Monday, February 06, 2017

The Art of Imbalance

Vasu Reddy from Chicago
vasureddy@aol.com

In his first couple of weeks as president, Trump has started to keep his election promises in the executive power category.  Weather you like it or not, he is acting on some of the most popular and eloquent issues which brought him to the white house.  Be it general public, the US congress, any other heads of state, or even the global audience, it doesn’t deter Trump from issuing executive orders on his signature political issues; Mexico Wall, Trade and immigration.

While I have turned my television off from watching any news and deliberately avoiding anyone that is representing Trump.  People promoting the policies that have become the rallying cry for Trump in the 2016 election have continued to do the same.  The nation is divided on what next with each of them, and Trump is simply acting on what he said he would.

Ignoring the trade imbalances for decades has put USA at a disadvantage in competing with a global market place.  Although we still have the best markets, best resources, best people, best of everything, the ever growing budget deficit continues to plague the nation, and has already began to threaten the nations ability to manage its finances.  Decades of negotiated and deliberated economic and political affiliations will be difficult to throw out of the window, unless you are Trump.  Trump can simply trash every trade and defense agreement out, and ask each nation to renegotiate, and ask for a fair share of the cost to the benefit that each nation receives from the USA.  While this certainly puts USA first, doesn’t necessarily mean that the trade and cost issues will go away.  We certainly don’t know what will happen if the USA becomes a closed economic, political and military market, and what if each nation would like to do the same.

USA could certainly become a closed society and block out all imports, or simply buy and sell on 100% reciprocity basis.  The USA certainly has the natural resources and geographic advantage for being a closed economy, but it is a nation of immigrants and disassociating with the rest of world is a matter of ignoring the combined value of people and processes, that make USA the great nation that it is.

Certainly we can be a closed economy that strictly do business on an equal import/export basis with every nation.  The nation will survive in the short run, and perhaps will thrive in the long run, by structuring within its limitations and resources.  These imitations will impede global attractiveness, growth and innovation.  The country perhaps needs a plan of negotiated trade practice as Trump suggests in eliminating the trade imbalances and eventually budget deficits.  The book building and budget balancing is certainly difficult if the USA continues to play the big bother to the world and even countries that can afford their own national security doesn’t pony up their fair share.

Trade imbalances in 2014, the five major trading partners account for almost all of the trade imbalances.

Country
Exports $B
Imports $B
Difference
Canada
 $      241.00
 $       331.00
 $        (90.00)
Mexico
 $      194.00
 $       291.00
 $        (97.00)
China
 $      134.00
 $       432.00
 $      (298.00)
Japan
 $        67.50
 $       128.00
 $        (60.50)
Germany
 $        61.60
 $       121.00
 $        (59.40)
Total
 $      698.10
 $    1,303.00
 $      (604.90)

In 2014 USA imported $2.19 trillion and exported $1.45 Trillion, with an overall trade deficit of $731.0 billion.  This doesn’t necessarily mean it adds to the US debt but, certainly an opportunity for revenue generation and additional employment derived from the imbalance.  Oil is a major part of the imports and machinery and transport related areas cover the second most imported products into the USA.

The USA generated approximately $3.0 Trillion revenues in 2014 and the country added additional $500 Billion in national debt.  So, assuming the country is adding 1/6 of the national revenue as additional national debt, there is a massive catch-up or reduction in expenditures is required to simply balance the budget.  Only god knows what has to be done to reduce the $20 plus trillion in already piled up debt.

Neither Republicans nor Democrats have had the guts to balance the budgets, nor take steps in the direction to reduce and eventually eliminate the debt.  Trump has said he will wipe the national debt in ten years, which is an ambitious statement to begin with.  His politics are now becoming policies of the USA, and if the last two weeks is any indication, Republicans have no intention of changing for the better.

Trump himself might want to question his own politics on why build a wall just with Mexico?  Why not with Canada also? It is very simple anyone can fly into or take a boat to Canada and simply walk over from there into the USA.  Border protection doesn’t mean you simply impose on the weaker economy than yours; it must cover every corner of the nation.

Why ban only a few nations from travel to the USA?  Why not every nation that has some sort of links to terror, and not just single out nations where Trump doesn’t have any personal business interest?  If the USA wants to take an attitude about trade or immigration, then why not with every nation on earth?  Why change statements on what the policies are, rather just make them a global issue on trade, politics, immigration, terror and fair sharing of costs.  If you just talk tough to a couple of soft targets, it will not achieve the intent of a nation first objective.  If USA wants to get tough, then globalize it.

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