Not All Trade Deficits Are The Same - Global Trade Magazine
  May 22nd, 2018 | Written by

Not All Trade Deficits Are The Same

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  • The trade deficit the US runs with China is because the US is an open economy while China practices protectionism.
  • Ross: In 21 of 23 major product categories, China’s tariffs are far higher than those of the US.
  • Ross: “Concessions that might have been totally correct 50 years ago are simply no longer appropriate today.”

There’s not much that US Secretary of Commerce Wilbur Ross likes about the current state of the global trading system. And US trade deficits are the things he likes least.

Before the United States shale-oil revolution, the country ran a trade deficit in crude oil. This, US Secretary of Commerce Wilbur Ross dubs a “blameless” deficit.

But the trade deficit the US runs with China is because the US is an open economy while China practices protectionism. This, Ross said, is “blameful and shameful,” in remarks he delivered at the National Press Club in Washington last week.

In 21 of 23 major product categories, China’s tariffs are far higher than those of the US, Ross posited. In addition, of the 424 trade actions the US has in effect against violations of trade rules, half are against China.

“They have subsidized their industrial expansion far in excess of demand,” Ross said, “and have disrupted global markets. China has forced technology transfers from companies wanting to sell to its vast market, and it has stolen intellectual property.”

Ross noted that a major objective of the Trump administration’s trade policy is to reform the trading system that the US has led since the end of World War II. Seven decades ago, “We made systematic trade concessions to which we remain bound today,” Ross said. “The policy error was that we did not time-denominate those concessions, or provide other mechanisms to adjust policy as conditions changed.

“Concessions made to China or Europe that might have been totally correct 50 years ago are simply no longer appropriate today,” he added. “Yet, we are locked into the present trading system with rules created for a different era.”

Another conundrum for the US is that it is stuck with most-favored nation and bound tariff rates that are lower than other countries. The Chinese tariff on imported cars is 10 times that of the US.

“We are stuck with it,” said Ross. “They have little incentive to negotiate.”

Ross also said that Mexico’s concluding of a free trade agreement with the European Union was inconsistent with its obligations under NAFTA. “That agreement permits Mexican-produced autos to enter Europe duty-free while auto producers making cars in the United States remain subject to Europe’s 10 percent tariff,” said Ross. He failed to mention that the US is free to negotiate an FTA with the EU and that talks along those lines that were proceeding under the Obama administration have since stalled.

Ross also voiced complaints against the World Trade Organization. “The WTO constantly complains that the increasing number of antidumping and countervailing trade cases brought by member countries indicates growing protectionism,” he said. “It apparently does not occur to the WTO leadership that more trade actions are brought because there are more trade violations.”

One of the pillars of Trump administration trade policy is to seek redress for the US trade deficit, which, Ross said, “is the largest in the world.” “It is unreasonable for one country to bear the burden of bolstering the economic fortunes of the entire planet,” he added. “The United States is one of the least protectionist major countries, and we have the deficits to show for it. China and Europe are highly protectionist and their positive trade balances with us reflect it.”


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