Here’s How Trump Could Eliminate The Trade Deficits With Canada And Mexico

forbes

 

Mr. President, it’s relatively simple to eliminate the U.S. trade deficit with Canada.

All we have to do is ask that Saudi Arabia, Venezuela and Iraq double the amount of oil they send to the United States while eliminating imports from our neighbor to the north.

Those three stalwarts of democracy, free markets and stability are the second, third and fourth most important sources of oil imports into the United States.

Canada, overwhelmingly, is No. 1.

In fact, going back decades, no country other than Canada has ever provided more than 20% of all U.S. imports. Today, Canada provides about one-third of all imports, by value.

But wait. There’s still a shortfall if the Saudis, Venezuelans and Iraqis double their U.S.-destined output.

To replace the $33 billion in oil that has flowed from Canada into the United States this year, you would also need the fifth-largest supplier to double its imports. That’s Mexico. Oops.

That’s the other NAFTA partner. That’s the other country with which we need to eliminate the trade deficit, according to President Trump and his trusted voices on trade policy, Commerce Secretary Wilbur Ross and Trade Representative Robert Lighthizer.

Those negotiations hit a stumbling block Tuesday as neither Canada nor Mexico wanted to accede to U.S. demands. So, all three parties agreed to delay the negotiating sessions, the idea for which can be traced back to then-candidate Trump decrying NAFTA as a terrible trade deal for the United States.

So there’s a path to eliminating the U.S. deficit with Canada. Perhaps a little unsavory but, if eliminating bilateral trade deficits is your game, if you prefer checkers to chess, let’s do it.

(Keep in mind that the U.S. trade deficit with Canada is lower today than it has been in more than two decades, largely because the price of oil has plummeted. The record year was 2005, when the U.S. deficit with Canada was $78.49 billion. It ended 2016 at a trifle over $12 billion.)

We might also consider putting in tougher fuel-efficiency standards. No, never mind. Might look like a “tree hugger” or, worse yet, lead some to believe we are once again interested in rejoining most of the world’s nations in the Paris climate accords.

Now, on to Mexico, where the U.S. deficit, while not at record levels, remains far larger.

Eliminating that trade deficit is pretty straightforward, too.

Eliminate all imports of passenger vehicles, commercial vehicles and motor vehicle parts. Boom. Done. There goes what so far this year is a $47 billion deficit.

To replace those $19.55 billion in motor vehicles imported from Mexico, we could simply look to other top auto exporters to the U.S., like No. 1 Canada. Oops. OK, Japan, which would have to nearly double shipments to the U.S. to make up the shortfall.

And those motor vehicle parts coming from Mexico?  We could ask China to triple its exports to us. It’s the top parts exporter to the U.S., with Canada second and Japan third. Or perhaps double the shipments from China and Japan. (Wouldn’t want to bring Canada into the mix while dealing with NAFTA.)

Wait. This is stating to just look like a bad game of Whac-A-Mole gone horribly bad on a grand scale? We would be decreasing our deficits with two countries, two of our most reliable allies, while increasing then with others, largely ones perceived less favorably.

OK, so Plan A has some wrinkles. How about Plan B? How about this:

We could work through a “broker” nation or nations. Find those countries where we have decent-sized trade surpluses — the Netherlands and Hong Kong are two examples — let them purchase our Canadian and Mexican oil, motor vehicles and motor vehicle parts, and then we re-purchase them.

Talk about shipping and handling charges. Ouch. But it could work. Might slow down delivery time but, hey, we’re talking oil, cars and car parts here.

Of course, the overall deficit would be unchanged. But it’s bilateral deficits that bother the Trump Administration. So it does attack the problem.

It’s also a silly plan. How about Plan C?

Can’t we manufacture those cars and trucks, can’t we manufacture those auto parts in the United States? Didn’t we, once upon a time? Can’t we increase our oil drilling in the continental United States, offshore, in Alaska?

Well, sure. But prices for cars and fuel would increase, of course since we are cutting off supply and increasing the labor cost. It might lead to a redistribution of wealth at the same time, something that Trump’s predecessor, President Obama, was constantly accused of attempting to do.

And since unemployment is so low, we might have to go looking for workers. Workers accustomed to manufacturing cars and trucks, workers accustomed to manufacturing motor vehicle parts. If the economy were to sour sufficiently in Mexico with the massive job losses, they might be relatively easy to find, in fact. They would be coming across the U.S.-Mexico border in droves.

Then there’s Plan D. Leave NAFTA alone or, since we have come this far, sit down and update it in a responsible manner.

Talk about wishful thinking.

Source :

forbes

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