Are US trade relationships with it’s allies unfair to the US?

Great Debates
1

In what ways can the US be said to be treated unfairly by it’s trading partners? The recent debacle of Trump at the G7 and his treatment of Trudeau in particular have me wondering about the underlying facts regarding what Trump is upset about. He is claiming that the US is treated unfairly in the trade relationship with it’s allies (Canada, Western Europe, Japan, etc.). What exactly is the basis or him making these claims? I put the question in GD because the answer turns on how you define fair and unfair. Please move to a different forum if appropriate.

ETA. I’m not familiar with the details of US trade agreements. None the less, my guess is Trump is probably using the definition of unfair being anytime he doesn’t win, whatever is under discussion is unfair. Is this likely the situation?

2

This particular dust up, I believe, like all the others, is mostly theatre. He went to the G7 to be a shit, to mess with them all. To make chaos, which he did!

He hated Trudeau’s remarks as they undermined his, ‘I’m the tougher guy!’ shtick he was laying down pre Kim Jung meeting. He was left with no alternative but to strike out to regain his cred, I think.

It’s all just theatre with this guy. He’s dismantling the things y’all held so dear, profiteering and sowing outrage and offence at every turn.

I mean, it’s appalling, but I’m pretty sure that’s what those who elected him wanted to see, him turn the whole thing on it’s ear. Burn down the house! He’s just getting started, I think.

3

Trump isn’t a global thinker. He doesn’t think that the good health of the global economy is ultimately best for the United States, too, even if we have to make some early concessions to help ensure that goal. He is a 1950’s thinker, a “tribal thinker”. He firmly believes that we have to dominate every agreement with every nation over pretty much everything. Immediate U. S. dominance and profit is his definition of a “good deal”.

He has shown time and again that he doesn’t consider the long term ramifications of pretty much anything when it comes to his thinking and decision making. He has no realization of the fact that, when other countries get a piece of the pie, it greatly reduces the probability that they will go to war to get that pie. An example is North Korea. For example, when Kim knew that China would aggressively support him no matter what he did, he was the consummate bully. Now that China is benefiting greatly from its economic relationship with the United States, he realizes that they aren’t going to war with us if he does something crazy.

Trump is great at making enemies. Now, it’s Canada. CANADA?! REALLY?!

4

The US is not being treated unfairly by its trading partners. The agreements that exist were agreed via the usual negotiation process, and if the US didn’t get everything it wanted at the time the deal was signed it is likely true that its partner(s) didn’t either but all sides felt that signing was still a better alternative to not signing. No one was threatened with, say, nuclear annihilation if they didn’t agree to a particular trade deal.

Not that Mr. “Art of the Deal” understands that, given the piss-poor nature of the deals he’s struck in the past year and his willingness to throw away strong hands for superficial reasons and no gain. His puerile stomping around at the G7 was mere pigeon chess: he strutted around, knocked over a few pieces, crapped on the board and flew off to declare victory. When offered the chance to actually talk policy constructively (as Theresa May tried to), he complained that he was being bossed around.

5

It’s barely conceivable that in an agreement between entities A and B, where A is five times larger than B, that B could possibly be consistently ‘taking advantage’ of A. This is simply not how power relations work. And that’s just talking about Germany, let alone any smaller nation.

Smell Test Fail at Step 1

6

Is there any underlying factual basis for his beliefs? Let me make an analogy comparing our trade relationship with Germany to a football (soccer) game. Obviously even in a fair match the American team will most likely lose to the German team. But there can still be unfair situations that give Germany an additional advantage. Here’s the three situations. Which of these is closest to US / German trade relations?

  1. A football match played with impartial officials, which Germany would still likely win because their players are better than the Americans.

  2. A football match played with officials favoring the German side. The officials are less likely to call fouls on the German players and more likely to call them on the American players.

  3. A football match played in which the rules for the two sides are different. The Americans are only allowed to field 10 players and the Germans can have 12. Every German goal counts as two.

