Vancouver Sun

U.S. trade deficit shouldn’t an­noy Trump — but it doubt­less will

- KEVIN CARMICHAEL Finance · U.S. News · Canada News · Politics · Business · United States of America · Donald Trump · Philadelphia Union · Pacific Ocean · NAFTA · South Korea · United States Department of Commerce · Barack Obama · Twitter · Montreal · Robert Lighthizer · Office of the United States Trade Representative · Statistics Canada · Bank of Canada · European Union · Union · Germany

I will say this about Pres­i­dent Don­ald Trump, the man pro­vides lots of teach­ing mo­ments, even if he is obliv­i­ous to the lessons him­self.

Take his ob­ses­sion with the trade deficit.

Most econ­o­mists say the gap be­tween im­ports and ex­ports doesn’t mat­ter much. Trade flows are de­ter­mined mostly by de­mand and trans­porta­tion links. The U.S. runs deficits be­cause it buys a lot and saves lit­tle, and be­cause glob­al­iza­tion has re­duced the cost of get­ting goods and ser­vices to the world’s most vo­ra­cious con­sumers.

But in Trump’s world, the deficit shows the United States is get­ting screwed by the rules of in­ter­na­tional com­merce. That’s a prob­lem for the rest of us be­cause that sim­plis­tic idea of how the world works is now driv­ing U.S. trade pol­icy.

Dis­re­gard all the happy talk you hear about “win-win” trade with Trump’s Amer­ica; if the Trump ad­min­is­tra­tion’s score­card is the trade deficit, then it must build dams big enough to coun­ter­act the vo­ra­cious de­mand of U.S. house­holds. In that sce­nario, there can be only a win­ner and a loser.

New data show what it will take to re­verse U.S. trade flows.

Trump promised vot­ers that he would cor­rect the deficit. Soon af­ter in­au­gu­ra­tion, he quit the Trans-Pa­cific Part­ner­ship. He or­dered over­hauls of the North Amer­i­can Free Trade Agree­ment and the U.S.’s free-trade pact with South Korea, and he jacked up the use of re­tal­ia­tory tar­iffs to im­pede im­ports.

How’s all that work­ing so far? It’s not.

The Com­merce Depart­ment re­ported Tues­day that the U.S. im­ported goods and ser­vices worth US$182.5 bil­lion in 2017, while ex­port­ing $121.2 bil­lion, for a deficit of $61.2 bil­lion — 12 per cent wider than in pres­i­dent Barack Obama’s fi­nal year in of­fice.

If Trump had any shame, he might be em­bar­rassed. (The pres­i­den­tial Twit­ter ac­count made no men­tion of lat­est trade data.)

But there’s lit­tle rea­son to think that hard ev­i­dence will per­suade Trump to fi­nally ad­mit that this par­tic­u­lar bo­gey­man is make-be­lieve. The risk is a big­ger deficit only will en­cour­age him to try harder to re­verse it.

Just last week in Mon­treal, Robert Lighthizer, the U.S. trade rep­re­sen­ta­tive, wrapped the lat­est round of NAFTA talks with yet another ha­rangue about the un­fair­ness of the gap be­tween U.S. im­ports and ex­ports. Af­ter ob­serv­ing that the deficit in goods traded be­tween the U.S. and Canada was the equiv­a­lent of about 5.7 per cent of Cana­dian gross do­mes­tic prod­uct in 2016, and likely to ex­pand in 2017, Lighthizer said: “Now I ask Cana­di­ans be­cause we’re in Canada, is it not fair for us to won­der whether this im­bal­ance could in part be caused by the rules of NAFTA? Would Canada not ask this same ques­tion if the sit­u­a­tion were re­versed? So we need to mod­ern­ize and we need to re­bal­ance.”

In fact, here in Canada, we stopped ask­ing those sorts of ques­tions roughly three decades ago. Good thing, too, or we might be sus­cep­ti­ble to the same sort of dem­a­goguery that conned so many Amer­i­cans in 2016.

By Trump’s mea­sure, Canada is a loser from trade. Statis­tics Canada also re­leased new ex­port-and-im­port data on Tues­day. We im­ported more goods than we ex­ported in all but three months be­tween Oc­to­ber 2014 and De­cem­ber 2017; the to­tal deficit last year was $24 bil­lion in nom­i­nal terms, the sec­ond-widest on record af­ter $26 bil­lion in 2016, ac­cord­ing to Na­tional Bank. Thanks to en­ergy, we have an over­all sur­plus with the U.S., while we es­sen­tially have a deficit with every­one else.

There is use­ful in­for­ma­tion in these data.

Canada’s ex­ports bounced back in 2017, but mostly be­cause of higher oil prices; ship­ments of in­dus­trial equip­ment, elec­tron­ics, and con­sumer goods haven’t changed that much, a rea­son for the Bank of Canada to keep in­ter­est rates low. At the same time, im­ports of ma­chin­ery and equip­ment jumped at the end of the year, a sign that Cana­dian com­pa­nies are gear­ing up to take ad­van­tage of stronger eco­nomic growth.

Another no­tice­able shift came in the num­bers for Europe. Canada’s trade deficit with the Euro­pean Union was $2 bil­lion in De­cem­ber, the widest ever, ac­cord­ing to Na­tional Bank. That prob­a­bly has some­thing to do with the im­ple­men­ta­tion of Canada’s new trade agree­ment with the EU. Im­ports of au­to­mo­biles from Ger­many led a nearly seven-per-cent jump in im­ports from non-U.S. coun­tries, Statis­tics Canada said.

The lat­est trade data are in­com­plete be­cause they ex­clude ser­vices, an area of strength for Canada in re­cent years. Still, the lack of mo­men­tum in nonen­ergy ex­ports will do noth­ing to al­le­vi­ate the Bank of Canada’s con­cern about Canada’s abil­ity to win its share of stronger global de­mand.

Re­fresh­ingly, these sorts of num­bers are met with calls to work harder, not gripes about how the game must be rigged. Canada’s con­sen­sus on the ben­e­fits of trade has held re­mark­ably well since the 1988 elec­toral show­down over the U.S. free trade agree­ment.

The U.S. pop­u­la­tion never has been sub­jected to such an hon­est de­bate about trade. And they likely won’t get that chance as long as Trump re­mains on the scene.

 ?? PETER MCCABE/AFP/GETTY IM­AGES ?? Robert Lighthizer, the U.S. trade rep­re­sen­ta­tive, has ques­tioned whether the per­ceived un­fair­ness in the trade gap be­tween Canada and the U.S. was partly caused by NAFTA.
PETER MCCABE/AFP/GETTY IM­AGES Robert Lighthizer, the U.S. trade rep­re­sen­ta­tive, has ques­tioned whether the per­ceived un­fair­ness in the trade gap be­tween Canada and the U.S. was partly caused by NAFTA.

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