Before we decry the evils of global trade or conversely trumpet its merits as the miracle cure to all our economic problems, we need first to understand the following:  The U.S. is nowhere near realizing the potential of global trade. In fact, there is a Grand Canyon-like chasm between the potential of global trade and current implementation of U.S. trade policy.  Just how far short are we falling from the potential?  Let’s put it this way, in the world of global trade we are clearly the chumps.  Warren Buffett is reported to have said, “If you are playing poker and you don’t know who the chump is, then you likely are the chump.”  Well, in the world of global trade that’s us.  Every country loves to trade with the U.S. because they will likely win. Of the fifteen largest economies we traded with in 2016, thirteen of them sold more to us than we did to them.  That’s right, of the fifteen largest economies we traded with, we “lost” nearly 90% of the time.  And, it’s gotten worse over time. While still embarrassing, in 1992 our record with these same countries was 4-11.

COUNTRY 2016 1992
China L L
Japan L L
Germany L L
U.K. L L
France L L
India L L
Italy L L
Brazil W L
Canada L L
S. Korea L L
Russia L W
Spain L W
Australia W W
Mexico L W
Indonesia L L
Record: 2-13 4-11

To put this in perspective, below is a chart showing what our equivalent record would have been if we were a National Football League team.

Global Trade US Trade NFL Equiv Record

  • Technically it would have been 2.13 wins

How do we change this?  First, by facing reality which begins with identifying the most damaging global trade myths

The first trade myth assumes that the leaders of other countries negotiate trade agreements with the goal of free and open trade so that consumers can choose purely on the merits of each product.  In reality, however, they’re trying to gain an advantage so they can sell more of their products to us than we do to them.  Every country tries to tilt the playing field in its favor through disproportionate tariffs, quotas and other means – that’s trade reality.

In spite of this reality, some object to trade policies that would favor America on the grounds that it is protectionist – as if no other country is protectionist.  If every other country is trying to get the best trade terms through disproportionately high tariffs, quotas or other means, why should we play by a different set of rules?  Why should we carry the banner of free and open trade while other countries trade us into bankruptcy through their protectionist policies?  This action is not only naïve, it is a dereliction of duty. What is the solution to this problem?

Trade Solution:  At a minimum, we should negotiate equal trade terms and, ideally, negotiate more favorable trade terms for the U.S.

Am I suggesting we suddenly overturn current trade terms?  Of course not.  What I am asking is why can’t the U.S. start negotiating more favorable terms?  We have the largest, most affluent market in the world.  It is the market every multinational company wants to sell to.  It is time we start leveraging this situation to negotiate at least equal trade terms with other countries.

Trade Reality #1:  All countries want an unfair advantage.  All countries are protectionist

Does this reality make global trade bad?  No.  It does however make trading based on this trade myth naïve and ineffective.  Why do we do it?  The answer can be found in the second Global Trade Myth:  Trade Agreements Are Solely About Trade.

 


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