In the Trump Administration, the drumbeat about “unfair” international trade is deafening and so are the announcements of yet more sweeping tariffs, to correct 'unfairness'
Foreign manufactured goods are in the dock - their ‘unfair trade advantages’ are destroying “our jobs”
"We have been taken advantage of"
"We will not allow ourselves to be taken advantage of"
The “Fair and Reciprocal Plan” will seek to correct longstanding imbalances in international trade and ensure fairness across the board - in 'White House Fact Sheet - February 2025
Exploring subconscious motives such as social status anxiety and anti-intellectualism, Richard Hofstadter "made us acutely aware that politics can be a projective arena for feelings and impulses that are only marginally related to the manifest issues"
“Populist thought showed an unusually strong tendency to account for relatively impersonal events in highly personal terms” - in “The Age of Reform” (1955)
“If, for every error and every act of incompetence, one can substitute an act of treason, many points of fascinating interpretation are open to the paranoid imagination" in The Paranoid Style in American Politics and Other Essays (1964)
On such fertile grounds, prejudice is bound to flourish
Suffered "in highly personal terms” - since "we have been taken advantage of" - the sense of prejudice has retribution baked in - nothing else will do
Setting the wheels of governement in motion, in a choreographed display of omnipotence, there is room only for instant, and total, gratification
Engaging international trading partners in a game of chicken may have been a matter of Pride
A sense of Prejudice is a different matter entirely, taking on a life of its own
Leaving the sorcerer's apprentice to juggle with the inevitable fall-out, and trapping the Administration into dubious compromises, all the parties to international trade will be aggrieved ... and remain distrustful in the end
Under those poor premises, trade negotiations initiated by the Trump Administration are upending globalization itself
Targeting instant gratification, such 'negotiations' under duress are bound to remain static and the advantages will wither as times goes by
Dynamic advantages are different
Sought, and captured, by all parties to trade agreements, those advantages flourish on economic growth, which is the rationale of a balanced 'give and take'
By benefiting everyone over the long run, growth has been the powerful driver of globalization
Trade agreements will surely be skewed by evolving economic circumstances, prescribing wholesale renegotiation when tinkering on the sidelines will not do
In the end, however, global trade, buttressed by international agreements, is a matter of trust
And global cooperation could very well collapse for lack of trust
International trade relations form a patchwork of intricate cross-border supply chains
And they rely on comparative advantages from distinct sources, such as natural resources, wage differentials, public governance and educational strength
Mutually supportive or complementary, those factors create the moving landscape of global trade
U.S. Trade imbalance 2024 - the facts
Considering rather lowly average external tariffs in 2023 of 3.3% for the U.S., 3.8% for the UK and 5% the EU, Mr Trump's feigned outrage is supported by one worthy goal, reindustrialization
China with average tariffs of 7.5% is hardly more relevant - currency shifts will make up for the differential and then some
But the U.S. job losses since 2001 (since the year China became a member of the WTO) are real, and have run into millions, although robotization in US plants over the same period make it difficult to be conclusive
The balance of Goods - imported manufactured goods vs exported goods - gets most of the attention because of its size - a negative balance of 1.211,8 billion
- 2024 US exports of $2.083,8 billion are overtaken by US imports of $3.295,6
- US trade deficit with China, in 2024, represents 24.3% of total US Trade in Goods deficit
- US trade deficits with the next 2 countries, Mexico and Vietnam, represented respectively 14.2% and 10.2%
- With close to 50% of total US trade of goods deficit, for just the three countries, China, Mexico and Vietnam, their contribution to the 2024 increase in US Goods deficit got smaller at 36.7% ($54.5 bn of total goods deficit of $148.5 bn)
The balance of Services, in a separate category of international trade, is rarely mentioned next to manufactured imports; the balance is positive for the U.S.
