Trade

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Check out our content series (slide decks, articles and videos) addressing the key issues in the trade debate.

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Does a trade deficit mean the US is being cheated?

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If trade deficits are so bad, why does the most prosperous major economy in the world, the US, have one?
If trade deficits are so bad, why does the most prosperous major economy in the world, the US, have one?
If trade deficits are so bad, why do 4 of the 7 (G7) most prosperous major economies have them?
If trade deficits are so bad, why do 4 of the 7 (G7) most prosperous major economies have them?
If trade deficits are so bad, why are advanced, prosperous economies more likely to have them than not?
If trade deficits are so bad, why are advanced, prosperous economies more likely to have them than not?
If trade deficits are so bad, why do they rise during economic good times and fall during recessions?
If trade deficits are so bad, why do they rise during economic good times and fall during recessions?
Deficits and Economic Success-4 Charts
Trade deficits like strikeouts-0
Trade deficits like strikeouts-1
Trade deficits like strikeouts-2
Trade deficits like strikeouts-3.v2
Trade deficits like strikeouts-4B
Trade deficits like strikeouts-5B
The point is that perhaps we should consider whether spending, not trade practices, is the cause of the US trade deficit.
The point is that perhaps we should consider whether spending, not trade practices, is the cause of the US trade deficit.
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A good place to start to evaluate spending is comparing the US to Germany.
A good place to start to evaluate spending is comparing the US to Germany.
The US and Germany have so much in common in terms of technology leadership and global competitiveness. Yet...
The US and Germany have so much in common in terms of technology leadership and global competitiveness. Yet...
...one big difference. Germany generally has a large trade surplus while the US has a trade deficit.
...one big difference. Germany generally has a large trade surplus while the US has a trade deficit.
True the US has lower overall tariffs than the EU, but the difference is fairly small.
True the US has lower overall tariffs than the EU, but the difference is fairly small.
The EU does have a significant auto tariff, but the US truck tariff is even higher.
The EU does have a significant auto tariff, but the US truck tariff is even higher.
Germany is competitive in many areas, but can't compare to the US in high tech.
Germany is competitive in many areas, but can't compare to the US in high tech.
The high tech difference is one reason why the US stock market is valued so much higher than Germany's.
The high tech difference is one reason why the US stock market is valued so much higher than Germany's.
Another big difference is savings. Those frugal Germans save significantly more than Americans.
Another big difference is savings. Those frugal Germans save significantly more than Americans.
That German frugality extends to debt, as Germany also borrows less than America.
That German frugality extends to debt, as Germany also borrows less than America.
Which leads to this huge difference--the US SPENDS way more than Germany, a 15% gap most recently.
Which leads to this huge difference--the US SPENDS way more than Germany, a 15% gap most recently.
The spending differences accounts for the entire balance of trade difference.
The spending differences accounts for the entire balance of trade difference.
It is hard to conclude that unfair trade practices, not spending, are the cause of the US trade deficit with Germany.
It is hard to conclude that unfair trade practices, not spending, are the cause of the US trade deficit with Germany.
Due to both political risk and economic cost, oil imports were considered a burden on the US for decades.
Due to both political risk and economic cost, oil imports were considered a burden on the US for decades.
The huge increase in US domestic production was a great accomplishment for the US.
The huge increase in US domestic production was a great accomplishment for the US.
As one would expect, oil imports fell significantly.
As one would expect, oil imports fell significantly.
This is what would have happened to the US trade deficit if lower oil imports translated directly into import saving.
This is what would have happened to the US trade deficit if lower oil imports translated directly into import saving.
Instead, the US trade deficit actually increased as the US spent that oil money on other items.
Instead, the US trade deficit actually increased as the US spent that oil money on other items.
Mostly the US bought more cars and electronics, showing that persistent spending is the driving force behind the trade deficit.
Mostly the US bought more cars and electronics, showing that persistent spending is the driving force behind the trade deficit.
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Does the trade deficit mean China is ripping off the US?

