Trade war? Let’s think about it.

I begin by stating that I believe in free trade and much prefer not to see a trade war. However, I believe the USA definitely gets the short end of the stick in many “trade agreements.”

Now allow me to ask you a series of questions.

  • Which nation has the world’s largest trade deficit?

Answer: The United States of America.

  • When did we “win” that “honor?”

Answer: Way, way back in 1975!

  • If you and I are trading partners and your company sells me $1,000,000 per annum and I sell you $10,000 per annum and we get into an argument, who has the upper hand?

Answer: If you need the answer you are reading the wrong webpage.

  • Net exports is one of four components of the GDP. Does the nation with the larger GDP and a negative trade deficit have the upper hand in a trade war with a nation with a much lower GDP and a large trading surplus?

Answer: If you need that answer I can recommend a remedial math class.

  • Do Americans get lower prices on some goods because of current “free trade” policies?

Answer: Yes.

  • Do our trading partners get lower prices and a lot more because they game the system?

Answer: Again, If you need the answer you are reading the wrong webpage.

  • Will some American companies (and their workers) and some farmers be hurt in a trade war?

Answer: Yes.

  • Is Trump going to put tariffs on incoming goods?

Answer: He’s already done it and he will push ahead (speculative on my part, but not very).

[Source: U.S. Trade Deficit by Country: Current Statistics and Issues, by Kimberly Amadeo]

The US trade deficit in goods and services was $502 billion in 2016. Imports were $2.7 trillion and exports were only $2.2 trillion.The deficit in goods and services was $502 billion in 2016. The US trade deficit in goods minus services was $750 billion. If we simply BALANCE TRADE our GDP goes up 4%.

The biggest categories influencing exports were commercial aircraft, automobiles, and food. The largest categories influencing imports were automobiles, petroleum, and cell phones. It is likely that petroleum imports will decline as US production increases – and it will under President Trump.

Our top five trading partners have the largest trade surpluses (trade data by country for goods only, not services):

  1. China – $579 billion traded with a $347 billion deficit.
  2. Canada – $545 billion traded with a $11 billion deficit.
  3. Mexico – $525 billion traded with a $63 billion deficit.
  4. Japan – $196 billion traded with a $69 billion deficit.
  5. Germany – $164 billion traded with a $65 billion deficit.

There is a perceptive quote: “There is a kind of peace that is only found on the other side of war.” If we have a trade war (and, again, I do not want one), I think we “win.” (And please do not comment by bringing up either of the following: Smoot Hawley (footnote) or “nobody wins in a trade war.”)

Roy Filly

Footnote: Smoot Hawley was passed in 1929. US Nominal GDP in 1929 was $105 billion. US trade SURPLUS was approximately $7 billion. Not exactly applicable to today.

About Roy Filly

Please read my first blog in which I describe myself and my goals.
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3 Responses to Trade war? Let’s think about it.

  1. Bart Bentley says:

    The entire concept of a trade deficit is of questionable value. If I’m a T shirt vendor and buy $1,000 worth of T shirts from India, they have my $1,000, but I have $1,000 worth of T shirts, which I’ll sell for $10,000 and use the money to pay rent and employees. Point is, for every trade dollar sent abroad, there is and offsetting increase in capital here.

  2. Starchild says:

    Bart is right. In free trade, everyone wins. A whole bunch of people all over the world are buying and selling. Those who are restricted in their buying and selling are the ones at a disadvantage. They will have to seek out inferior deals to the ones which they could have made were it not for the interference of government. Artificially lumping various buyers and sellers together by country, and using this as the basis to calculate statistics, does not have any real, fundamental meaning.

    Some people are so obsessed with this nationalist worldview, and so fearful, that they cannot see anything except through the lens of “national security”.

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