Trade deficits

Details on the trade environment

I try to play it straight down the middle with you, dear readers. I call balls and strikes. I do not hate Trump and I do not worship him. I voted for him three times, but I will speak up on the occasions that some policy of his does not make sense. That was the case when Trump’s envoy Stephen Witkoff burst in on Israeli Prime Minister Benjamin Netanyahu’s Sabbath and demanded the release of hundreds of terrorist murderers in exchange for a few (not all) of the Israeli hostages held by Hamas.

It is the case as well with the Trump tariff policies. My friend Bob Zeidman has been sharing his own take on the topic at his Substack.

I support the protectionist motivation behind the Trump tariffs more than Bob, but I still find the implementation a bit irrational.

The following map shows the United States’ trade balance with other countries, not adjusted for GDP or population. Green represents a trade surplus for America; yellow is neutral; and red is a trade deficit.

China, Mexico, and Vietnam are responsible for the largest trade deficits, as discussed below. But I am more interested in the green end of the spectrum. For example, America has a $55 billion trade surplus with the Netherlands. Why should they be subject to any tariff? Our trade surplus is almost $22 billion with Hong Kong; over $19 billion with the United Arab Emirates; almost $18 billion with Australia; and so on. Why would we want to punish these countries for buying our stuff? Those governments might start thinking about cutting us off.

The following chart puts the trade deficits into context.

If the whole EU were put into one pie wedge, it would be substantial, but this is how the data looks from the US Census Bureau. Clearly only a few countries are causing the biggest problems.

Now we must consider the most important question: what is the goal of the tariffs? These are not reciprocal tariffs as they are described by the administration. If they were, we would match the tariff rate of the other country. Israel has zero tariffs on American imports, so a reciprocal tariff by America should also be zero. Instead, it was announced to be 17% (now 10% under the 90-day pause).

Is the goal to reduce the global trade deficit of America to zero, or the trade deficit with each country to zero? Will we forego our trade surpluses with many countries, reciprocally?

Look at the three countries causing the largest trade deficits for America: China, Mexico, and Vietnam. Their income levels are much lower. I don’t see their poor farmers being able to buy expensive finished goods from America.

Many years ago, George Will mentioned that he ran a trade deficit with his barber. This gibe communicated that Will did not care about trade deficits, because he got something valuable in return for his money. In return, the barber had little use for Will’s columns, but both parties were satisfied with the trade: money for haircuts.

It would be something else, however, if Will were sending his money overseas for a good or service that was being manufactured locally, thus undermining the health and wealth of his own society. If the tariffs are meant to rebuild American industries devastated by 32 years of globalization (NAFTA and WTO), that is a goal I would support. It is a national security imperative to keep critical manufacturing resources at home.

I have not been able to figure out how the Trump tariffs, which target friend and foe alike, are supposed to accomplish that goal. I hope that someone like Peter Navarro, or even you, can make the case a little clearer to people like me.