How do we fix our Trade Imbalance?

Recently, there has been plenty of discussion about President Trump’s policy of putting tariffs on many of the imported goods coming from China, Europe, Canada, and others.  The idea of placing tariffs applies to fixing our antiquated and unfair international trade practices.  At this point, there is nothing but speculation regarding the outcomes of the tariffs.  As China and the US continue their jawboning, we believe that there will be a settlement somewhere in the middle.

Many years ago, after WWII, there was a drive to stabilize the world: not just politically, but economically.  We believed that if we could open up trade and banking across nations, there would be a more stable and safer world with peace and prosperity.  We created the IMF, the WTO, and many more programs to work together for the goal of globalization.  The US, as the most powerful and wealthy nation, had nothing but good intentions in its negotiations, and the world started to flourish in many ways.  The advantages to all were economic, and also relatively short lived.

Over time, as trade agreements started to develop with nations, the intentions were to help business, rather than the original intentions of stabilization and prosperity.  In the 1980’s and 1990’s, trade ballooned (see chart above) as NAFTA (North American Free Trade Agreement), the most well- known, and hundreds of other trade agreements were being made. 

The biggest flaw of these trade agreements was not only that the US was too generous to our trading partners; the US also was now making trade agreements based on politics.  The US ended up with politicians making arrangements that were no longer beneficial to America and its people.  When analyzing the situation, due to the fact that America’s economy was so strong, the negotiators did not think through the offers as being potentially harmful to the nation.  However, with the culmination of the financial crisis and trade agreements, the problems of unfair trade came to fruition.

While many do not agree with the current administration’s handling of the trade negotiations, hopefully the US will be bettered position going forward.  In the past, there was rhetoric, but no actual attempt at addressing these issues.  We are not sure if the tariffs will get us the needed economic adjustments for fixing our trade issues, but the movement from some nations, like Mexico, tell us it will eventually work out with some give and take from both sides.  In the end it may not be perfect or exactly fair, but it will be more beneficial to the U.S.   Short term it creates instability, but as more and more nations join in with the notion of fairness, the more confidence we have that it will work out better for our nation.