The annual US Gross National Product increased to 17.3 trillion US dollars in 2017. In 2016, US exports and imports were 12.7% and 15.6% of US GDP respectively. A trade deficit (excess of imports over exports) will lead us to issue debt to finance the 2.9% GDP imbalance. A trade surplus would be a far more desirable “problem” to have.
Trade deficits are bad for our economy. When interest rates are low as they are today, debt service costs do little to constrict our budgetary choices. But when interest rates increase to higher levels, or when the US seems less creditworthy, the foreign countries who loaned us the money will be eager for us to return it. Depending on our budget disarray or financial priorities at that time, repayment could be inconvenient or even painful for us.
In 2016, exports of goods and services supported an estimated 10.7 million U.S. jobs. We do not want to disrupt the firms supporting those jobs. Instead we want to preserve the competitive advantages that make exports possible, and perhaps grow the advantages that could increase export-supported employment.
The White House has made some progress that encourages exports (e.g. reviving the Export-Import Bank), and although the Administration says it is willing to negotiate bilateral trade agreements, it has made little headway so far. One example of progress is market access for US export of rice to China. The US already participates in 19 bilateral trade agreements, but joining more could make sense.
The recent instances of progress in trade seem overwhelmed by an apparent distaste toward comprehensive agreements such as the Transatlantic Trade and Investment Partnership (TTIP) and the Trans Pacific Partnership (TPP). While neither agreement was perfect, a little more negotiation might have reached an acceptable deal. For example, despite the extra $3 trillion in US-EU trade that TTIP would shelter, the EU regarded GMO food crops as a nonstarter. The benefits of trade across all the other trade categories could easily make a TTIP-sans-foodstuffs agreement worthwhile. The TTIP’s estimated 5% GDP hike for the US should have been a compelling incentive to “make it work.”
China is eager to replace the US in the TPP as the anchor trading partner. If that happens, we will squander some of our influence in the Pacific rim, and we will abandon a GDP increase.
The US attempt to vigorously amend the North American Free Trade Agreement could unsettle our trade relationships with Canada and Mexico, both of which are major trade partners.
Ideally, we want terms of trade that will encourage our exports of manufactured goods and avoid below-cost dumping of exported goods by other nations.
We already have a significant surplus in our services trade, which includes other countries’ use of our intellectual property. We want trade partners to enforce reasonable protections against patent infringement, and against cybercrimes and privacy violations. We ask for limits on government subsidies to exporting firms, but we are mindful that the US provides subsidies to some of our exporters.
We also expect trade partners to shoulder some good-citizen requirements pertaining to environmental safeguards, decent wages for workers, and compliance with UN-sanctions against support for terrorism and country-level acts of aggression.
Trade is of immense value to our economy and to our workers. While we regard some principles as important in trade agreements, we must be pragmatic enough to negotiate hard, and to sometimes accept agreements that are less than perfect. The TTIP and TPP are examples of massive opportunities for our economy and workers. They are worth reengaging in negotiations and tolerating agreements containing minor flaws.