If we had to consider the trade relationship between the two nations in this manner, which are they most like?

7

No.

Trade is not a win/lose thing. It’s really, really important to not just agree to this, but UNDERSTAND it; trade isn’t a win/lose thing. In no way whatsoever is trade analogous to a soccer game; that comparison is just total nonsense, and if you even begin by thinking of it that way you will fail to understand the issues at play. Your soccer game examples are so completely wrong in describing how a trade relationship can work that I did not quote them for honest fear of deceiving you.

In free trade between the USA and Germany, both win. They are both better off - much better off, literally saving human lives better off - for doing it. It is a huge win for both sides. Every way you can think of to compare it to a sporting contest is wrong. A person cannot think of it like that and understand the truth.

8

None of them. It’s more like this:

Each team has their own set of rules, some affecting their own players, some affecting the others. There are also weird scoring rules where some German players get points for goals scored by Americans and vise versa. And there is more than one type of score. These rules have developed over time and for different reasons, and there are rules that say you can’t just change the rules willy-nilly.

Trump ignores the complicated and complete set of rules and looks at limited cases, both because he doesn’t have the brains for anything more complicated, and because he doesn’t really care, since he’s just using these as propaganda tools.

And when this is pointed out to him in a context where he can’t just ignore it, he throws out a completely impossible “Well how about we just go back to no rules then? Wouldn’t you all love that?”

9

This is part of the problem here. Trump’s attitude towards trade is fundamentally zero-sum. If someone wins, it’s because someone else lost. And that’s just not how trade works. Almost all trade is positive-sum - if it weren’t, at least in theory, why would both parties agree to the trade? If there was a winner and a loser to trade contracts, why would the loser ever sign on?

Of course, in practice, there are trade deals that are zero-sum, and don’t offer any advantage for one party: scams. When one party rips the other party off. And I don’t think it’s a coincidence that Trump has such a heavy strain of zero-sum thinking here, as his MO in business is very often “rip people off as much as possible”! Trump University comes to mind, as does the long list of contractors he’s just straight-up stiffed. Those are very much zero-sum transactions.

(Also, such deals are almost always positive-sum on average, but on a granular level there are definitely winners and losers - it’s entirely possible for a trade deal to be great for the country as a whole, but really really suck for, oh, say, steelworkers in particular.)

10

The question then becomes if this is the situation, why don’t the people in the US who are currently benefiting from free trade with Germany (or Canada or whoever else) use their influence to try and prevent Trump from messing everything up? I assume that many of the people that benefit from free trade are likely wealthy and probably vote Republican and even donate money to Republican officials. Why haven’t we heard from those folks?

11

It’s really easy to miss the effects of a policy that slightly improves your wellbeing. It’s really hard to miss the effects of a policy that makes your job untenable.

12

Many are, but he is the President and it’s hard to stop him.

For one thing, rich people can benefit enormously from trade barriers. A trade barrier can be very bad for the economy as a whole, but really, really good for one company. A U.S. company that produces hot and cold rolled steel could make a lot of money from steel tariffs, even though the benefit they will get is less than the penalty other Americans will pay.

To use the milk tariff nonsense as an example, do you know who’s hurt the most by Canadian milk tariffs? Canadians. Because the Canadian government protects the Canadian dairy producer from competition, Canadians pay exorbitant prices for a limited selection of milk products. The dairy industry, however, makes out like bandits; being a dairy farmer can be insanely profitable in Canada because the government doesn’t let you fail, and forces consumers to pay too much for your milk. Dairy farmers will vote and lobby as a bloc in the limited number of electoral districts they’re numerous in and so have an outsides political influence, whereas the 35,000,000 Canadian customers getting screwed by this don’t vote as a bloc about this issue. The USA is the same thing; Wisconsin produces more dairy than all of Canada, so Wisconsin politicians are heavily in the pocket of that industry.

