In today’s global economy, there is no issue more important to Americans’ financial well-being than foreign trade. But how much do you really know about it? Take the following test to find out! Then check out the answers that follow.
(The following questions are based upon 2006 trade data, the most recent year included in the data presented in Five Short Blasts.)
1. How large was America’s trade deficit in 2006?
a. about $100 billion.
b. about $250 billion.
c. about $500 billion.
d. about $750 billion
2. When was the last year that America had a trade surplus?
3. What is America’s cumulative trade deficit (adjusted for inflation) since we last had a trade surplus?
a. $500 billion
b. $1.1 trillion
c. $4.3 trillion
d. $7.6 trillion
e. $9.0 trillion
4. Low wages in foreign countries are often blamed for America’s trade deficit. Of our top twenty per capita trade deficits in manufactured goods (the trade deficit in manufactured goods divided by the size of the population of the country in question), how many are with nations with “Purchasing Power Parity” (essentially GDP per capita) of less than $20,000 per year?
5. Of those top twenty per capita trade deficits in manufactured goods, how many are with nations more densely populated than the U.S.?
6. Our largest per capita trade deficit in manufactured goods in 2006 was with which country?
7. In 2006, the U.S. had a trade surplus in food products. True or False?
8. Money spent on foreign goods is reinvested in America by those foreign countries, creating jobs in the U.S. True or False?
9. What percentage of America’s trade deficit in manufactured goods in 2006 was with the half of the world’s nations that are more densely populated than the world’s median population?
e. More than 100%.
10. The Great Depression was not caused by the Smoot-Hawley Tariff Act. True or False?
11. The United States has a heritage of free trade that dates back to the Boston Tea Party, before the founding of our country. True or False?
12. Most of America’s trade deficit in 2006 was due to oil imports. True or False?
13. The World Trade Organization (WTO) enforces protectionist trade policies for two thirds of its member states. True or False?
14. U.S. trade policy is set by the WTO. The president and congress have no say in the matter. True or False?
15. The WTO has the power to punish member states for violations of trade agreements. True or False?
1. The correct answer is d. Our trade deficit in 2006 was approximately $765 billion.
2. The answer is a. The U.S.’s last trade surplus was in 1975. We have had a trade deficit every year since. It rose dramatically from 1976 to almost $152 billion in 1987, then contracted to only $31 billion in 1991 and since then has exploded to over $700 billion.
3. The answer is e. Our cumulative trade deficit since 1976 is approximately $9 trillion.
4. The answer is d. Only 8 countries among our top twenty per capita trade deficits in manufactured goods are significantly poorer than the U.S. (Purchasing Power Parity in the U.S. is approximately $40,000.) They are (from wealthiest to poorest): Denmark ($19,200), Jordan ($14,900), Trinidad ($10,500), Israel ($9,700), Brunei ($9,600), Thailand ($8,100), China ($5,100) and Lesotho ($3,200).
5. The answer is a. 18 countries among our top twenty per capita trade deficits in manufactured goods are more densely populated than the U.S. 13 are at least twice as densely populated. 8 are at least five times as densely populated. 4 are at least ten times as densely populated. Only Sweden and Finland are less densely populated.
6. The answer is e. America’s largest per capita trade deficit in manufactured goods in 2006 was with Ireland. It was twenty-five times worse than our per capita deficit with China. China was only number nineteen on the list, with Japan, Israel, Germany, Austria, Mexico, Korea and Italy all among those nations with whom the U.S. had worse per capita trade deficits.
7. False. In 2006 the U.S. had a small trade deficit in food products. Although we export a lot of grain and beef, we also import a lot of produce and fish. The net result was a deficit. We hear a lot about America’s dependency on foreign oil, but we have also reached the point where we are dependent on others just to feed ourselves.
8. This is false, mostly. Only money that is directly invested in America – building a manufacturing facility for example – creates jobs. In 2006 we actually had a net outflow of direct investment. That is, foreigners spent less in direct investment in America than Americans spent in foreign lands, by $65 billion. By far, the largest percentage of money “reinvested” in America is used to buy government bonds and corporate bonds and stocks. The purchase of government bonds funds deficit spending by the federal government. The purchase of corporate stocks and bonds is simply a sell-off of American assets. It does nothing to create jobs. The jobs were created by the American companies before they were sold to foreign interests.
9. The answer is e. More than 100% of the trade deficit in manufactured goods is with the half of nations more densely populated than the world median. How can it be “more than 100%?” We actually had a small trade surplus with the half of less densely populated nations.
10. This is true. The Smoot-Hawley Tariff Act of 1930 was not even passed and signed into law until June of 1930, seven months after the October, ’29 stock market crash. At the peak of the depression, our balance of trade declined by only $0.67 billion, a tiny fraction of the $33 billion decline in GDP.
11. This is false. The U.S. relied heavily upon tariffs from the birth of our nation in 1776 until 1947 when the U.S. became the first nation to sign the Global Agreement on Tariffs and Trade (GATT), forerunner of today’s World Trade Organization. During that time, the U.S. built itself into the preeminent industrial power of the world, the richest nation on earth, the envy of every other nation.
12. This too is false. Approximately two-thirds of our trade deficit in 2006 was due to manufactured goods.
13. This is true. Although the WTO’s stated mission is to spread the concept of free trade and to open up markets, it actually enforces protectionist trade policies for two thirds of its member states, primarily third world nations. It explains away this seeming repudiation of its basic tenets by saying that these nations need protection in order to give their fledgling industries a chance to take root and develop. The WTO does not explain how protectionist measures then become a bad thing, or at what point that happens. It seems to be an admission by the WTO that, in certain circumstances, protectionism makes sense.
14. False. U.S. trade policy is, as it always has been, determined by the president and congress. The U.S. is free to choose to adhere to WTO principles voluntarily or, conversely, is free to choose a different policy. The WTO has no say in the matter.
15. False. The WTO has no authority to impose punishments on any nation that fails to adhere to its trade agreements. It only has the power to “authorize” other nations to impose their own retaliatory trade measures. This is nothing more or less than nations have always had the right to do, before the WTO ever existed. In effect, the WTO is only a referee in a neighborhood sand lot game – someone the players listen to only as long as it serves their purpose.
1. The U.S. flourished under protectionist trade policies for the first 173 years of our history. In the 61 years since abandoning those policies, the U.S. trade deficit has become enormous and persistent. We have not had a surplus for over thirty-two years. The free trade policies we have followed since the signing of GATT have been a loser for the U.S.
2. The relationship between the trade deficit and the relative wealth of our trading partners is very weak. There is a much more powerful relationship between the trade deficit and the population density of our trading partners. No one should expect that the trade deficit will moderate as poor nations become more wealthy. The facts show otherwise.
3. The WTO has no power whatsoever to determine U.S. trade policy and has no authority to penalize us for adopting trade policies contrary to WTO tenets. We are just as free as ever to set our own course in foreign trade.
If you’re interested in learning about our trade deficit, what drives it and what’s necessary to reverse it, I encourage you to read my book, Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America. You’ll never be at a disadvantage in a discussion of foreign trade issues again!