President Trump has proposed a monumental change in the system which we use to trade with other countries.

This is a very large and complex issue and deserves an historical context to lay the groundwork for understanding. With this context, we can more fully appreciate our current circumstances.

At World War II’s end, the United States was the world’s dominant military and economic power.

It had vanquished adversaries on continents to the East and the West. The countries to our east (Europe) and our adversary to the west (Japan) incurred substantial physical damage, effectively destroying their capacity to produce goods and services to consume and sell to others in order to provide for their own survival.

In contrast, thanks in part to oceans to our east and west, the physical plant of the U.S. was untouched by warfare.

As the world’s “Arsenal of Democracy” during the war, the U.S. had the physical plant and financial resources to fuel a post-war economic boom domestically and export it to other nations.

To facilitate this process, the U.S. initiated two actions. First, it approved the Marshall Plan, named for General George Marshall who devised and advocated for it.

The plan provided financial assistance for allies and former adversaries to rebuild their infrastructure.

Second, the U.S. eliminated tariffs on the importation to the U.S. of goods made in those countries. This action gave Europe and Japan the ability to reestablish their manufacturing capacity as well as funds to support their populations.

The Marshall Plan funds appropriated by Congress were quickly expended, but the export opportunity continues to this day. The U.S. indirectly funded the rebuilding of Europe and Japan.

During the postwar period, many countries took a number of steps to maximize their trade surplus with the U.S.

Doing so generated currency (U.S. dollars) to spend worldwide. Europe and Japan would impose tariffs, often very high ones, on our exports to them.

They would also impose quotas, limiting the amount of a particular item that we could export to them.

Finally, they could impose non-tariff barriers to outright ban certain exports from the U.S. Using these techniques, each country maximized its trade surplus (and currency holdings) with the U.S.

The Clinton Administration further exacerbated this behavior with the passage of the North American Free Trade Agreement, thereby incentivizing Canada and Mexico to behave the same way.

Admitting China to the World Trading Organization extended these benefits to them as well.

Unfortunately for us, the flip side of trade surplus in China, Europe and Japan is a trade deficit for the U.S.

In aggregate, the U.S. trade deficit with the rest of the world is approximately $1.2 trillion per year.

That means that the U.S. now transfers a net of $1.2 trillion of our wealth to foreigners every year.

Over the 80 years since WWII, this amounts to an immense wealth transfer.

With WWII over, and Europe and Japan rebuilt, this subsidy and generosity should end.

The Trump Administration appropriately focuses on it.