Yesterday, we demonstrated why a focus on bilateral trade deficits will provide misguided (at best) or counterproductive and harmful (at worst) lessons to policymakers. In short, companies contribute to bilateral trade deficits with some countries and bilateral surpluses with other – but a report on bilateral deficits will almost never capture those surpluses. It’s even more complex than that – anyone who says the global trade is simple is tricking you or themselves – and today we’ll use the example of Xpres LLC in Winston-Salem, North Carolina (who we wrote about a few weeks back).
To recap our original post: Xpres imports blank ceramic mugs (e.g., coffee mugs) from Thailand under GSP. Mugs are then customized at its North Carolina headquarters and sold throughout the United States and exported to the United Kingdom. Xpres competes primarily against finished mugs (i.e., they require no further customization) imported from China. Refunds and lower tariffs associated with GSP renewal in 2015 have allowed Xpres to invest in its N.C. facility and hire 17 new workers – or about 60 percent employment growth – over the course of a year and a half.
Back to the misguided focus on bilateral trade deficits: what if the United States decided it must cut the trade deficit with Thailand? Furthermore, what if it decided that banning coffee mug imports was the best policy to achieve that goal? What sort of unintended consequences might play out and would anyone be happy with the results?
Banning coffee mug imports from Thailand presumably would shrink the bilateral deficit, but at what cost? It would likely increase the trade deficit with China as more finished mugs are imported instead, and shrink the trade surplus with the UK as Xpres no longer has products to export there. Much more importantly, such a policy would pose real risks to the North Carolina jobs that depend on customizing and selling those Thai mugs.
In a vacuum, it’s easy to see how policies to shrink bilateral trade deficits could be viewed positively. Yet even successful efforts to reduce bilateral deficits may have no effect on overall trade balances. And as the Xpres example clearly shows, pursuing such policies puts American jobs at risk.
