What’s a Good Deal in International Trade?

International Trade

We claim no expertise in international trade, but found an interesting view on the subject in the July, 2015 Modern Metals worth re-issuing.  The author made several points about recent trade deals, and concludes, “the [Obama] administration’s claims about he pure benefits of TPP (Trans-Pacific Partnership) should be viewed with a great deal of skepticism.

With Trump on the trade warpath, and especially concerning trade deficits, we were interested to hear some conservative note that the US dollars we spend on foreign goods can only be redeemed in the US.  As a consequence, according to this source, we have a large capital surplus.  So maybe a trade deficit isn’t so bad?  What do you think?

As with most of these subjects associated with foreign issues, we probably don’t get but a tiny fraction of the total picture, and trade economics are not a simple subject.  But the following points appear worth keeping in mind as all this plays out in the news.

Here are some extracts from the Modern Metals article, and there is a link to the complete text at the end.  It is worth noting the author is the president of a steel processor/distributor of metal products.

“The vast majority of America’s trading partners have a value-added tax (VAT) system, which is refunded to companies that export goods. Germany’s VAT is 19 percent. So when a $100,000 BMW is placed on an outbound ship, the German government hands $19,000 to the automaker for that export. Germany imposes a VAT on all imports. This means Ford Motor Co. pays an extra $7,600 to sell a $40,000 Explorer to a German buyer. In effect, Germany subsidizes exports and taxes imports from the United States. Is this free trade?”

Currency manipulation, another favorite Trump gripe, is another issue in trade.  As the article reports, “Japan valued its yen at 80 to the US dollar in 2012.  The central government later revalued the yen at 120 to a dollar.  The yen’s 50 percent depreciation has had the effect of increasing income for Japanese companies that expert to the US.  The lower yen discourages investment in the US, lowers the cost of Japanese imports to the US and raises the cost of US exports to Japan.”

“The last “free trade” agreement our government approved was the US-Korea Free Trade Agreement of 2011.  The Obama administration pledged this deal would increase exports of American goods by $10 billion to $11 billion and that 70,000 American jobs would be supported by the increase in exports”.

“Before the Korean treaty took effect, the US exported $43.5 billion worth of goods to Korea and Korea exported $56.6 billion worth of goods to the US, for a trade deficit of $13.1 billion.”

“After 3 years under this deal, US exports to Korea last year totaled $44.5 billion (up only 2.3%) while Korean exports to the US were $69.6 billion (up 23%), which nearly doubled the trade deficit to $25.1 billion.  This imbalance has likely cost tens of thousands of manufacturing jobs in America.  Is this free trade?”

Obviously this author is no fan of “free” trade deals.  Is he right or is there a countering view?  If you have one, please comment on our blog.

The link to the article.

Leave a Reply