Broker Check
Trade War (Really?)

Trade War (Really?)

| October 20, 2017

Let's take a moment to examine a subject that causes considerable angst for many - international trade.  Mark Perry addressed this touchy subject again recently in a blog post dated October 11th, 2017.

In it, he included the following chart, developed from Bureau of Economic Analysis data that is quite informative.

The post goes on to say, "It should not be surprising that growing import totals do not drive down export totals.  While some see trade as a war, in which winning depends on buying less from other countries, it is actually just a series of consumer transactions.  The buyer and seller both benefit, or they won't make the transaction.  Imports are not a necessary evil; they are a necessary ingredient.  Companies requiring inputs toward a finished product need to get the best price, quality, and service levels they can to compete.  They need the widest potential network of potential suppliers.  Being able to import – and therefore obtain the best possible terms and conditions from domestic and foreign suppliers – is crucial to being able to efficiently make products for export.”

Mr. Perry concludes by saying, "If the goal is to expand US exports, we should welcome more imports, which are the ‘necessary ingredients’ to greater, more efficient US production and greater US exports.  It's another important economic lesson about international trade that Team Trump needs to learn."

In the same vein I will conclude by quoting from President Ronald Reagan's radio address on free trade from November 26th, 1988.

"Part of the difficulty in accepting the good news about trade is in our words.  We too often talk about trade while using the vocabulary of war.  In war, for one side to win the other must lose.  But commerce is not warfare.  Trade is an economic alliance that benefits both countries.  There are no losers, only winners, and trade helps strengthen the free world.  Yet today protectionism is being used by some politicians as a cheap form of nationalism...

Our peaceful trading partners are not our enemies, they are our allies.  We should beware of the demagogues who are ready to declare a trade war against our friends, weakening our economy, our national security, and the entire free world, all while cynically waving the American flag.  The expansion of the international economy is not a foreign invasion, it is an American triumph."

As I stated in a prior blog post, it was America that fostered a new world order of free trade and economic cooperation with Bretton Woods at the conclusion of World War II and that was a triumph of American exceptionalism.

Until next time, cheers!