But the connection between US persistent large goods trade deficits and these new tariffs is lacking and I am wondering what those gurus were smoking when they advised our President on how to solve this pressing trade imbalance using tariffs. They must have known that the US has already set in motion more than 100 cases within the World Trade Organization to overturn unfair and illegal trade practices in China and other countries. But I guess that wasn't getting enough attention, and they thought that starting a trade war would be a better approach.
Today I want to show you some data that I obtained from my secret contract in Moscow. Just kidding. I got this data from a perfectly legitimate organization called Facebook. Just kidding again. I got it from the US Census Bureau at https://www.census.gov/foreign-trade/Press-Release/current_press_release/index.html.
The Census breaks down US goods imports and exports into five major categories which you will find in the below table. The negative signs in the third and fourth columns show you that the US has a goods trade deficit in EVERY one of these main categories. So when it comes to laggards in trade -- blame all of them. Steel and aluminum -- the two main categories for the new tariffs -- are found as very small parts of Industrial Supplies. While imports are larger than exports for Industrial Supplies, notice the difference is tiny compared to the trade deficits in Consumer Goods and Vehicles.
How one could have looked at that table and decided to single out steel and aluminum, I can't fathom. If trade deficits are bad and hurt US workers -- I think I might have started with Japan and Korea -- those terrible places that sell us things like Hondas and Hyundais. By the way, if you look more closely at Industrial Supplies the key import villain is not steel or aluminum. It is crude oil.
If you want to know the full set of villains the following list shows you the worst offenders in January 2018 for each of the five categories. I chose the worst villains because they contributed more than 10% to the imports of each of the main categories. Notice that you can't find steel or aluminum in this list of villains:
1. Fish, shellfish, fruits frozen juices
2. Crude oil
3. Telecom equipment, computers, computer accessories
4. Passenger cars and parts
5. Cell Phones, pharmaceutical preparations
If we went after all the countries that sell us all that stuff, that would be a real trade war. But what's the point? What if we won a trade war? Where would they get us?
There is an answer to all this and some economists spout this information regularly even though it puts more people to sleep than Benadryl. I am not shouting but I will put this next sentence in all caps. WE HAVE PERSISTENT TRADE DEFICITS IN THE USA BECAUSE WE MAKE MISS PIGGY LOOK LIKE A VEGAN. WE SPEND TOO MUCH AND SAVE TOO LITTLE. Are you asleep yet?
Those awake might protest. You might ask: What does spending and saving have to do with persistent trade deficits?
Answer 1: When a country consumes more than it produces, it must buy goods from outside the country.
Answer 2: When a country saves too little, domestic investors have to find savers elsewhere. When foreigners buy US assets they first have to buy dollars, driving the value of the dollar higher, imports higher, and exports lower.
If we are really serious about reducing trade deficits in this country, the way forward is simple. Stop all this stupid trade war stuff and implement policies to do two things:
1. Raise output relative to spending.
2. Raise saving relative to investment.
|Table 2017 Goods Trade Data
|In Billions of Dollars||Net Exports|
|1. Foods, Feeds, Bev,||132.9||137.8||-4.9||-3.7|
|2. Industrial Supplies*||462.9||507.6||-44.7||-9.7|
|3. Capital Goods||532.8||640.7||-107.9||-20.3|
|4. Auto. Vehicles, etc||157.6||359||-201.4||-127.8|
|5. Consumer Goods||197.8||602.2||-404.4||-204.4|
|6. Other Goods||62.8||95.6||-32.8||-52.2|
* Industrial Supplies includes iron and steel products and aluminum