President Trump has called the US trade relationship with China the greatest heist in history.  What do the facts say?  Most people don’t have the time to study such facts so in this content series (slide decks, articles and a video) we provide the essentials in a convenient, easy-to-understand format.  

Imports and exports tend to move in tandem over the long term.
Imports and exports tend to move in tandem over the long term.
This has continued even after the US imposed tariffs on China.
This has continued even after the US imposed tariffs on China.
The China tariffs didn’t impact America’s total imports that much…
The China tariffs didn’t impact America’s total imports that much…
Mainly because US imports from other low cost countries increased.
Mainly because US imports from other low cost countries increased.
Deficits and Economic Success-4 Charts
Tariff Impact on US Importsf-4 Charts
China impact on US Trade-1
China impact on US Trade-2
China impact on US Trade-3
China impact on US Trade-4
China impact on US Trade-5
China impact on US Trade-6
China impact on US Trade-7
China impact on US Trade-8
A useful approach to understanding China’s trade is to compare it to other emerging markets, like India.
A useful approach to understanding China’s trade is to compare it to other emerging markets, like India.
China’s economy has outperformed India’s by a wide margin over the last 4 decades. No one would dispute that.
China’s economy has outperformed India’s by a wide margin over the last 4 decades. No one would dispute that.
China outgrew India because of exports, which is typical of high growth emerging markets.
China outgrew India because of exports, which is typical of high growth emerging markets.
Also typical of emerging markets, China’s currency remained low for a long while, then rose as its own assets grew due to economic success.
Also typical of emerging markets, China’s currency remained low for a long while, then rose as its own assets grew due to economic success.
Export and economic growth also led to higher wages as wealth and productivity in China grew.
Export and economic growth also led to higher wages as wealth and productivity in China grew.
Yet rising costs (currency and wages) caused China's export to level off, not collapse, typical of emerging markets.
Yet rising costs (currency and wages) caused China's export to level off, not collapse, typical of emerging markets.
The export mix also changed, with low value products falling and higher value products rising. Again, this is typical of emerging markets as they grow.
The export mix also changed, with low value products falling and higher value products rising. Again, this is typical of emerging markets as they grow.
So let’s take a minute to summarize what all of these stats mean.
So let’s take a minute to summarize what all of these stats mean.
If we consider the major trends relative to China’s exports, imports, GDP, wages, currency, etc.
If we consider the major trends relative to China’s exports, imports, GDP, wages, currency, etc.
We can see that China’s growth looks like a typical emerging market.
We can see that China’s growth looks like a typical emerging market.
Recall, we already said that tariffs on China didn’t really change the US trade balance.
Recall, we already said that tariffs on China didn’t really change the US trade balance.
Which is just further indication that the US trade deficit with China is not necessarily a result of China “cheating.”
Which is just further indication that the US trade deficit with China is not necessarily a result of China “cheating.”
Of course, that doesn’t mean China doesn’t cheat. It does. It just means we need to look beyond the deficit for the impact.
Of course, that doesn’t mean China doesn’t cheat. It does. It just means we need to look beyond the deficit for the impact.
Citizens of poor countries tend to be high savers, which is certainly true in China.
Citizens of poor countries tend to be high savers, which is certainly true in China.
It is important to remember that, despite much progress, China is still a relatively poor country, with much lower incomes than in the US.
It is important to remember that, despite much progress, China is still a relatively poor country, with much lower incomes than in the US.
Low income and high savings means less spending and lower imports.
Low income and high savings means less spending and lower imports.
We'd like to make one more point, going back to our China v. India comparison.
We'd like to make one more point, going back to our China v. India comparison.
Because India never grew, it has a trade deficit, not a trade surplus. That’s good, right?
Because India never grew, it has a trade deficit, not a trade surplus. That’s good, right?
China’s economy has outperformed India’s by a wide margin over the last 4 decades. No one would dispute that.
China’s economy has outperformed India’s by a wide margin over the last 4 decades. No one would dispute that.
