Do the secretaries of Treasury and Commerce know what they are talking about? Much of this I gleaned from a college economics textbook that I picked up at a used bookstore for $3. Tell me where I am wrong. By the end of this essay you will know why Treasury and Commerce are at odds.
The difference between imports and exports doesn’t rip off any nation. What is a deficit in the international trading of goods? Colombia has a surplus of goods with America because we import so many flowers for Valentine’s Day. America has a deficit in goods with Canada because we import so much oil, hydroelectric power, and lumber. Does that mean Canada is ripping us off? NO! Net trade deficits equal a surplus of capital investment. Does it mean that any part of our $37 trillion national debt has been incurred because of trade deficits with dozens of important countries around the world? NO!
Why not, if we are buying more goods from Canada than Canada is buying from us? Does that mean that the nation is sending actual money to Canada that America has to borrow from somewhere? NO!
The secretaries don’t mention that there is also trade in services. America has a big surplus in services with many, if not most, nations. Chinese students come here by the hundreds of thousands (or did until the first trade war) to our most expensive elite universities to study subjects such as medicine, physics, computer science and everything else. Most of them pay the “sticker price.” On the other hand, some Americans go to Chinese universities to study Chinese. They do not go to China to learn science or much else. Chinese universities are greatly inferior to ours. This applies to most of the world. We have a huge surplus in provision of higher education.
What about legal services? American law firms have offices all around the world. Do law firms from other countries have offices in North Carolina? I’ve never seen or heard of one. There might be one or two. What about entertainment and technology? We have a huge surplus there. But that is not all.
What is foreign direct investment (FDI)? Companies all over the world want to buy land and buildings in America. They pay good money to American owners who want to take advantage. When a Japanese, Swiss, or Danish company wants to invest in a big manufacturing facility here everyone wants an invitation to the groundbreaking. It must be a wonderful thing. Gov. Roy Cooper was a master at taking credit for such events.
Foreign direct investment in America doesn’t just apply to corporations. Lots of foreigners want a second home here. They like lower taxes, freedom of speech, and less bribery. Many come for safety when their home country is in turmoil, politically or economically. America is a great place to keep your money for the same reason. The US dollar is the reserve currency for most of the world. These factors add up to make a deficit in trade an insignificant factor.
What about the April 2 Reciprocal Tariffs? As reported by the Committee to Unleash Prosperity in an article titles:
These tariffs aren’t “reciprocal”
That is not what the White House announced [April 2]. They put out a tariff schedule that assumed that every country’s trade deficit with the U.S. is the product of trade barriers.
“Tariffs are customized to each country,” an anonymous White House official explained “based on the concept that the trade deficit that we have with any given country is the sum of all the unfair trade practices, the sum of all cheating.”
Say what? It would be almost impossible for a smaller and poorer nation not to run a trade surplus with the U.S., considering how massive our consumer market is compared to theirs – so they get hit with the highest “reciprocal” tariffs.
Did you study in high school the triangular trade of the colonial era? England would send cheap manufactured goods to Africa. African slave traders would put African slaves on ships to bring to the Americas to work the sugar, tobacco and cotton plantations. The Americas would then send rum, cotton, and tobacco from the Americas to England.
There is no economic reason why trade should be balanced between any two countries. The flow of money, goods and services is a worldwide balance. America could have a significant deficit with one country which has a significant deficit with a second country that has a services deficit with America. These surpluses and deficits generally balance out in any given time. If not balanced, the value of the currency of that nation either increases or decreases in relation to other currencies. In some cases, there is a transfer of gold held by reserve banks in New York or London by moving some gold bars from one storage room to another.
I’ll be glad to send my old textbook on economics to Secretaries Ludnick and Berrent. I promised at the outset to explain why Commerce and Treasury are feuding. Treasury is looking for more tax money (a hidden national sales tax on American consumers). But Commerce is looking for job protection for Americans. These two goals are contrary to each other. If the tariffs work to protect American workers, they won’t raise much money. I predict that one of these cabinet secretaries will be out of a job before summer.
Will April 2 be a day remembered for liberation or recession? I cannot think of a single thing from which these tariffs will liberate us. I do see the prospect of an American economic recession. When America goes into recession it bleeds into the rest of the world.