American Shoppers at Walmart Store – Christmas 2017
Photo Credit: Digg/Associated Press
America’s trade deficit has been making the news. Our president loves to quote the amount of $800 billion: the U.S. trade deficit for trade in goods only. Our trade in services count too. They earned a surplus of over $242 billion in 2017 (Census Bureau, Exhibit 1).
The total U.S. trade deficit of goods and services in 2017 was $568 billion. We imported $2.900 trillion in goods and services while we only exported $2.332 trillion.
An examination of imports and exports of goods by principal end-use category (Census Bureau, Exhibit 10) reveal that consumer goods together with automotive vehicles, parts and engines account for our mounting deficit. Let’s not forget that goods produced by American companies in a foreign country – like the coveted Apple Smartphone designed in California – becomes an imported product on arrival in the USA.
Our president believes that import tariffs or taxes will reduce this imbalance in our foreign trade. In January 2018, the Office of the U.S. Trade Representative announced import tariffs on solar cells and modules (30%) and large residential washing machines (20%) to be phased out over a three-to-four-year period. Then, on March 8th, the Presidential Proclamation imposing import tariffs on steel (25%) and aluminum (10%) rattled our trading partners. American business leaders fear a trade war.
Steel rims for export at factory in Jiangsu Province – China – November 2017
Photo Credit: China Daily/Reuters
“Trade wars are good and easy to win,” tweeted our president on March 2, 2018.
Unlike our Dealer-in-Chief, most of us don’t thrive on chaos. A trade war would have many unintended consequences. Canada, China, India, the European Union, and United Kingdom have already issued warnings of appropriate responses. Tariffs on imported steel and aluminum will increase production costs in such industries as automobiles and construction equipment. Small producers that package their goods in aluminum cans will also feel the pain. We the consumers will face a higher cost of living.
Tariffs and other forms of protectionism will not bring back American industries. After decades of purchasing goods overseas, our industries have either lost their expertise or have become outdated for today’s marketplace. Many factories no longer exist.
It’s easy to blame China and Mexico for our job losses. Oftentimes, the enemy is much closer to home. Does anyone remember how Walmart bankrupted America’s over 66-year-old Rubbermaid and other good American companies? Since then, Amazon – another behemoth with the power to dictate prices – has already snuffed out a lot of its competition in general merchandise. Now, their CEO aims to become “the empire of everything.”
Our nation’s ongoing trade deficit is cause for concern because it’s financed with debt owed to our trading partners, held mostly in U.S. Treasury securities. In January 2018, the European Union owned $1.3 trillion, China $1.1 trillion, and Japan $1 trillion. The day that China demands repayment on the debt, the fun time would be over.