US Trade Deficit.Total and China.1992-2019.Captions.v2
If China didn't grow, we wouldn't be so focused on China.
If China didn't grow, we wouldn't be so focused on China.
A little background knowledge goes a long way with a place like China.
A little background knowledge goes a long way with a place like China.
Critical to understanding China is the reform program that caused the growth in the first place.
Critical to understanding China is the reform program that caused the growth in the first place.
China has actually become a great example that the free market does work.
China has actually become a great example that the free market does work.
The transition to the free market has made much progress in China. But there is still much left to reform.
The transition to the free market has made much progress in China. But there is still much left to reform.
As an aside we'll mention that, in all the debate about China, sometimes the most important points get lost.
As an aside we'll mention that, in all the debate about China, sometimes the most important points get lost.
Once you understand China's gradual reform program, it is easier to understand how some sectors are more liberalized than others.
Once you understand China's gradual reform program, it is easier to understand how some sectors are more liberalized than others.
As China climbs the value curve, it becomes more competitive. Trade rules need to keep up with the change.
As China climbs the value curve, it becomes more competitive. Trade rules need to keep up with the change.
Rising incomes and capabilities also transform an emerging economy into a more important market, which makes trade rules more important.
Rising incomes and capabilities also transform an emerging economy into a more important market, which makes trade rules more important.
If China had continued with reform, its economy would be in better shape and the trade conflict might have been avoided.
If China had continued with reform, its economy would be in better shape and the trade conflict might have been avoided.
How China Cheats Recap-1
How China Cheats Recap-2
This chart summarizes how to find China's unfair trade practices.
This chart summarizes how to find China's unfair trade practices.
This chart summarizes the main point--as China has evolved, so must the rules of economic engagement.
This chart summarizes the main point--as China has evolved, so must the rules of economic engagement.
We close with a brief description of the main trade practices China needs to address.
We close with a brief description of the main trade practices China needs to address.

Did China steal manufacturing jobs from the US?

A common refrain amongst the criticism of China is that it caused the loss of US manufacturing jobs.  What do the facts say?  Most people don’t have the time to study such facts so in this content series (slide decks, articles and a video) we provide the essentials in a convenient, easy-to-understand format.  

The question is whether unfair trade practices are to blame for the trends above.
The question is whether unfair trade practices are to blame for the trends above.
Farm employment has fallen dramatically in the US as the economy evolved, from agrarian to industrial and beyond.
Farm employment has fallen dramatically in the US as the economy evolved, from agrarian to industrial and beyond.
A similar trend is occurring with manufacturing as the economy evolves from industrial to service and information.
A similar trend is occurring with manufacturing as the economy evolves from industrial to service and information.
From 1950-80, service jobs outgrew manufacturing jobs by 10 to 1, a huge swing away from manufacturing.
From 1950-80, service jobs outgrew manufacturing jobs by 10 to 1, a huge swing away from manufacturing.
Mfg. jobs actually peaked in 1980, falling by 2 MM from 1980-2000. From 1950-2000, service outgrew mfg. by 40 to 1.
Mfg. jobs actually peaked in 1980, falling by 2 MM from 1980-2000. From 1950-2000, service outgrew mfg. by 40 to 1.
As a portion of GDP, services overcame manufacturing prior to the 1950's, and really began pulling away in the 1980's.
As a portion of GDP, services overcame manufacturing prior to the 1950's, and really began pulling away in the 1980's.
In terms of employment, notice how flat the manufacturing line is since 1950, particularly as compared to services.
In terms of employment, notice how flat the manufacturing line is since 1950, particularly as compared to services.
Whatever is happening to manufacturing jobs, it began a long, long time ago, well before China became a major factor.
Whatever is happening to manufacturing jobs, it began a long, long time ago, well before China became a major factor.
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The trend in declining manufacturing jobs holds for all advanced economies.
The trend in declining manufacturing jobs holds for all advanced economies.
Keep in mind, Germany and Japan both have trade surpluses.
