The trade deficit in manufactured products* rose to a record high of $64.6 billion in October, surpassing the previous record of $63.3 billion set in March of 2015. Take a look at this chart of our monthly deficit in manufactured goods: Manf’d Goods Balance of Trade. Exports of manufactured goods haven’t risen since September of 2011 (in spite of Obama’s laughable proclamation in 2010 that we would double exports in five years). In the meantime, imports have soared by almost $30 billion. It’s a dubious distinction for President Trump who, during his inaugural address in January, spoke of “…rusted-out factories scattered like tombstones across the landscape of our nation…” and proclaimed that “This American carnage stops right here and right now.”
To be fair, Trump didn’t mean that it would happen on the spot. His administration has been taking steps to address our trade problem, trying to renegotiate NAFTA (the North American Free Trade Agreement with Mexico and Canada), imposing tariffs on some products and, most recently, blocking China from rising to “market economy” status with the World Trade Organization. Aside from the work on NAFTA, which may conclude soon with the U.S. walking away from that ill-conceived agreement, the rest amounts to little more than the token steps taken by previous administrations. The net result is that the plight of the manufacturing sector of our economy grows steadily worse.
Enough is enough. It’s time to walk away from both NAFTA and the World Trade Organization and begin implementing tariffs. Any tariffs would be better than our current trade policy, but smart tariffs that address the real cause of our trade deficit – attempting to trade freely with badly overpopulated nations characterized by bloated labor forces and anemic markets – would be much more effective. As an example, it was reported yesterday that Canada, angered by their treatment in the NAFTA negotiations, has canceled an order for Boeing-made fighter planes. Why are we treating Canada this way? Sure, we have a trade deficit with Canada, but it’s due entirely to oil. In 2016, our biggest trade surplus in manufactured goods, by far, was with Canada – $44 billion, more than double any other country. Canada is our best trading partner. Why anger them? Why not tell Canada that our beef is with Mexico, with whom we had a trade deficit in manufactured goods of almost $68 billion in 2016 – our third worst behind China and Japan – and that they’ll get just as good a deal from the U.S. without NAFTA? Slap the tariffs on Mexico, not Canada.
We could completely wipe out our trade deficit in manufactured goods by applying tariffs to only ten countries – China, Japan, Mexico, Germany, Ireland, Vietnam, South Korea, Italy, India and Malaysia. These ten countries, all more densely populated than the U.S. (all but Ireland are many times more densely populated), account for all of our trade deficit in manufactured goods. While we have defiicts with others, they are much smaller and are offset by surpluses with the rest of the world. The point is, we don’t have to anger the entire world with tariffs – just ten out of the more than 220 countries in the world. So let’s be smart about how we do it, but the time has come, Mr. President. Stop delaying the inevitable. Do what you know needs to be done.
* The trade deficit in manufactured products is calculated by subtracting services, trade in petroleum products, and trade in foods, feeds and beverages from total trade, as reported by the Bureau of Economic Analysis in its monthly reporting of international trade.