Despite all the success enjoyed by 19th century industrial magnate Joseph Wharton, the 21st century has not been kind to his family’s legacy. His great-great-great grandson, Josh Rosen, was ignominiously canned as quarterback by the Arizona Cardinals and sold off for peanuts to the Miami Dolphins. But even worse, the family name he gave to the business school he founded at the University of Pennsylvania has been irreversibly damaged by one of that school’s graduates, the 45th President of the United States, Donald Trump.
Admittedly, even though the Wharton School took money from the Trump family and admitted his children Ivanka and Don, Jr., it never bragged that much about its association with Trump given his checkered business past. Every Ivy League school has had its share of sleazy, vulgar, business-destroying alums they’d rather not discuss. It’s just that most of them don’t end up being president.
Now, Trump’s Wharton education is yet again under the spotlight because Trump is daily demonstrating just how little he learned about economics while studying there. Or while running businesses. Or ever.
Just this Friday morning, the world was treated to a Trumpian Twitterstorm about his ill-considered, mismanaged trade war with China that was so profoundly dumb that it would surely have earned anyone who submitted it as a paper an F in an intro-to-economics course.
Once again he bragged about the tariffs he had imposed on China and that he had now increased them from 10 to “25% on 250 Billion Dollars worth of goods & products” (the capitalizations are his…a subject for another column, perhaps one by a neuropathologist). Trump then said that the tariffs were “NOW being paid to the United States by China,” so that with the “over 100 Billion Dollars in Tariffs that we take in, we will buy agricultural products from our Great Farmers, in larger amounts than China ever did, and ship it to poor & starving countries in the form of humanitarian assistance.”
He went on to say that Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind. Also, much easier and quicker to do.” He concluded this particular tear through logic, sound economics, arithmetic and syntax with the assertion that “Tariffs will make our country MUCH STRONGER, not weaker. Just sit back and watch.”
As usual, Trump started with a lie. Higher tariffs are not now being paid to the U.S. That won’t happen for a few weeks, until goods shipped after the tariff hike make their way here.
Next, and most important, the tariffs are not being paid to the United States by China. The tariffs are being paid on Chinese goods purchased by American consumers and businesses. In other words, the money does not come from China. It comes from Americans. It is a new tax on Americans from the president who promised to cut taxes but has proven to be really bad at that too. Poorer Americans who often buy lower-priced Chinese manufactured goods such as shoes and clothes will end up being those hurt most, just as they were the ones to benefit least from the Trump-GOP tax cuts.
Now this is a mistake Trump makes over and over. He just doesn’t get who is paying or being hurt by the tariffs. Except, apparently when it comes to farmers. He cares about them, which is why he is promising to use the money from the tariffs to buy products from the farmers that Chinese, retaliating against the U.S. tariffs, are declining to buy. He does not seem to understand the size of the deficit the U.S. has racked up. To put it in terms he can follow, it’s yuge.
So yuge big that the tariffs won’t make a dent in it. So the relief payments to farmers will have to be borrowed by the U.S. Who do we borrow from? Yup, that’s right. We borrow a bunch from the Chinese. So, we are going to pay them for money we are going to use to pay off farmers injured by bad U.S. policies thus enabling the Chinese to make money off the trade war.
Oh, and whatever you do, don’t look at the effect Trump’s tweets had on the stock market for most of the past few days. Not that most Americans have a big stake in the stock market. But Trump’s friends and fat cat supporters do and they don’t like this uncertainty one bit. (For good insights into how badly Trump is playing all this, read the great piece by Catherine Rampell in Friday's Washington Post.)
Now the market rebounded a bit Friday when Trump and the Chinese both said that a little progress was being made in the talks. And frankly, most of the trade experts I know think a deal will ultimately come. But there are even a couple problems associated with that. One is that after China stops buying U.S. agricultural or other products and starts to get them from other countries, often it does not return to buying from the U.S. as it did pre-trade interruption because having more suppliers produces more competitive pricing for them and reduces U.S. leverage.
But worse is that everything we have heard about the pending deal suggests that while it may include big promises from the Chinese to buy U.S. products (which are seldom delivered upon), and some market opening (in the financial sector for example), it will not deal in a meaningful way with the real long-term problems in the U.S.-China relationship centered on trade in technology and services, IP protection, and investment rules in these areas.
Further, it is rumored it will include a dispute resolution mechanism which will be bilateral. That means China and the U.S. will promise to work out future disputes between each other, by-passing and thus weakening vital multilateral mechanisms like the WTO and increasing the likelihood of future tit-for-tat trade spats in the future.
The blow to the WTO would be devastating, and it would compound Trump’s earlier wrongheaded attacks on international institutions and the post-World War II international order the the U.S. labored for three-quarters of a century to build, including pulling out of the TPP agreement, imposing steel and aluminum tariffs, renegotiating NAFTA which produced a deal that is unlikely to be ratified by the Congress and really doesn’t produce any major improvements over the old deal, and threatening to get into a trade war with key allies over automobiles. (For a good take on this, see Ed Luce in the Financial Times.)
All of which is to say: WTF, Wharton?
While Trump’s serial tax fraud and business failures did not shame you into revoking his degree, surely such public displays of economic illiteracy should. Yes, we know that Trump did not attend the Wharton graduate school, which is really the prestige program. And yes, we long ago learned he did not graduate first in his class as was long advertised. We even have heard that one of his professors once called him “the dumbest goddamn student I ever had.” Which is believable.
We even know that poor old Joseph Wharton was himself a protectionist. But he embraced those policies in the late 19th and early 20th century, during the period in American history sometimes known as the Era of Real Dumb Ideas That Didn’t Really Work. We know better. And as a scholar and a scientist and an entrepreneur and a poet who also helped found Swarthmore College, Wharton would likely have learned his lesson. And that, as a Quaker and an educator and a man of learning, he would have been repelled and appalled by the school which bears his name’s most ignominious graduate.
David Rothkopf is CEO of the Rothkopf Group, presenters of The DSR Network podcasts, live events and other content and advisor to companies and governments, including the UAE. He served as Deputy U.S. Under Secretary of Commerce for International Trade Policy in the Clinton administration and as Acting Under Secretary for International Trade.