The trade balance between any two single countries is essentially meaningless. Don’t let presidential candidates tell you otherwise. For example, Hillary Clinton and other Democratic presidential candidates have criticized a pending trade pact between the United States and Korea for its supposed imbalances. We bought 700,000 Korean-made cars last year and they only bought 6,000 U.S. autos. Something must be wrong.
If so, consider other abuses. Take Saudi Arabia. We import millions of barrels of Saudi oil every year. They don’t buy any U.S. crude. Not a drop.
Ecuador sends boatloads of bananas to the U.S. There is little evidence that they have ever bought even one U.S. banana.
Containers of coffee flow in from Colombia, Brazil, Kenya and even Vietnam. None buy U.S.-grown coffee.
We sell ships of wheat to Egypt and soybeans to Japan but we don’t buy wheat or soybeans from these countries. We sell heart valves and defibrillators all over Europe, but buy few such devices from there.
The idea that trade flows of a single product such as automobiles should be the same in both directions defies common sense. We benefit from trade because different countries are better at producing different things. We are good at heart valves and movies, Chile at copper, Brazil at aluminum pistons and refrigerator compressors and Italy at fashionable clothing and fine firearms. Korea and Japan have been more successful at producing small and mid-size cars than Detroit has been lately.
Countries specializing in what they are good at lets us have more things to meet people’s needs without using more resources. Forcing artificial balance in flows of sedans, pacemakers or soybeans between pairs of countries would make us all poorer.
“Triangular trade” has existed for millennia. Before the Revolutionary War, New Englanders would ship salt cod and barrel staves to Barbados; then haul sugar and rum from Barbados to England, and finally return to New England with British manufactured goods.
Japan has always imported all its oil. For decades it sold consumer electronics to the United States and used the money to buy oil from Saudi Arabia. The Saudis bought F-15s and Chevy Caprices from us. All the bilateral trade accounts were hugely imbalanced, but that was irrelevant. But each country was better off.
China sells manufactured goods to the United States. It imports raw materials and components from Asian nations. These import farm products and high-tech goods from the U.S.
Yes, our nation runs an overall trade deficit with the rest of the world. Yes, China runs an overall trade surplus. But those are separate issues that have more to do with the domestic economic policies of each nation than with any trade unfairness.
As a nation we face important economic challenges in annual taxing, spending and budget deficits. We need to deal with funding baby boom retirement. We need to change immigration policies. We need not fret because Korean households are not in love with Detroit iron.
© 2007 Edward Lotterman
Chanarambie Consulting, Inc.