U.S. President Donald Trump's complaints over America's trade deficits with its North American partners shows a failure to understand or accept macroeconomic fundamentals, say trade experts from the University of British Columbia (UBC) Thursday.
Throughout the presidential campaign and in the first seven months of his presidency, Trump has blasted the North American Free Trade Agreement (NAFTA) as the worst trade deal ever signed. His foremost pretext has been that the U.S. is suffering from a major trade deficit with Mexico, and to a lesser extent, a deficit with Canada as well.
Last year, the U.S. exported 229 billion U.S. dollars in goods to Mexico and imported 294 billion U.S. dollars in goods from Mexico, a trade deficit of 64 billion U.S.dollars, according to U.S. census figures.
In that same period, the U.S. exported 266.8 billion U.S. dollars in goods to Canada, while importing 277.7 billion U.S. dollars in goods, a trade deficit of 10.9 billion U.S.dollars.
On Wednesday, U.S. trade representative Robert Lighthizer said in Washington that his team is aiming to completely overhaul the tri-lateral trade pact between Canada, Mexico and the U.S., and was looking for much more than just tweaks to the 1994 treaty.
"We feel that NAFTA has fundamentally failed many, many Americans and needs major improvement," he said.
Earlier this week, Canada's Foreign Affairs Minister Chrystia Freeland pointed out that NAFTA countries collectively account for one-quarter of the world's GDP, with only 7 percent of the world's population.
Trump's attacks on America's trade deficits ignores how integrated the three North American economies have become, and treats the pact as a competition instead of a mutually beneficial agreement, UBC trade expert Werner Antweiler told Xinhua on Thursday.
"There are people in the Trump administration, including the president himself, who just don't understand macroeconomics, and this obsession with trade deficits is misplaced," Antweiler said.
He said manufactured products, especially in the auto sector, are linked closely across borders, with parts crossing the borders several times during vehicle assembly.
The Trump administration runs the risk of harming state economies that rely on direct trade with Canadian provinces in the auto sector and other industries, he said.
"We actually see a very integrated auto sector," he said. "In that sense, it's not just the bilateral negotiation that is important, but it's also the extent to which the various U.S. players and the U.S. states that are involved will also put weight on the administration... to relent and actually not make anything worse for them."
Antweiler said eliminating a trade deficit with Mexico and Canada wouldn't necessarily create more jobs in the U.S., as Trump has claimed. Nor would tearing up NAFTA altogether.
"The labour market, as it is, trade only reshuffles jobs from one sector to another, and most of these jobs that the United States has lost over the years in the manufacturing sector, they have reshuffled into the services sector," he said.
"This trade negotiation was predicated on the idea (by Trump) that they have to regain in the United States manufacturing jobs," Antweiler said. "It's an illusion, because these jobs have simply vanished due to technology and not due to trade."
Given that NAFTA is 23-year-old, it's wise to update the pact to keep it aligned with technology and the modern, complex supply chain, said Tomasz Swiecki, an assistant professor at the Vancouver School of Economics at UBC.
"The auto industry is now so intertwined it is hard to imagine (NAFTA) coming apart without serious repercussions for productivity in all the countries," he said Thursday.
Swiecki also blasted Trump's "simple view" of bilateral trade deficits. "A (trade deficit) is a very irrelevant statistic in itself, especially in bilateral trade," he said. "When we are negotiating between three countries, we all buy and sell to each other, in the circle."
Trump has seized on trade deficits as political fodder because it makes it look like Mexico is ripping America off, he said. "I can see how this has some political appeal, facts notwithstanding."
If NAFTA falls apart, it would present a set-back for global trade, but would not be a fatal blow, Swiecki said, noting that the World Trade Organization framework would still be in effect for trade and potential disputes involving Canada and its trading partners.
"To be fair, I would say probably in this scrapping of Trans Pacific Partnership (by the United States) was a more important development, because it tells us something about the sentiment in the current U.S. administration, which is still the major player in international trade," he said.
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