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