Trump on Trade: Truth-less.

To those who tuned in to Donald J. Trump's speech on foreign policy to hear precisely how he would make America economically great again, you're in luck. Trump stated clearly and repeatedly how he would deal with China's "economic assault on American jobs and wealth." Answer: by making China respect us.

"China," Trump said, "respects strength. And by letting them take advantage of us economically -- which they are doing like never before -- we have lost all of their respect. We have a massive trade deficit with China. A deficit we must find a way quickly -- and I mean quickly -- to balance."

So in other words, we are running a massive trade deficit with China which is costing us jobs, and the solution to this problem is to Make China Respect Us Again.

Of course, this is absurd. But Trump, as usual, touches a nerve. We do feel like we're under "economic assault" from China -- on both our "jobs and wealth," as Trump put it.

I'm glad he brought up wealth, because that's actually a good way to gauge the relative economic might of China and the U.S. The usual way we compare our two economies is Gross Domestic Product, which measures spending and is the basis for claims that China is the world's second largest economy. But spending tells you very little about the strength and size of an economy. It's better to compare assets and liabilities -- or wealth.

According to Credit Suisse and the U.S. Federal Reserve, American households are about $60 trillion wealthier than Chinese households. When you factor in business and governmental assets and liabilities, the U.S., by conservative measures, is $35-40 trillion wealthier than China. And that wealth gap is widening fast, not shrinking, with approximately half of it accruing over the past decade. China is not about to overtake the United States in economic primacy. If anything, China is quickly falling behind. It seems the Chinese agree and are voting with their pocketbooks. Chinese wealth is fleeing to America, with about $1 trillion worth of capital transferred just in the past year and a half.

When it comes to wealth, then, China does not pose the lethal threat Trump would have us believe. Same goes with jobs. In Trump's shorthand, the logic goes like this: we run "massive" trade deficits with China; these deficits kill American jobs. But like Gross Domestic Product, trade deficits are also really misleading metrics. Because we still measure trade as if globalization hadn't happened. We assign 100 percent of the value of a product to the last country that shipped it to us. That means China, which adds just a tiny fraction of value to each iPhone it makes, mostly through light assembly, gets assigned 100 percent of the value of each iPhone in our trade statistics.

That glitch in our data is unfortunate because it hides the important and overlooked fact that most Chinese imports contain U.S.-made inputs. The cotton in a t-shirt. The pulp in a cardboard box. The recycled steel in an air conditioner vent. The software and components in an i-Phone. The capital equipment that fabricated a solar panel.

If we measured trade on a value-added basis, our trade imbalance in goods with China would be more than halved. But that's beside the point. The assertion that trade imbalances kill jobs assumes that a dollar spent on a Chinese imported product is a dollar not spent on an American made one. Untrue. Chinese imports support American jobs in two ways: at the beginning of the supply chain with U.S.-made raw materials, components, design and programming, and at the end of the supply chain, when the imports must be warehoused, transported and retailed. So a dollar spent on Chinese imports is actually a dollar mostly spent on U.S. goods and services.

Then when you consider how much China is buying from us -- we're running "yuge" trade surpluses with China in agriculture and services, by the way -- it makes you wonder whether it's America who's been winning and winning, and not China. Over the past decade, U.S. exports to China have tripled, rocketing China up to our third largest export market behind Mexico and Canada. This export growth is shared across every state in the union and across the breadth of our economy -- from agriculture to manufacturing to services. Some states, like South Carolina, have seen their exports to China grow ten-fold over the past decade. And 92 percent of all congressional districts have seen their exports to China at least double over the past 10 years.

This is not a picture of a country under economic assault from China, as Trump said. Rather, it's a picture of a country that's still competitive, that supports millions of jobs trading with China and the world, and that is tens of trillions of dollars wealthier than the so-called second largest economy in the world. Respect.