In economics, as in life, sometimes the obvious answer is wrong.
In fact, American economist Richard Thaler won the Nobel this week for a career spent making that very point.
Unfortunately, as U.S. President Donald Trump plays to his base on two major issues, taxes and trade, there is some very good evidence that what seems obvious to him will hurt not help.
Rather than making America great, killing the North American Free Trade Agreement and cutting taxes for the rich could do the opposite.
“If we can’t make a deal, it’ll be terminated and that will be fine,” Trump said of the trade negotiations this week.
Hyperbole never hurts
The charitable view might be that Trump is playing his self-appointed role as dealmaker-in-chief, as outlined in his book, The Art of the Deal, in which he wrote “a little hyperbole never hurts.”
As anyone who has negotiated for a car knows, making it clear you really want the vehicle is a losing strategy.
Maybe Trump’s intransigent position is some sort of hyperbolic dealmaking ploy that requires pretending to be willing to forego the deal altogether. If so, the only good negotiating response from Canadian and Mexican leaders is to do the same thing — a game of chicken where the final result could be bad for everyone.
Certainly U.S. business leaders are worried.
As Prime Minister Justin Trudeau pointed out Wednesday, U.S. companies have a very large and lucrative Canadian market.
“The U.S. sells more to Canada than it does to China, Japan and the U.K. — combined,” he told a congressional committee.
A less charitable view of Trump’s off-the-cuff remarks about killing the deal is that he really believes free trade is bad. On that point, it’s almost absurd to list the economists who disagree, since it is very nearly all of them.