The Presidency of Donald Trump is one of conflict and confrontation, of demonizing everything related to Muslims, Mexico and China, imaginary results, and controversial self-appraisal. One of the most recurring statements of Trump is how he was going to manage the enormous trade-deficit of the U.S. by trade wars and those would be ‘great and very easy to win’ [sic].
Trump inherited Obama’s 2016 stabilized trade balance of 2,186 billion in imports, 1,451 billion in exports and a trade deficit of 735 billion. Looking at the deficit, the European Union was responsible for 19.9% and China accumulated 47.2% of the total deficit. The NAFTA countries, another target of Trump’s fury, were responsible for 10.1% of the total trade deficit, with 1.5% from Canada and 8.6% from Mexico. Trump had 4 years as the ‘great dealmaker’, during which he cancelled NAFTA to renegotiate NAFTA2, launched a major trade war against China and a minor one against the European Union.
The total trade deficit increased in 2020 despite the global economic downturn. NAFTA2 kept Canada slightly ahead of the game and gave Mexico a significant boost, so it appears they are not paying for the wall after all. The deficit with the EU increased significantly, so no win their either. But at least the trade deficit with China dropped significantly, so can we book that as a win for Donald “The Deal Maker” Trump? Not really!
In total, the U.S. economy is importing more than it did in 2016 despite declined economy due to his mismanagement of the pandemic, so there is no improvement for the U.S. economy and not for the jobs that Trump was going to bring back. In a way he did partially decouple the economies but at a high price for the U.S. The most visible price tag is seen in the simple fact that the U.S. economy produced less but nevertheless imported more, which means that especially parts and components which were previously produced in China are now produced elsewhere at higher costs, for example in Mexico.
There is another hidden price tag and that is signaled by U.S. manufacturers. They are reaching the end of their stock in bulk micro parts. Those simple parts they buy in large amounts. Standards parts like screws and bolts, springs, connectors, chips and microcontrollers, and more. Not the kind of things you would normally pay much attention to unless you do not have them. And that is starting to happen right now for many U.S. manufacturers. Because of all sanctions and tariffs and embargos imposed by Trump there is a growing shortage of these bulk micro parts on the U.S. markets.
You might have guessed it by now. Most of these bulk micro parts are produced in China and they do play a very important role in the production of for example cars, household electronics, and whatnot. U.S. manufacturers can of course reorganize their supply chains and have them produced in for example Mexico or India but anyone who has ever resourced supplies know that this is an expensive and time-consuming process.
And there is another problem. When too much trade is diverted to these countries, the thresholds of imports in the current trade agreements would be exceeded and that would lead to new tariffs and drive up the price even further!
The direct result of Trump’s attempts to decouple the U.S. economy from other nations and his ‘America First’ policy is that these other economies have also started to decouple their economies from the U.S. and the U.S. Dollar. In the eyes of the trade partners this means ‘America Last’ or ‘Make America Pay Again’! The only smart solution for the U.S. manufacturers is fair international trade-agreements which are not based on trade for the sake of trade, but solely based on mutual interest. Until then, the consumers in the U.S. pay for the failed trade policy of Mr. Trump.