Behind the president’s decision Donald Trump to reach some of the largest trading partners in the United States with rigid rates It is fixed in the commercial deficit that the US has with other nations. But many economists say this is a bad metric to judge the quality of a business relationship.
High tariffs, which came into force in Almost 60 business partners last week [mas ganharam um alívio temporário pelo presidente ontem]they were calculated based on bilateral commercial deficits, or the difference between what the United States sells to each country and what they buy.
Trump has long seen this gap as evidence that America is being “stolen” by other countries. He argues that the unfair behavior of other nations has made trade so distorted and that the United States need to be able to manufacture more than they consume. With his newest round of tariffs, the president stated that the US commercial deficit was a national emergency, giving him the power to impose tariffs immediately.
But economists argue that this is a failure to address the issue, as bilateral commercial deficits arise for many reasons beyond unfair practices.
“It’s totally foolish. There is no other way to say that. It makes no sense”
Some economists agree with the Trump government that the US general commercial deficit with the rest of the world reflects a problem for the US economy, because they are very dependent on manufacturing elsewhere, including China.
The US commercial deficit reached a record of $ 1.2 trillion last year, with the increase in imports. But others do not see this as a problem. And almost all economists say that Focusing on country imbalances to country can be highly misleading.
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Last year, for example, the United States had bilateral commercial surpluses with 116 countries worldwide. And commercial deficits with 114 countries, according to World Bank data.
Looking at the Commercial Flow
Often, these relationships only follow the flow of commerce, without suggesting much about the commercial practices of a country in general. Matthew Klein, who writes about economics for The Overshoot, points out that the United States has a commercial surplus with Australia because they send many machines, transportation equipment and chemicals.
Australia has a commercial surplus with China, sending it ore of iron, natural gas and gold. And China has a commercial surplus with the United States, sending it parts of cars, electronics and batteries.
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The United States also have substantial commercial surpluses with the Netherlands and Singapore, Klein pointed out. But this is not because the Dutch and Singapurians consume much more American products than other nations.
It is because these countries houses large ports that import American products. The Netherlands unloads US goods on its ports and sends them throughout Europe to other consumers, while Singapore does something similar to Asia. But the trade balance is calculated based on the country where good arrives first, not in its final destination.
Economists have also criticized Trump’s fares for aiming at all the outskirts of foreign trade indiscriminately, regardless of how strategic is the good for the United States or even if the country can actually manufacture it.
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Trump’s focus on bilateral commercial deficits means that even close allies, such as Canada, Mexico and Europe, are considered enemies when it comes to trade because they sell the United States more than they buy.
Switzerland also ended up with high rates, partly because the country exports a lot of gold to the United States, as well as small Lesoto, where the annual average income is $ 3,500. Lesoto received preferential business treatment under the legislation approved in 2000 and now manufactures jeans for Americans.
Simplistic calculation
Trump fares are calculated by a simple formula, which comes down to dividing the commercial deficit that the US manages with each country by the value of the goods that the US imports from it. This formula means that until US imports and exports to all countries are balanced, other countries will face additional tariffs, regardless of whether the country provides advanced technology, toys, cocoa or corn technology to the United States.
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The calculation ignores the idea that some countries may be better in the manufacture of certain products than others, or that imports of certain products can benefit Americans. It also excludes data on any services trade – such as financial services, tourism and education – which is the segment of the economy in which most Americans work.
Mary Lovely, senior researcher at the Peterson Institute of International Economics, said the formula “gives a science shine to what is essentially an invented approach.” The formula makes several extremely unrealistic assumptions, she says, including US consumer demand responds similarly to all imports.
This answer “cannot be the same for all products in all countries,” she said. “How will the US offer respond to the highest rates on cocoa and the natural rubbish of Ivory Coast? Just as it responds to higher machines in European machines?, Asks.
Trump’s advisers defended their methodology. Stephen Miran, chairman of the White House Economic Advisers, said in an interview that the president was “clear for decades that he thinks bilateral commercial deficits are a big problem for Americans.”
Miran argued that the commercial deficit could be a “proxy for all economic policies that cause persistent commercial deficits.” The Trump government has made a lot of analysis of the situation, he said, and the president decided that the approach “was the fairer way for US workers.”
In testimony to Congress on Wednesday, Jamieson Greer, a US commercial representative, pointed to discriminatory policies in places such as European Union, Brazil and India that resulted in growing commercial deficits. He said the US commercial deficit was “driven by these non -reciprocal conditions” and called it “a manifestation of the loss of the nation’s ability to do, grow and build.”
“It’s dangerous, and the president recognizes the urgency of the moment,” said Greer.
The government also seems to see a focus on bilateral commercial deficits as a way of understanding the fact that China’s products seem to have been sent by other countries to the United States. After Trump imposed tariffs on China in his first term, many factories moved outside China to avoid tariffs, but continued to depend on pieces, raw materials and Chinese technology.
With Trump’s new tariff formula, countries that were the destination of these factories and had their commercial surpluses with the United States fired in recent years will be hard hit.
The Trump government is probably certain that in some cases barriers to trade that foreign countries have established the amount of the United States exports to these places and exacerbated commercial deficits.
And many countries, particularly in Asia, have subsidized their manufacturing industries in ways that allow them to sell goods at much lower prices, making US production of the same anti -economic products and causing US commercial deficits to these countries to increase.
Wrong problem?
Michael Pettis, professor of finance at the University of Beijing, who studies the subject, said that new tariffs can redirect how trade moves through certain countries, but still do not do much to change the size of the general commercial deficit that the United States has with the world. “They are focusing on the wrong problem, bilateral deficits,” said Pettis.
Pettis sees the general commercial deficit that the United States has with the world as a problem for the US economy, because it means that US consumer demand for goods sustains manufacturing activity elsewhere, such as China, not in the United States.
But he insists that the commercial imbalances that the United States has individually with other countries do not always reflect this problem, and that tariffs will not necessarily do much to correct it.
In his opinion, government policies in places such as China, Germany, South Korea and Taiwan are generating large commercial surpluses. Since every commercial surplus needs a deficit to balance it, it ends up inflating the US commercial deficit. Without greater economic changes in China and other countries, these problems will still persist, he argues. “There is a serious problem,” he said. “We are not seeing the best solution to this problem.”
Other economists still dispute the idea that having a general commercial deficit with the rest of the world is a problem for the United States. Other factors, such as US government spending and investment flows, are the leading driver of the US commercial deficit, not the demand for goods, argue. And they say that if Trump’s rates reduce the general commercial deficit, it is more likely because they sank the US economy or pushed out investors from the United States, undermining the world’s confidence in the US dollar and its markets.
Rodrik, the Harvard economist, said there was “absolutely no relationship between a country’s commercial deficit and his performance.” He stressed that both Venezuela and Russia have commercial surpluses. “The United States really want to be a Venezuela or a Russia?”
This article was originally published in The New York Times.
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