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On September 17, President Donald Trump announced a new series of tariffs on $ 200 billion worth of Chinese products. This is the last salvo of an ongoing trade dispute with China and other US trading partners.
While tariffs and counter-tariffs affecting the agriculture and manufacturing industries are ahead of the mid-term elections, we decided to re-examine some of the basics of trade using five charts.
We will experience trade deficits, the changing US situation in the global trading arena, and the burgeoning trade war.
Deficit, surplus, goods and services
A trade deficit occurs when a country imports more than it exports. The balance may include manufactured goods, but it also includes services such as financial services, insurance, legal services, business advisory services and entertainment.
Trump continues to return to the goods deficit, as this subset of trade shows how much US manufacturing activity has been lost to foreign countries in recent years. The United States has dominated the service sector. Exports of services account for a smaller share of trade than goods, but have increased more rapidly.
The graph below shows the growing role of goods and the growing role of services, as well as the share of GDP that the deficit represents.
There is a political link here. Trump flourished in the Rust Belt states, hard hit by the property trade deficits, and got poor results in the coastal and metropolitan areas that benefited from the ramping up of services.
Economists told us that they did not think the deficits were as bad as Trump does. Some of the largest declines in trade deficits occurred in 2009, 2001 and 2002. These are also the years when the United States experienced a recession.
"The idea that it would be good to reduce trade deficits does not fit the economic story, because it usually coincides with recessions," said Daniel Anthony, vice president of the Trade Partnership. "The decline in imports is not causing a recession, but the weak economy is causing a drop in imports – and therefore trade deficits."
It's because when the economy is doing well, people buy things. Whether it is imported products or US-made products using imported materials, this increases the consumption of imports. On the other hand, when the economy suffers, people buy less and imports decline.
Global share of exports
Not all trade experts agree, but there are some possible explanations for why the US share of world exports has declined.
"One of the reasons why our share of global exports has declined is that we are a mature advanced economy with a lower GDP growth rate than emerging economies," said Mac Destler, a professor at the University of Toronto. Faculty of Public Policy of the University of Maryland.
Another is the value of the dollar. A much appreciated dollar is a disadvantage in world trade because it makes US exports less affordable.
From 2000 to 2005, the trade deficit grew rapidly, as illustrated above. This coincided with a high monetary value, which peaked in 2003. Robert Blecker, professor of economics at the American University, said the value impact on exports was lagged by two years and that
Meanwhile, China was manipulating its currency by fixing the value to the dollar until 2005, according to Mr Blecker. China is a significant factor, as trade with China accounts for about half of the US trade deficit.
"They were preventing their currency from going up and the dollar from falling, buying hundreds of billions of dollars a year to keep the dollar artificially high," Blecker said. "It was part of the way we got into this business in the first place."
The fact that China is still manipulating its currency is debatable. But there has been partial cooperation since 2005 and a rising yuan until 2017.
United States-China trade balance
The deficit with China in 1990 was $ 10.4 billion. According to the Census Bureau, it reached $ 83.8 billion in 2000 and reached $ 273 billion in 2010. It rose to $ 375.6 billion in 2017.
Experts do not exactly agree on the cause, but the basics are as follows.
After the Tiananmen Square massacre in 1989, Congress held an annual vote to determine whether Chinese products would be subject to higher tariffs than other countries. The vote was contingent on the progress of human rights, according to Edward Alden, a prominent member of the Council on Foreign Relations.
When China joined the World Trade Organization in 2001 under the presidency of George W. Bush, foreign investors were given the green light to build operations in China with the certainty that access to the US market would not be interrupted.
The resulting investment, associated with currency manipulation, has made China an exporting country, widening every year the gap.
Trade balance United States-Mexico
Although there is also a deficit with Mexico, the story is very different. Unlike China, Mexico (and the rest of North America) has a trade deficit with the rest of the world.
The North American Free Trade Agreement, which came into effect in 2004, assured investors that Mexico was also a safe bet. Combined with other incentives for foreign investors, Mexico's export market has grown.
But China has also hurt Mexico. Both were labor-intensive manufacturers in similar industries, so that when China arrived with much lower wages and an undervalued currency, Mexico was hit hard.
The only sector in which Mexico flourished was the automobile, which accounts for most of the trade deficit with the United States. According to Alden, the rise in Mexican wages is largely due to union bans. That is why the United States insists that wages be higher as part of the renegotiation of NAFTA.
As the chart shows, the gap between Mexico and the United States is significantly smaller than with China, with Mexico being a major importer of US goods. However, trade differences with some countries may be misleading.
This is because with a global supply chain, no goods are manufactured in one country and shipped to another. Imports from Mexico are therefore more like imports from China assembled in Mexico. Taking these factors into account widens the trade gap with China and narrows the gap with Mexico, Blecker said.
Prices
Customs duties are taxes on certain imports from another country and paid by the population of a country. They increase prices for manufacturers, which are passed on to customers or directly to customers. Other countries are retaliating by putting their own tariffs on US products sold in their own country.
Rates are generally relatively low and agreed through trade agreements or the World Trade Organization. They can be lifted when extreme commercial conditions arise, but they are usually triggered by an international judicial investigation.
Blecker said that for a president to apply unilateral tariffs to countries or products, this extreme is unprecedented. The Trump administration has used two flaws to achieve this, related to national security and unfair trade practices. The reprisals followed.
Trump sparked the dispute by imposing tariffs on solar panels and washing machines in January. He then taxed imports of steel and aluminum. American allies like Canada, Mexico and the European Union were trained and, in turn, fought back. But the main target of the tariffs was China. The first set of rates came into effect on July 6.
If Trump follows all of its proposed tariffs, Trump will have imposed taxes on almost all products from China.
While trade is a key principle of the Trump administration, many Republicans in Congress oppose its trade policy. House Speaker, Paul Ryan, R-Wis., Said, "There are better ways to help US workers and consumers" after Trump's steel and alumina tariffs in May.
Supporting or opposing tariffs has been a key issue in the race in the North Dakota Senate, where farmers are feeling the effects of the trade war. While Kevin Cramer, Republican challenger Heidi Heitkamp, criticized the tariffs as a long-term solution, he largely echoed Trump.
A sample of commercial claims, verified
PolitiFact followed a number of commercial demands during the election season.
In July, US Secretary of Agriculture Sonny Perdue said farmers, who would receive $ 12 billion in aid, were disproportionately hit by retaliatory tariffs.
Especially true. Although it is difficult to measure the impact of tariffs, the economy is putting agricultural producers under severe strain.
Trump attributed trade agreements to lower soybean prices, a trend that began in 2012.
Especially fake On the supply side, the weather is the most important factor, followed closely by more productive farming techniques. China is the largest buyer of US soybeans and does not have a trade agreement with the United States. It has a trade agreement with Mexico, where sales have gradually increased and capped in recent years.
Trump also blamed China for a $ 500 billion loss in trade.
Especially fake Overall, both in terms of goods and services, the US trade deficit with China in 2017 was about $ 336 billion, which means that Trump lost about 164 billions of dollars.
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