Keep in mind, Germany and Japan both have trade surpluses.
Both countries are still losing mfg. jobs. But does trade help them keep more jobs than the US.
Both countries are still losing mfg. jobs. But does trade help them keep more jobs than the US.
Actually, their job losses have been greater than the US since 1990.
Actually, their job losses have been greater than the US since 1990.
Birth and border control (i.e., population) explain the difference, not trade policy.
Birth and border control (i.e., population) explain the difference, not trade policy.
While no one can deny the long term decline in manufacturing jobs, the debate centers on the cause: Tech or Trade.
While no one can deny the long term decline in manufacturing jobs, the debate centers on the cause: Tech or Trade.
Germany and Japan are losing manufacturing jobs just like (even faster than) the US, so it seems a trade surplus doesn't help.
Germany and Japan are losing manufacturing jobs just like (even faster than) the US, so it seems a trade surplus doesn't help.
To make the case that trade causes job losses, there is no better example than the apparel industry.
To make the case that trade causes job losses, there is no better example than the apparel industry.
Apparel production has plummeted since at least 1990 while imports have soared.
Apparel production has plummeted since at least 1990 while imports have soared.
Not surprisingly, employment plummeted along with production, both down 80% over the last three decades.
Not surprisingly, employment plummeted along with production, both down 80% over the last three decades.
Leather, a related industry, has seen the same pattern. Trade replacing jobs. No question.
Leather, a related industry, has seen the same pattern. Trade replacing jobs. No question.
But not every industry is like apparel. Steel is useful because we can analyze based on tons produced, eliminating the trade impact.
But not every industry is like apparel. Steel is useful because we can analyze based on tons produced, eliminating the trade impact.
Production is down modestly since the 1960's, but employment is way down. No doubt this is due tech, trade.
Production is down modestly since the 1960's, but employment is way down. No doubt this is due tech, trade.
Most industries are difficult to measure by "tons" . But there are quite a few industries for which trade plays a minor role, like food.
Most industries are difficult to measure by "tons" . But there are quite a few industries for which trade plays a minor role, like food.
TRADE IS NOT A FACTOR. For these industries, either trade is a minor factor or the US has a surplus.
TRADE IS NOT A FACTOR. For these industries, either trade is a minor factor or the US has a surplus.
Nominal production in paper is up 50% over 3 decades--not robust, but at least not negative. Yet employment is down 44%, a huge drop.
Nominal production in paper is up 50% over 3 decades--not robust, but at least not negative. Yet employment is down 44%, a huge drop.
Digitization is hurting the print industry, with nominal growth barely up at all. Yet employment is way down, cut by almost half.
Digitization is hurting the print industry, with nominal growth barely up at all. Yet employment is way down, cut by almost half.
Chemical production has almost tripled in the last three decades. Employment must have soared, right? Not exactly. Down 19%.
Chemical production has almost tripled in the last three decades. Employment must have soared, right? Not exactly. Down 19%.
Food is a bit more positive. But we need to double production to get a measely 8% more jobs. Hardly reason to celebrate.
Food is a bit more positive. But we need to double production to get a measely 8% more jobs. Hardly reason to celebrate.
Lastly, we have oil, a recent bright spot for the US. Doubling output in 5 years leads to a DECREASE in jobs. Not encouraging.
Lastly, we have oil, a recent bright spot for the US. Doubling output in 5 years leads to a DECREASE in jobs. Not encouraging.
Anyway you look at it, technlogy causes the majority of manufacturing job losses, not trade. Frankly, the higher estimates seem more reasonable.
Anyway you look at it, technlogy causes the majority of manufacturing job losses, not trade. Frankly, the higher estimates seem more reasonable.
Perhaps it is best to think of it this way. Manufacturing jobs began a relative decline more than 70 years ago.
Perhaps it is best to think of it this way. Manufacturing jobs began a relative decline more than 70 years ago.
They began to decline in absolute terms 40 years ago, twenty years before China became a factor.
