market capitalism that have driven economic growth for centuries.

The euro-dollar exchange rate, which is usually a function of the difference in interest rates between the US and EU, has decoupled since the start of the trade war. This suggests that currency markets, unlike stock markets, think that tariffs do matter. Economists at Yale’s Budget Lab calculate that the announced tariffs amount to an effective rate of 16.3% (pre-substitution). They also keep a running calculation of how tariffs will impact GDP, inflation, and purchasing power. It currently estimates that the annual disposable income of American households will fall by an average of $2,480.

The Budget Lab estimates that tariffs will take about 0.8% off GDP in 2026 and that the US economy, growing from a smaller base, will remain 0.4% smaller than it otherwise would have been, in perpetuity. The Economist, using Yale data, charts the effect of the big beautiful bill, which is expected to have made the US economy 2% smaller in 2050 than it otherwise would have been. Two percentage points in 2050 may not sound like much, but it will happen faster than you might think.

Despite the troubling trend of zero-sum thinking, the stock market doesn’t seem very troubled. It’s up nearly 7% year to date, as if nothing much has happened. However, if we insist on making world trade a competition, we’re all going to lose. The unsung hero of this longer-than-expected economic expansion has been a surge in productivity, as measured by output per hour. Economists are not yet sure why we’re getting more productive, but Timothy Taylor’s best guess is that we have the Covid-induced adoption of technology to thank. They’d all agree, however, that the way to be even more productive is to keep trading with each other.