New World, New Policy: A Review of the Trade Deficit

President Trump announced a new executive order aimed at pushing forward his trade agenda. Targeting the US trade deficit, the order directs the Commerce Department and the US Trade Representative to lead an interagency investigation and produce a “comprehensive report” on the causes of the US trade deficit. They are to do so by looking at specific industries and trade policies by foreign countries that contribute to the continuing gap between US exports and imports.

According to the US Census data on trade, the US ran about a $500 billion net trade deficit in Goods and Services with the rest of the world in 2016. The US runs a larger deficit when looking only at Goods (such as manufactures, agriculture, etc.), at $750 billion, while the county runs a surplus of about $250 billion in Services (such as business services, finance, information technology, etc.). Broken down by country, the largest Goods deficits are with China (over $54 billion in the first two months of 2017) and Mexico, as well as Saudi Arabia (petroleum imports) and the European Union. In Services, it is noteworthy that the US runs sizable surpluses with all of these same countries. (Data from US Census) Continue reading

It’s not Double or Nothing for Trade

By Michael R. Czinkota and Charles J. Skuba

In January of 2010 State of the Union address, President Obama set the goal of doubling U.S. exports over the next five years, supporting two million new American jobs through trade with international partners. At the terminus of that timeline, our analysis indicates the completion of less than half the goal with exports of goods and services at approximately $2,350 billion in 2014, compared to $1,571 billion in 2009.

Although he did not hit the numbers, we credit President Obama for an ambitious trade agenda, including completion of previously negotiated free trade agreements with South Korea, Colombia and Panama, and the pursuit of new trade agreements like the Trans Pacific Partnership (TPP), Transatlantic Trade and Investment Partnership (TTIP), and Trade in Services Agreement (TISA).

But why the failure in export growth? In 2009, total global trade decreased by 12%, while U.S. exports decreased by 14%. At the time it seemed reasonable to project stronger growth from 2010 forward. U.S. exports did grow at a robust annual rate of nearly 17% that year and 14% in 2011. Growth of only 4% in 2012 and 2.9% in both 2013 and 2014, however, did not help, since doubling exports requires annual growth of more than 15%.

President Obama’s export goal hinged on the strength of U.S. production, but even the best products require customer spending to generate sales. Europe has experienced disappointing economic growth while major emerging markets like China, India, and Brazil, all sharply declined. A strong U.S. dollar makes American products more expensive, further affecting demand.

One encouraging note is the transition of President Obama from a relatively protectionist U.S. Senator, in favor of trade barriers and subsidies for domestic industries, to a strong advocate of trade agreements.

Where are we now and where do we go from here? Jobs supported by exports now represent 13% of the U.S. economy, up from only 5% in 1990. Yet, the U.S. is still behind on a global scale. Exports represent half of Germany’s economy, 30% of Canada’s, and one quarter of China’s. These key trading partners export more than twice the value per capita than the United States.

U.S. free trade agreements play an important role in lowering trade barriers, boosting exports, and creating jobs. In 2014 the 20 countries with which the United States has a free trade agreement received almost half of U.S. exports and exports to those countries grew by almost twice the overall rate. Free trade agreements level the playing field for global competition. The TPP does that and includes labor and environmental provisions crafted to the highest standards in the world in the strategically important Pacific Basin.

Opponents of free trade agreements often claim that previous accords like NAFTA sent American manufacturing jobs abroad. We disagree. A global economy imposes competitive pressures and requirements on all industries. American manufacturing and services companies cannot escape from the competitive realities of globalization but they can benefit from free trade agreements.

Our outlook for 2015 trade policy and politics: the Administration and Republican majorities on Capitol Hill must and will collaborate on international trade. President Obama has asked for bipartisan support for Trade Promotion Authority (TPA), allowing Congress to vote yeah or nay on trade bills, but not on individual provisions. This will allow U.S. trade negotiators to deliver meaningful industry and regional commitments. TPA is a crucial negotiating tool which the Republican Leadership supports.

There should also be strong domestic support for free trade agreements like TPP and TTIP, which can restore and perhaps even kick start further global progress in the World Trade Organization.

For both Republicans and Democrats, the key trade policy objective of increasing jobs requires policy assessments of the jobs affected by new laws, regulations, and executive orders. It also means linkages between investment and job outcomes, and specific rewards for employment success and help for those hurt by trade. A successful economy requires new measures in technology oriented education availability, and greater global partnerships in science, technology, research and development.

It is time for Congress and the Administration to develop and share credit for progress in international trade. Past failures and shortcomings demonstrate the need for collaboration in achieving trade agreements that deliver significant economic results. 2015 offers an excellent opportunity for the President and Congress to achieve a new beginning. The United States and the world will benefit from such joint leadership.

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Michael Czinkota (czinkotm@georgetown.edu) researches international marketing issues at Georgetown University He served in trade policy positions in the Administrations of Presidents Reagan and G.H.W. Bush. Charles Skuba (cjs29@georgetown.edu) teaches international business and marketing at Georgetown University. He served in the George W. Bush Administration in trade policy positions in the U.S. Department of Commerce.

The Future of Export Promotion (VIDEO)

Professor Michael Czinkota and former US ambassador Charles Ford discuss International trade, foreign direct investments and export in the past and the future of US Foreign Service and how American businesses are involved in the global economy.