This past weekend I had a debate with a friend about President Trump’s efforts to improve trade agreements and decrease trade imbalances around the world.
I indicated that Trump’s aggressive attitude about unfair trade deals was justified. My friend said that abusive tariffs were imbedded in all trade agreements and the US was as culpable as any other country. I set out to find the real issues relating to trade.
What are trade deficits? Last year the US had a trade deficit of $568 billion according to the US Bureau of Economic Analysis and the US Census Bureau. That means that the US purchased that much more goods than it sold in 2017.
Certain countries are able to manufacture products cheaper than other countries. This could be related to lower labor costs, energy, distribution and other selling expenses. If these advantages are abused and/or subsidized by a manufacturer’s country, it may be considered unfair trade competition.
The production of goods could move from one place to another for any number of reasons including the ones mentioned above. When this occurs the country that gains the production puts more people to work, while the country that loses production will suffer job loses.
In order to protect state owned enterprises, some countries impose tariffs on products that enter the country so they cannot not sell at a price lower than domestic producers. In fact the tariffs may cause the price to be substantially greater than domestic prices.
How does this all impact the US? The Economic Policy Institute said that “unfair trade deals have lowered the wages of US workers by displacing jobs and weakening the bargaining position of low and middle wage workers.”
President Obama indicated that free trade would lead to growing exports and job creation. Data after NAFTA in 2001 and KORUS in 2007 tell us that these deals stimulated more imports than exports for the US leading to staggering trade deficits.
Exacerbating the situation is that often, higher paying jobs move out of the country forcing workers to accept lower paying employment in other industries, or unemployment.
China has the largest trade imbalance with the US. Between 2001 and 2011 exports to China supported 538 thousand US jobs that paid, on average $872 per week. The growth of US imports from China between the same years displaced nearly 3.3 million US jobs that paid $1,021 per week.
Jobs in non-trade industries paid an average of $791 per week. This meant that those who lost jobs to China experienced a cut in pay if they were able to find new employment at all.
Overall the US trade deficit with China between 2001 and 2011 eliminated a staggering number of jobs. Total wages lost in 2011 alone were $37 billion. These numbers are a bit dated, but the deficit has continued to increase somewhat to the present.
What should Trump do to decrease the deficit and the impact it has on our economy and employment? Should he impose tariffs to protect domestic industries, or should he allow foreign countries to steal large chunks of our economy and countless jobs? The answer seems obvious. Trump should impose or threaten to impose tariffs to decrease the advantages of foreign manufacturers. At a minimum tariffs overseas should not exceed tariffs in the US.