Question

The US President Donald Trump and his advisors have repeatedly said that they intended to get rid of the US trade deficit.

Question 01: What are the main countries responsible for this trade deficit? Support your answer with numbers(Words 200)

Question 02: As of April 8th 2018, list the goods and the countries for which the US has decided to create new tariffs. For these goods, what are the amounts currently imported by the US? (Words 250)

Question 03: List the US goods for which China has decided to create new tariffs. For these goods, what are the amounts currently imported by China? (Words 200)

Question 04: Assume that the new tariffs will decrease both US exports to China and Chinese exports to the US by 30% (only for the targeted goods). Building on your answer on questions 1 to 4, what would be the impact of the new tariffs on the US-China trade deficit? Support your answer with numbers (Words 200)

Answer 1

What are the main countries responsible for this trade deficit?

It is well known that big-spending U.S. consumers are keeping the current economic boom going. But, by spending far more on imports than foreigners have spent on U.S. goods, they have also helped fuel economic growth abroad — and helped rack up a towering trade deficit with the rest of the world.

During the first seven years of the Clinton Administration, the United States racked up a cumulative $1.2 trillion in trade deficits with the rest of the world. And the fact that U.S. trade with just three countries — Mexico, China and Japan — is responsible for two-thirds of those deficits has emboldened anti-trade forces to criticize those countries.

Given the contentious debate in Congress over trade with China, it is widely assumed in the United States that the People’s Republic is the chief culprit. And, to be sure, trade with China has resulted in a cumulative deficit of $301 billion over the past seven years. But how big is that figure really, considering that China has a population of 1.2 billion? Is it even fair to compare the U.S. trade deficit with China to its trade deficit with Mexico, whose population is a comparatively meager 100 million?
If you crunch the numbers, each of the 1.3 billion Chinese have to swallow the “blame” for just $241 of the cumulative seven-year U.S. trade deficit. On average, that is less than $35 dollars per Chinese a year.

By comparison, if you break down the $425 billion cumulative trade deficit with Japan, the country with whom the United States runs the largest bilateral trade deficits, it works out to $3,100% for each of the 126 million Japanese. On a per-capita basis, then, the U.S. trade deficit with Japan is 14 times bigger than the deficit with China. By that math, each Japanese is 14 times more responsible for the towering U.S. trade deficit than each Chinese.

Back when the U.S. Congress ratified the North American Trade Agreement in 1994, trade opponents tried to vilify Mexicans as the greatest threat to U.S. manufacturing jobs. But since 1993, the U.S. trade deficit with Mexico (which was stimulated in part by Mexico’s 1994 devaluation of the peso, which made its exports cheaper for U.S. consumers) has totaled $83 billion.

That works out to $829 per Mexican — or four times higher than the amount of the trade deficit that each Chinese is statistically responsible for. But despite all the fuss about NAFTA, individual Mexicans are in no way as dangerous to the U.S. economy as the individual Japanese.If you do the math, each of the 1.3 billion Chinese have to shoulder the “blame” for just $241 of the cumulative seven-year trade deficit.

Who then is the big culprit in causing the U.S. trade deficit? Perhaps the Europeans? Not really. The 374 million inhabitants of the European Union, with whom the United States does manage to engage in frequent trade spats, are responsible for a rather small part of the U.S. trade deficit. The $123 billion deficit over the past seven years works out to just $329 per person — pretty much in the same league as the Chinese.

Believe it or not, but the big culprit is to the North of the United States. On a country-to-country basis, the United States conducts more trade with Canada than any other nation. During the years of the Clinton Administration, the United States has tallied up $129 billion in trade deficits with Canada. This overall number is similar to the deficit with the 15 EU countries. But, at 31 million, Canada has a population that is only one-twelfth the size of the EU. Thus, on a per-capita basis, Canadians are each responsible for $4,184 of the bilateral trade deficit.

No other country’s citizens can match that number — certainly not the Chinese. Yet, as Congress gets ready to decide the future course of U.S. trade relations with China, the scare tactics of anti-trade forces are far more likely to blame the Chinese instead of the Canadians.