- 2024 US exports of $1.107,8 billion exceeds US imports of $814,4 billion – a positive balance of close too $300 billion ($293,4 billion)
- in 2023 (latest available statistics), the Services surplus was supported by Europe (41.5% of total, with major contributors Ireland, Switzerland and the Netherlands) and Asia (30.6% with major contributors China, Singapore, South Korea and Taiwan)
- Canada (11.4%)
In summary,
Mexico and Vietnam together contribute to the US deficit in Goods as much as China - close to 50% for the 3 countries together
The close integration of the Chinese supply chains with operations in Vietnam and Mexico makes actual Chinese influence hard to pin down
Increase in Goods deficit for 2024 is widely spread and the role of the 3 leading countries diminished
Services, with a positive U.S. trade balance for 54 ot of the 79 countries tracked by BEA, bring total goods and services imbalance down to $918.4 billion
Services surplus - in favor of the U.S. - is essentially generated by 8 countries in Europe and in Asia (+ Canada)
Trade balance and reciprocal tariffs
The premise that trade imbalance will be resolved with reciprocal tariffs, as promised by the Trump Administration, is a non-sequitur
Seductive as campaign pitch, 'fair' in making a show of treating all trading partners equally, the inference of reciprocity just does not follow
Countries are not equal in trade and the international trade framework aims to overcome imbalance by a shared interest in economic growth
What is more, overall U.S. trade balance - advocated with or without 'reciprocity' - is superseded by more pressing issues when tariffs are used to extract guarantees or to protect national interests
- Import from China to Mexico of precursor chemicals to make fentanyl, a deadly opioid, has justified sweeping tariffs announcements on both countries
- National interests, such as securing supply chains and guaranteeing actual supplies of basic materials from reliable sources, overlap announcements on US tariffs (such as on steel and aluminium) when unambiguous priorities could be focused on defense
"Reciprocity" runs into more complexities from the start, with a few examples making the point
- EU tariffs on US cars indeed appear ‘unfair’ at 10% compared to the current US tariff of 2.5%, and might very well justify an adjustment of the American tariff
- However, the automotive production the American tariff protects selectively are 'trucks' (one third of total car sales), and imports submit to a 25% tariff rate which excludes European trucks from the US market – Since the EU tariff on trucks is of 10%, how will ‘reciprocity’ play out?
- Milk imports raise a similar issue, taxed at 10% to protect US dairy farmers, as in swing state Wisconsin, and not taxed at all in New Zealand - Should the US tariff really drop to zero and why should New Zealand be expected to raise its tariff ?
With agricultural products, "reciprocity" enters a maze with no way out
In a domain where governments are most sensitive to protect food access, an Opinion by farmer Ben Palen makes the point in the Kansas Reflector
- "398 million acres of cropland has been added to the mix around the world since the start of this century, notably in tropical regions such as Brazil and India.
- There is increasing competition for U.S. farmers in export markets. The United States alone cannot absorb all that we produce here."
- What to do, asks Mr. Palen, with higher input costs and tight margins for virtually all crops, when key support programs are being downsized (carbon reduction practices, tax credits, export assistance programs...)
- And what to make of USAid dismantling when the agency used to buy $2 billion of American farm products for distribution worldwide
What could be done indeed...
- when European countries remain determined to protect their own farmers and stringent sanitary regulations supported by the general public
- when America delivers generous support to its farmers, sometimes going to extreme price support, as for cotton growers
Supply chains - a darkening outlook
If the stock market response, in China and in Europe, is to be believed, tariff wars are all about smoke and bombast, with manageable adjustments to international trade
Such a desirable outcome is probable if, to quote Richard Hofstadter, "relatively impersonal events are not treated in highly personal terms”, as they very well might be
More broadly, however, negotiations on tariffs may miscalculate the exposure of global supply chains to non-tariff frameworks
In part based on regulations, in part on shared understanding, with emotions running high, global supply chains, and globalization itself, may be in the line of fire
Supply chains could very well fragment along geopolitical divides - constraining their outreach in North America, in China and South East Asia, and in Europe
Slowly at first and then in a fire storm ....