It’s summer of 2018, and President Donald Trump’s Tariff system is in full swing! The Trump Tariff originally targeted just China. However, sometime after telling the press about the tariff, the President became aware that China was not the only nation that had a major trade imbalance with America. Japan, Germany, and Mexico each sell $60 billion more to America than we sell to them. America’s deficit with the European Union is nearly $150 billion. The Trump Tariff was extended to many countries. But there are some strange exemptions.
The tariff against China makes sense. China has a one-sided economic relationship with the world. China tightly controls which goods can enter China. T hey limit how foreign companies can invest in China, they lead the world in counterfeit goods, and they steal intellectual property. The amount of trade between Germany and America is only a fifth that of China, but we still have a significant trade deficit with Germany. Okay, something should be done about that. What about Mexico and Canada?
Total trade with China in 2017 was about $635 billion, with just $129 billion exported to China. We had slightly less trade with Mexico, $243 billion exported and $314 billion imported. Yes, America imported more than we exported, but not by that much. Also, Mexico’s economy ($1 trillion) is less than 10% of America’s. Also, Mexico spends 25 percent of their GDP on American products, which is an enormous amount! Trade with Canada is similar, but with an even smaller trade gap ($282 billion exported, $299 billion imported, GDP of $1.4 trillion). There are always trade issues, but it doesn’t make a lot of sense to muddy the waters with nations like these, with relatively minor trade issues.
If Trump did get off track with tariffs on Mexico and Canada, are there other nations that he forgot about? Yes, there are! Consider nations that sell oil to America. What’s happening with these nations?
Compared to China, Iraq/American trade is minuscule, but the percentage of inequality is huge. Since 2005, America has had annual exports of $1 to $2 billion to Iraq but received imports of between $4 and $22 billion in goods (almost entirely oil). World oil markets may be indirectly hurt by tariffs. Y et, unlike steel, Trump has not levied a tariff on oil.
Total trade with the Saudi’s is considerably more than Iraq, but still relatively small. Since 2005, America exported between $7 to $19 billion in goods to the Saudi’s, with Saudi Arabia sending America $17 to $56 billion in (mostly oil) products. That’s a BIG imbalance!
As of 2012, 70% of all Russian exports were oil and petroleum. Since 2005, America has had a trade deficit with Russia of $10 to $25 billion every year. Not huge for America with an $11 trillion GDP, but quite significant for Russia with a GDP of just $1.2 trillion.
Qatar & U.A.E.
You may think, “Hmmm… maybe oil-rich nations want to trade with America, but we don’t have anything they need?” Then let’s look at two other nations, Qatar and The United Arab Emirates (UAE). These are smaller nations with smaller economies. Nonetheless, it does illuminate some interesting trends. In both nations, we had trade surpluses (very significant surpluses) every year since 2005. In 2017, we exported $3.1 billion and imported just $1.2 billion with Qatar. In the UAE America exported $20 billion and imported just $4.3 billion. Many other years had even more impressive trade balances.
Clearly, America does not need to have a trade deficit with oil-producing nations. Then, why are we slacking with some nations and not others? Perhaps we need oil from the Middle East more than we need maple syrup from Canada? Well, yes. But that’s why both the Bush and Obama administrations wanted to free the American economy from dependence on Middle East oil. Remember, “Drill Baby Drill?” How about all of the work in the Bakken shale fields in North Dakota? Energy independence? Ringing any bells here?
Well, President Donald Trump didn’t seem to remember the last couple of decades of history, when he officially requested that OPEC (The Organization of Oil Producing Nations) increase oil production. Essentially, he told Iraq, Russia, and Saudi Arabia to further increase their trade imbalance with the US. Hmmm… doesn’t make much sense. Does it? When President Trump decided to unilaterally dump the Iranian anti-nuke deal, it meant that America would soon have an oil shortage when we re-started the ban on Iranian oil. OPEC (which includes Iran), was already producing at record levels. Nonetheless, the Saudi’s agreed to break all records and produce more oil. All accomplished before the last day of Q2, 2018.
But, a day later, on the first day of Q3, 2018… Trump tweeted. President Donald Trump accused OPEC of manipulating the price of oil, and they must stop immediately. Duh-WHAT? In a Fox News interview, President Donald Trump was asked if oil markets were being manipulated. Trump’s response was, “100 percent. OPEC is and they better stop it… OPEC is manipulating, and you know they allowed (a production increase) less than we thought last week. They have to put out another 2 million barrels in my opinion.” President Trump then proved conclusively that OPEC could manipulate the price of oil when President Trump demanded higher production and stopped the rise in oil prices.
Trump says he is ready to raise tariffs on China to $500 billion, tariffing just about everything China exports to America. With China fully tariffed, but still very topical, the holes in the Trump Tariff will be more glaring. Expect more attention on oil. Remember, Trump wants to stop the sale of Iranian oil until they negotiate a new anti-nuke agreement with his administration.
What about other nations that deal with Iranian oil? Trump has said that he will tariff Iranian oil and anyone who buys it. That’s a real problem for other nations (most of Europe) that signed the anti-nuke deal with Iran. Trump and the other signatories formally acknowledged that Iran was in compliance with the deal. By breaking the deal, America may have broken a number of international laws. Europe is clear that they have no grounds to break the agreement, and many reasons to continue it. Will Trump levy punitive tariffs and sanctions against Europe as “rogue nations” supporting Iran’s terrorist state?
That’s a complex question with global implications that will last through this century. For the answer… we’ll have to wait for Tump’s next tweet!