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Dec 18, 2018

How do we fix our trade imbalance?

However, with the culmination of the 2008–2009 financial crisis and the signing of more trade agreements, the problem of unfair trade was finally recognized.

Recently, plenty of discussion has swirled around President Trump’s policy of imposing tariffs on many of the imported goods coming from China, Europe, Canada and other nations.

The intent behind these tariffs has been to fix what Trump and others see as an international trade imbalance that is unfair to our nation.

At this point, though, there is only speculation regarding the outcomes of the tariffs. As China and the United States continue their jawboning, we believe that there will be a settlement somewhere in the middle. Many years ago, after World War II, there was a drive to stabilize the world, not just politically, but economically. The U.S. government believed that if we could open up trade and banking across nations, a more stable and safer world would follow, bringing with it peace and prosperity. As such, we created the International Monetary Fund, the World Trade Organization and more programs designed to work together for the goal of globalization.

The United States, as the most powerful and wealthiest nation of all, had nothing but good intentions in these negotiations; and, indeed, the world started to flourish in many ways. The advantages to all were economic—but unfortunately, they were also relatively short-lived.

Over time, as more trade agreements developed, along with various nations, the intention was to help business, rather than to advance the original goals of stabilization and prosperity.

In the 1980s and 1990s, trade ballooned (see chart opposite) as the North American Free Trade Agreement (NAFTA), the most well-known of these agreements, and hundreds of other trade pacts were being made.

The biggest flaw in all this, however, was not only that the United States was too generous to our trading partners; our country was also making trade agreements based on politics. For that reason, the United States ended up with politicians making arrangements that were no longer beneficial to our citizens.

The negotiators analyzing the situation, meanwhile, did so against a backdrop of a strong American economy, and did not view the offers we made as potentially harmful to our nation.

However, with the culmination of the 2008–2009 financial crisis and the signing of more trade agreements, the problem of unfair trade was finally recognized.

While many do not agree with the current administration’s handling of the trade negotiations, hopefully the United States will be better positioned going forward. In the past, there was rhetoric, but no actual attempt at addressing these issues. Today, we are still not sure if the tariffs will get us the economic adjustments needed to fix our trade imbalance. But certain moves from some nations, like Mexico, tell us that a trade balance will eventually be restored, assuming some give-and-take from both sides.

In the end, the outcome may not be perfect or completely fair, but it will be more beneficial to the United States. Short-term, there may even be some instability; but as more and more nations join in the effort to advance the notion of fairness, we will all gain confidence that things will work out better for our nation.

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