𝗧𝗿𝘂𝗺𝗽’𝘀 𝗕𝗹𝘂𝗻𝘁 𝗙𝗼𝗿𝗰𝗲 𝗦𝘁𝘂𝗽𝗶𝗱𝗶𝘁𝘆: 𝗣𝗮𝗿𝘁 𝟯

A🧡479-word💛under💚2.5-minute💙read

𝗔 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝘆 𝗕𝗮𝘀𝗲𝗱 𝗼𝗻 𝗮 𝗙𝗮𝗹𝘀𝗲 𝗣𝗿𝗲𝗺𝗶𝘀𝗲 𝗠𝗮𝗸𝗲𝘀 𝗟𝗶𝘁𝘁𝗹𝗲 𝗦𝗲𝗻𝘀𝗲

Trade deficits are bad and the result of unfair trade practices. That’s President Trump’s rationale to justify his long-held desire to impose tariffs.

Let me repeat: Used effectively, and surgically, tariffs could deliver greater trade equity for the United States. What they can’t deliver is the elimination of trade deficits.

The data tells the story.

The data used in this analysis was pulled from various sources including the IMF, World Bank Group, CEIC Data, Wikipedia, Macrotrends, and Worldometer. The only vetting conducted was to compare the various sources for consistency. There were variances, and in some cases the years were slightly different. Thus, the numbers presented should be viewed as ballpark versus exact, but it doesn’t alter the conclusion.

𝗧𝗵𝗲𝗨𝗦𝗧𝗿𝗮𝗱𝗲𝗗𝗲𝗳𝗶𝗰𝗶𝘁

Ten countries account for a total US trade deficit of about $1.2 trillion. We run a trade surplus of about $80 billion with three countries – the UK, Australia and the Netherlands – making our net trade deficit around $1.1 trillion.

China and the EU account for 45% of the total. Four countries - China, the EU, Mexico, and Vietnam - account for almost 70% of the total.

𝗚𝗗𝗣

Only China and the EU rival the US in terms of percentage of worldwide GDP. Depending on the numbers used, the US accounts for 26 - 29 % of worldwide GDP, China is 17 - 18%, and the EU 17.5 - 19%. The total GDP as of a percentage of worldwide GDP for the other eight countries that we have a trade deficit with 14-15%.

That means the US economy is 27 - 40% larger than either China’s or the EU’s, and almost twice as large as the remaining eight countries combined.

GDP directly translate into spending, and the ability to spend directly translates into trade balances.

𝗘𝘅𝗽𝗲𝗻𝗱𝗶𝘁𝘂𝗿𝗲𝘀

Average household expenditures per capita in the US is in the range of $39k - $44k. The EU is next highest in the $18k range. The EU’s combined population is about 30% greater than the US. However, its household expenditures are less than half of the US, making its buying power approximately 40% lower than that of the U.S.

China’s average household spending is only about $7,000, but that’s misleading. China has around 200 million people who earn more than $100,000. In the U.S. that number is about 100 million. Thus, collectively, China’s wealthy have as much or more power than the U.S.

As for the remaining eight countries, their combined buying power is about 14% of the U.S.  These countries could never “buy” their way to trade neutrality. The only way to achieve neutrality is for the US to stop importing their products.

𝗧𝗵𝗲 𝗯𝗼𝘁𝘁𝗼𝗺 𝗹𝗶𝗻𝗲: The entire focus should be on China and the EU.

We’ll wrap up this discussion tomorrow

#tariffs #gdp #tradedeficit #spending