They began to decline in absolute terms 40 years ago, twenty years before China became a factor.
This trend applies to all advanced economies.
This trend applies to all advanced economies.
It applies to virtually all manufacturing industries, those the struggling and the booming, the old and the new.
It applies to virtually all manufacturing industries, those the struggling and the booming, the old and the new.
A trend this broad, across decades, countries, and industries, is likely natural (the evolution of the economy) and difficult to reverse, especially with tariffs.
A trend this broad, across decades, countries, and industries, is likely natural (the evolution of the economy) and difficult to reverse, especially with tariffs.
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Whether due to tech or trade, there are good reasons why labor evolves and jobs are lost.
Whether due to tech or trade, there are good reasons why labor evolves and jobs are lost.
Apparel lost the most jobs and has the lowest wages. Chemicals is the opposite.
Apparel lost the most jobs and has the lowest wages. Chemicals is the opposite.
This pattern applies across all industries. Lower wage jobs are lost at a higher rate than high wages jobs.
This pattern applies across all industries. Lower wage jobs are lost at a higher rate than high wages jobs.
Forgive the repetition, this is another way to look at the same pattern--low wage jobs are being lost. This is expected for a growing, evolving economy.
Forgive the repetition, this is another way to look at the same pattern--low wage jobs are being lost. This is expected for a growing, evolving economy.
Are companies making fatter profits by sourcing overseas? That's not what the data shows as profit margins have not risen.
Are companies making fatter profits by sourcing overseas? That's not what the data shows as profit margins have not risen.
As opposed to padding profits, it seems clear lower costs are passed on to consumers as companies strive to be competitive.
As opposed to padding profits, it seems clear lower costs are passed on to consumers as companies strive to be competitive.
It isn't just jobs that are lost. 70% of companies fail in the first 5 years, and industry titans are swept aside as an economy evolves.
It isn't just jobs that are lost. 70% of companies fail in the first 5 years, and industry titans are swept aside as an economy evolves.
It is the "Process of Progress." Lower costs, via tech or trade, means more investment in new technology and industries.
It is the "Process of Progress." Lower costs, via tech or trade, means more investment in new technology and industries.
This fuels the R&D, new investment, and other factors necessary to produce the growth and progress that makes life better.
This fuels the R&D, new investment, and other factors necessary to produce the growth and progress that makes life better.
We should remember that progress is actually quite rare, no doubt because it is quite difficult.
We should remember that progress is actually quite rare, no doubt because it is quite difficult.
Without progress, life is grim, as it is for most of the world.
Without progress, life is grim, as it is for most of the world.
In a country like America, progress has improved people's lives in countless ways.
In a country like America, progress has improved people's lives in countless ways.
We should be careful when we tamper with the factors that drive progress.
We should be careful when we tamper with the factors that drive progress.
We would likely end up with less of the benefits of progress.
We would likely end up with less of the benefits of progress.
Better if we find a way to create jobs...
Better if we find a way to create jobs...
while supporing progress, not impeding it.
while supporing progress, not impeding it.
China's population is almost 5X the US. No wonder the impact was so large.
China's population is almost 5X the US. No wonder the impact was so large.
Viewed over the short term, China's rising exports certainly coincided with a precipitous drop in US manufacturing employment.
Viewed over the short term, China's rising exports certainly coincided with a precipitous drop in US manufacturing employment.
But viewed over the longer term, China didn't change the trend, but it did accelerate it.
But viewed over the longer term, China didn't change the trend, but it did accelerate it.
No doubt China's enormous size is the reason the trend accelerated.
No doubt China's enormous size is the reason the trend accelerated.
China's size means more potential workers and factories which led to a greater global impact, including on manufacturing jobs.
China's size means more potential workers and factories which led to a greater global impact, including on manufacturing jobs.
The broad trend couldn't be reversed but the US could have done more to ease the transition. That was a regrettable mistake.
The broad trend couldn't be reversed but the US could have done more to ease the transition. That was a regrettable mistake.
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