NAFTA, the trade deal between Mexico, America, and Canada is being re-negotiated. And heading those re-negotiations is Donald Trump, a man whose economic sense is not exactly top notch. In a time when so much of our politics focuses on trade, it is not only worthwhile to understand basic principles of trade, but understand the ways in which Trump fundamentally misunderstands trade. I have taken two quotes from Trump – the two which I believe are the most representative of basic misconceptions, and explained why he is so macroeconomically illiterate.

“Our country is in serious trouble. We don’t win anymore. We don’t beat China in trade. We don’t beat Japan, with their millions and millions of cars coming into this country, in trade. We can’t beat Mexico, at the border or in trade.”

Trade is not a battle. Despite Trump’s rhetoric, trade is a mutually beneficial activity. Both countries can gain something from participating in trade. Modern economics left the idea that trade was a battle in the early 19th century, with an economist named David Ricardo. Ricardo proposed the idea that two countries could produce more total output if they specialized, that is focused, on a specific product or industry and traded with each other, rather than spreading their resources thin by making everything. When a country trades this specified good for another countries specified good, both countries benefit because both countries consume more. Trump not only misunderstands the goal of trade; it is not entirely clear how one “wins” at trade, he is panicking over different countries specializing – such as Japan in cars.

“We’re going to fix them[trade deals] folks. You know, last year we lost almost $800 billion in trade deficits. We have trade deficit with other nations of almost $800 billion.”

Trade deficits occur when a country imports – that is buys from foreign countries – more than it exports – that is sells to foreign countries. There is an important distinction to be made – the country, whether it be foreign or domestic, is not buying the product. The consumers in those countries are buying those products. So, America itself is not losing 800 billion dollars to foreign countries. Instead, consumers are buying 800 billion dollars more of foreign product then foreigners buy of our product.

After some thought, this may seem to pose a new problem. Capital, money and other assets, is flowing out of the country, into foreign hands. However, because of something called the balance of payments, in fact the total amount of capital that flows in to a country is equivalent to the amount of money that flows out a country. This is because even though America has a trade deficit, we have a surplus of foreign investment – i.e. more foreigners invest in America than we invest in other places. This balances out the capital, and means that we are always net zero for capital inflow – stuff coming in, and outflow – stuff going out.

Trump fundamentally misunderstands economics. And it seems like his cabinet is intent on continuing his basic misconceptions. This is highly dangerous. The economy is sensitive, especially to trade deals. We, as a country, rely on other countries for goods. If that is disrupted, it could have disastrous economic outfall. The best way to combat this is to be economically educated, to understand, in a very rudimentary sense, how the economy works. That is our duty as burgeoning citizens and voters. We are responsible for being educated, and as such, we are responsible for our economic well being. The economy is no more complicated than any other subject. But it has the ability to affect everything in our life.

Learn a little bit about it.