The benefits of free trade are enormous, but they are very much spread around. A tariff or some other protectionist racket is damaging but it usually helps a small, specific group of people while hurting everyone else a little bit. Budget Player Cadet said this very succinctly, as usual.

This is why these deals are hard for democracies to make and why Trump’s off the cuff “no tariffs no barriers” comment was stupid and not really serious. It takes a lot of time an effort to negotiate these things and make them work because every country has a few things it just cannot give up, for internal political reasons, and it’s different from country to country. If Canada and Germany wanted a bilateral trade deal, Germany would probably have to accept Canadian dairy protections, and Canada would have to accept Germany shielding its bratwurst or Panzer industry or whatever the hell Germans do. Both would be economically better off if they dropped that crap and eventually they might, but you take it as far as you can.

You also have to be mindful that humans are affected by this. As a Canadian I want our dairy industry’s protections taken away; they’re a giant scam. But simply ending them tomorrow would be a catastrophe for the real human beings who own dairy farms. People would go bankrupt and lose their homes. A few people would literally kill themselves, quite possibly. I can wait a few years to get cheaper cheese. The change needs to be gradual, negotiated, and phased in over years.

13

They are. He’s not listening.

For example:

http://time.com/5300502/koch-brothers-trump-trade/

That’s the real problem with Trump. He’s too stupid to listen to good advice.

14

There’s an interesting article by the FT on this topic here. (Registration wall).

Various economists from US and Europe give their views on exactly this question. Short version: the relationships are fair. Long version: the US can gripe about some things, the EU/Canada can gripe about others, but basically they’re fair.

You will have your own views on whether the differences in these percentages are significant.

From Brittany to Wisconsin, Essex to Alberta, this simple truth holds true: scratch a farmer, find a subsidy junkie.

Man, global economics is complicated.

15

One thing he seems to really misunderstand (or his economic advisers misunderstand) are VATs. He/they seem to think that value-added taxes are some sort of trade barrier. Instead, they affect all goods, domestic and imported. So, that’s one example of a basis for his ravings, although he’s incorrect about the effects.

16

But while trade agreements are win/win for economies as a whole, they could be loses for specific parts of the economy. What Trump doesn’t get, and I think he is too stupid to get, that “fixing” the problem for one player will hurt other players worse if trade is close to an optimal point.
For instance, even if a tariff helps internal steel makers, it hurts users of steel since it increases prices, including on steel not made in the US.
Trump also does not seem to look ahead even one step. It never occurred to him that China could retaliate in a way that specifically hurts his base.
I think a five-year old could probably wipe the board with him in a chess game.
Kim is probably going to also.

17

I was in college when steel tariffs were an issue years ago. My economics professor said it was a problem - there were more jobs in making refrigerators in the US than in making steel was how expressed this sentiment, I think. Though, of course, it goes on to end users.

Of course, we should keep up to date on which industries employ more people, at what wages, what other industries employees have the ability to transition to, where the competition is coming from, etc. when formulating or renegotiating trade arrangements, tariffs, etc…

18

In terms of actual differences it seems small but in percentage terms it seems bigger. For instance the Average trade weighted tariff in the US is 30% lower than Canada, In the actually paid tariff US exporters to Canada paid 60% higher tariffs than Canadian exporters to the US paid.

19

From RickJay

I am also Canadian, and when Trump mentioned our diary subsidies as being unfair, I had to look them up. I completely agree, they are unfair and should be phased out asap. What surprises me is that these subsidies never seem to be part of the discussion in the press. Trump has a valid point about dairy. In order to protect these dairy subsidies in a negotiation, we have to give something else up of value.

The subsidies are galling, I have been in business all my career, I’m not subsidized, and I am not willing to subsidize dairy quotas that can be sold for literally millions of dollars per farm to pay for Mr. Farmer’s retirement.

Other than that, Trump was a total ass.

20

Which is actually utterly irrelevant. The only reason to phrase it that was is in an attempt to be willfully misleading.