The Power of Exports

The world’s most successful civilizations have been built on the strength of their exports.

In today’s political climate, there is an underlying fear that across-the-board import tariffs proposed by Donald Trump could cripple not only the U.S. economy, but also the global economy. A prolonged trade war could break out between the world’s fiercest superpowers, the United States and China.

The fears are justified.

Because it is the largest exporter in the world, however, China has much more to lose from closed borders, which means that Xi Jinping will do his best to keep goods flowing from China to the U.S. In the presence of a strong will to smooth relations, China would be compelled to fix many of its flaws that have irritated western countries.

Although globalization has had plenty of positive impacts on the world, we are now seeing that it has its limitations. It has great power to improve the global standard of living, but it can only do so when countries have a mutual understanding of respect for their counterparts’ citizens.

As global leaders met in Davos, Switzerland for the World Economic Forum, some were undoubtedly defensive about globalism, but others understood that some companies’ elite positions have been largely enabled by taking advantage of the imbalance in incomes across the world, producing goods with the poorest workers and selling those goods to better-off workers. Automation is a convenient scapegoat for the associated job loss.

Photo credit: Cycling Man / Flickr.

Europe and the U.S. have sat idly as China has repeatedly failed to subject itself to the same rules of trade as the rest of the developed world. For years, inaction was encouraged. Multinational corporations were satisfied with the tectonic shifts in manufacturing because they were able to ride the wave of outsourcing and grow profits in the process.

The path to mending trade relationships begins with addressing the truth. China has already initiated a trade war.

China already taxes a wide variety of imports, according to data from the World Trade Organization. A brief survey of Chinese AV duties (VATs) on imports of manufactured goods shows that the country’s borders are far from open.

2015 data from the WTO.

By acting now, the U.S. can keep itself at peace and address underlying issues of commerce using moderate, dynamic tariffs rather than rifles.

Today’s Trade Winners

China, Germany, Russia, South Korea, and the Netherlands sit at the top of a list of the countries with the largest trade surpluses, and all of them have had enviable 15-year annualized GDP growth. While this doesn’t necessarily demonstrate causality between the two variables, there is a connection between the strength of a country’s exports and its economic growth.

Derived from World Bank data.

Like a family buying a house it cannot afford, our country will not succeed by buying more foreign goods than it can afford.