Yesterday I was talking about Trump's tariffs with my wife, and it suddenly occurred to me that the way that President Trump has structured the discussion of them makes no sense. The United States currently has a trade deficit of about $1.13 trillion a year, but one cannot understand it by looking at bilateral trade relationships with other countries and the EU. A trade deficit comes from importing too much of something and exporting too little of something else, and nearly every commodity can be bought or sold from a number of countries. This morning an economist makes the same point in the New York Times. Meanwhile, I had gone to the web and found some of the statistics I was looking for: a breakdown of imports and exports by major categories, showing what commodities contribute the most to our deficit.
There is literally nothing on this list that the US does not both import and export, and I have not been able to find statistics on the total production of various entries in the United States, which would help as well. Still the figures tell a remarkably simple story. First of all, four categories of goods generate 81 percent of our trade deficit: machinery, nuclear reactors and boilers (24.7 percent); electrical and electronic equipment (24 percent); vehicles other than railway or tramway (21.9 percent); and pharmaceuticals (10 percent). US exports in those categories total $ 704 billion, but their imports total $1.621 trillion, The leading car exporters to the United States are Mexico, Japan, South Korea, Canada, and Germany, and the administration has dropped new tariffs against Canada and Mexico (whose plants, I believe, are mostly American brands) for the time being. I haven't found country-by-country data on electronic imports, but they seem to come mostly from the Far East--Japan, China, South Korea, and Taiwan--with some from Europe. I don't think that any televisions are made in the United States any more, although I could be wrong. Imported machinery --the single biggest item in the deficit--comes from other industrial powers.
Net on the list are nine items that account for between 5.6 and 1.9 percent of the overall deficit: furniture, unspecified commodities (??), articles of apparel, toys, games, and sporting goods, iron and steel articles, footwear, rubber goods, and beverages of all kinds. Most of those items, I suspect, come from Asia. Raw aluminum, iron and steel add another 2.4 percent. No other commodity accounts for as much as 2 percent of the deficit.
Meanwhile, on the other side of the ledger, the only industrial product for which the US has a substantial export surplus is aircraft and spacecraft. The surplus is $98.3 billion, compared to our deficit of $279 billion in machinery. Our three other leading export surpluses are cereals (that is, grains), equal to 1.9 percent of our trade deficit; oil seeds and fruits at 2.4 percent of it; and "mineral fuels, oils, and distillation products," at 6.1 percent.
Now it should be obvious, it seems to me, that tariffs designed substantially to reverse our trade deficit should focus on the imports that are primarily responsible for that deficit: machinery, electronics, vehicles, and pharmaceuticals. Of those four categories, pharmaceuticals look to me to have the best chance of rapidly substituting domestic for foreign production--and I don't know how many jobs such a substitution would be likely to create. The other three would take years to substantially expand production, as well, in many cases, as expertise which we may no longer have. If the US really set a goal of expanding production in those areas--and I am not saying that it should--wouldn't it make more sense to pass a small tariff on those goods now that would gradually increase for a period of years, thus making domestic production more profitable in the long run? Such a policy would also have inflationary effects, but it could increase domestic production in various industries.
As the Times op-ed notes, however, these tariffs appear to have been imposed without any serious analysis to back them up. They could provide leverage to reach new agreements with individual countries, but what objective will those agreements have and how could they achieve it? And that leads me to a different set of reflections on what President Trump seems to be trying to do--another occasion where the dreaded Hitler analogy is simply unavoidable.
I don't know how many people realize now that the Second World War occurred because both Germany and Japan wanted to create huge self-sufficient empires. Hitler wrote and talked about this frequently and at length, as I discussed in my first book, Economic Diplomacy and the Origins of the Second World War. The future, he thought, belonged to superstates on the scale of the British Empire, the United States, and the USSR. Germany needed much more territory not only for raw materials, but above all for food. During the 1930s, I found, Hitler and his collaborators found ways to keep Germany fed--barely--while substantially reducing imports and spending precious foreign currency mainly on critical raw materials. They also tried to use synthetic oil to make the country self-sufficient in energy until they could conquer the oil fields they needed in Russia. Hitler deeply resented dependence on international trade, in part because he thought that Jews controlled it. The Japanese and the German economies were both hurt badly by the after-effects of the First World War, which led to overproduction of many commodities, and by the Depression, and that gave the idea of autarky more appeal.
It turned out, of course, that their plans were doomed. They were strong enough to unleash wars with Britain, the United States, and the USSR, but totally unable to match their production of key weapons, leading to their complete defeat. I don't think Trump's plans have anything to do with preparation for war, but I think that his attempts to escape from dependence on the world economy are equally doomed to failure. Once again an egotistical political leader thinks that he can rewrite the laws of economics, and finds himself in a position to do so. He too is likely to be disappointed, with fateful consequences.