US trade deficits fears appear overblown as long as there is peace in the world
 AS US President Donald Trump has promised his political base of long-ignored working class men and their families to eliminate the job-robbing trade deficit, then something must be done whether it need be done or not.
Or so it seems. What is missed here is that Mr Trump's rebellious political base does not care about fixing the trade deficit if it is discovered by sources they trust that it does not matter after all.
But such sources cannot be those in the MAB, the media, academic, bureaucratic complex whose esoteric concerns have been gender inequality, income disparity, global warming and transgender washrooms, about which Trump's supporters do not care at all.
Trump supporters know the MABsters are committed to his downfall, so nothing they say is believed unless confirmed by Trump tweets, right-wing Fox News or like-minded media.
True, there are real something-must-be-done concerns about trade talks when military matters loom. One does not want, for example, to go to war with country that makes boots for one's army. And if such a conflict is contemplated then army boots had best be made at home.
But if war is not contemplated, beyond staff college speculations, then one hardly wants to maintain a costly boot making industry in years of peace.
While strategic considerations are compelling concerns when considering the ill effects of trade deficits, other downsides seem more and more theoretical.
Put simply, a trade deficit is created when a country imports more than it exports. Stripped of other factors, this means that the importing country would decrease growth of its gross domestic product (GDP) in direct proportion to the dollar volume of the imbalance created.
But real life is seldom if ever stripped of all other factors. That's why gross domestic product (GDP) has been replaced by the more comprehensive term gross national profit, or GNP, because it takes account major factors outside the counting what a country produces.
Items such as guest worker remittances and profits and losses of offshore commercial operations as well as development assistance funds are also counted. And while widening the net of consideration, even GDP does not begin to cover all contributing factors involved in trade deficits, to explain how they are created and what effect they have.
Moreover, traditional ways of measuring economic health, such as GDP and trade statistics, have difficulty accounting for the rapid growth of the digital economy and the new types of jobs it creates.
Of course, Americans must face the fact that China accounts for 30 per cent of the US trade deficit. This structural deficit has allowed a dependency to develop for particular imported goods and services. It is said that depending on types of imported goods and services, the trade deficit dependency could impact political and economic relations between the two countries.
While this still remains a coulda, woulda, shoulda, the risk is rising given China's military build up in Africa and the South China Sea, rising authoritarianism, and greater interference with Hong Kong and with more pressure on Taiwan to comply with economic integration measures.
Americans, being savings averse and avid import consumers have created the trade deficit, which has made foreign producers dependent on US markets.
It is said that the heavy US reliance on imports and the erosion of domestic manufacturing capacity exposes the US to global economic disruptions. These economic security concerns are amplified by the role of China's financial leverage over the US economy.
Such are the concerns of deficit hawks like Thomas Palley, former chief economist of the US-China Economic and Security Review Commission, a US Congressional watchdog agency guarding against negative strategic implications arising from trade with China.
To fix it, he says: "China must significantly revalue. Chinese co-operation is key because other East Asian countries will not revalue unless China does."
These countries fear that if they revalue and China does not, Chinese exports will simply replace theirs, Mr Palley said.
"Additionally, permanent exchange rate coordination is needed to void incentives for countries to devalue to gain competitive advantage. New policies should promote domestic demand-led growth in developing countries instead of export-led growth. This can raise global growth, stimulate US exports and reduce the US trade deficit," he said.
Less convincingly, Mr Palley, also a former trade union federation official with the AFL-CIO, adds: "It will also establish more balanced global growth in which all countries' exports and imports grow together."
Mr Palley speaks of the good old days before the 1992 North American Free Trade Agreement (NAFTA) when US trade deficits were small. Today, he sees the solution in a reduction in market influence on currency value and greater level of state management of exchange rates.
Others disagree, and say trade deficits have been unfairly blamed, are not a real problem. That's because a larger trade deficits can be the result of a stronger economy, as consumers spend and import more while higher interest rates make foreign investors more eager to place their money in the United States.
Former US President Barack Obama's US Trade Representative Michael Froman, a deficit dove, says the narrow focus on trade in goods disregards the surplus in services. The role played by the US economy in providing liquidity to the global economy and driving demand around the world makes a trade deficit central to global economic stability.
There is the obvious point that trade boosts the overall economy by lowering prices and increasing productivity. Rather than protecting failing industries, it is argued that policy should focus on giving people the skills to compete and flourish in an ever-changing world, Mr Froman said.
Agreeing, James McBride, writing in the Council for Foreign Relations (CFR) Backgrounder, said: "Blocking imports simply raises the value of the dollar and causes exports to fall as well, leaving the deficit unchanged while reducing overall trade, making the country poorer.
"There are many failed attempts to use protectionist policies to close trade deficits. So far, there is no correlation between trade deficits and overall unemployment, suggesting that even though imports threaten jobs in one sector, jobs are created in another," he said.
Instead, Peterson Institute economist Gary Clyde Hufbauer said that it is better to recognise that the trade deficit is neither good nor bad, but rather consists of trade-offs: the US economy benefits from foreign goods and investment even as a high deficit displaces some workers and adds to the national debt.
Giving American deficit hawks their due, it seems that the uncertainty surrounding the US-China relationship, and Beijing's ability to leverage its position in ways contrary to US interests, appears to be a national security risk for the US, they say.
But as time goes on and Sino-American tensions subside, the trade deficit will soon likely rank in importance with transgender washrooms in the minds of Trump's hawkish base.
In all likelihood, the Pavlovian dogs of and the media, academic, bureaucratic complex will consider the trade deficit unimportant as long as the US president thinks otherwise. But will consider it vital, and a matter of criminal negligence, if he abandons it as a concern and agrees with their current position. |
